Investing in Romania, is it a good idea?

[David howe]

Dear Nadia


I would like to be able to say you are wrong and contradict you. I have noting but total agreement for what you say. There is a serious need for town and countyry planning here. Moe than once I have said that Prince Charles would have a heart attack if he wee to see some of the designs etc.

It will change eventually, lets just hope it is not to late.


David Howe LLB. LLM


INVESTMENT ROMANIA - Investment in Romanaia, Property management, Due diligence, Renting in Romania

 

[Transylvania Investment]

Transylvania is not only Cluj!

I agree to you re Cluj! It's madness to build a 11 floors building in a houses area with 2 floors level of height according to the urban development plans. But the big developers have it their way, just as it happened with Ireland a few years ago.
I however disapprove the entire Transylvania region is a subject to herendous development. There are many off-plans in Brasov that are pretty nice, in Sibiu they preserved the town very well, in places like Oradea or Arad the things will start to look better, in Sighisoara the renovation program already started, etc.
I think Bucharest is far worse from this point of view and still it's very tasty regarding real estate investment.

I have been visiting Transylvania regularly since 2005. I bought an apartment and a piece of land (the same one I cannot build on for some reasons) in this fabulous region of Romania. I am outraged at the metamorphosis of the urban landscape in the area. Do the developers know that they are disfiguring their towns?Have they got any idea of what they are building? It's a urban tragedy; municipalities have no control over the building permits enforcement (except when it's a foreigner trying to build a "home"). I am so sad to see those pointed roofs tearing the skies of Cluj apart...I am disgusted by the rows of project houses that are supposed to look better than the communist era buildings...well, I don't think so, they are as ugly believe me! I have pictures to prove it if someone challenges me. Romania is following the path of "Concrete Bubble" (another nickname for Dubai). Speculation oblige!!! Sorry if I sound "blasee"...I am.

 

[brigon]

HI

I would be very interested in any information you could give us on this "Company" thing in Romania. We are buying a house in the Sydney Development in Tunari just outside Bucharest on the way to the airport and a lawyer have just contacted us in relation to setting up a company... cost 1400euros. He had failed to mention accounting costs etc. and all the tax information too.
We would greatly appreciate info on credit in Romania as a non-resident and how we can buy in our own name

Many thanks

Your company setup price is way out of line, to be honest double, accounting etc is not that difficult nor expensive. Regarding your mortgage you can easily get 75%LTV on your own name as non-res. just have to send all paperwork notarized and some also with apostille (the Hague) and translated, banks are happy to hold mortgage. Rates are more then anywhere else in europe, but that will hopefully come down.

 

[brigon]

2.5%

Hi David,
This week a friend in Bucharest wrote that he is attempting to purchase an apartment. He was approved for a loan of 75,000 euros, but at the last minute the bank told him he needs to pay 2.5% of the loan in advance, could I help him? Are purchasers normally required to pay 2.5% in advance, and is 75,000 euros a reasonable cost for a 2-bed apartment. Thank you for your help.
Mark

HI, you are referring to the commissions (2.5%) loan approval and is fairly normal that banks charge this upfront, when you (your friend) did the loan application it is all explained
Regards,
Brian

 

[brigon]

David,

I wrote to you on this yesterday but the guys here deleted my response. I can easily offer you better alternatives than 210000 EUR for 145 sqms construible. All new, and actually detached villas.

Totally agree with you, 1448E/m2 construction is still over priced, but all depending on the finished quality. But knowing the developers if they use marble floors, you will end up with a cheaper windows.
If you are really interested in investing or buying, buy land and construct yourself and only pay 700E/m2 for high quality finishing
Regards,
Brian

 

[brigon]

Actually, it may be possible to buy an apartment in Bucharest for this money. Obviously will be the end range of the market and in some bad condition. And for this I would NOT advise the purchase. If not exactly Bucharest city then again chances are even higher, since in the suburbs there still are offers in that range.

However, if you extend your search outside Bucharest then you can then buy a NEW 2 bed one in other cities. From Mark's message is not quite clear where his offered apartment actually is. That's why it is important that Mark uses a property professional to guide and help appropriately.

Marks friend might have been the smarter ones in Bucharest, "The Scenario":
Sell you apartment in Bucharest and bank/invest the money for a good return. Then move outside the City and buy same size and maybe quality for half the price or much less. Depending on apartment refurbish etc, and go on a holiday and enjoy.
just some thought.
Brian

 

[David howe]

Your company setup price is way out of line, to be honest double, accounting etc is not that difficult nor expensive. Regarding your mortgage you can easily get 75%LTV on your own name as non-res. just have to send all paperwork notarized and some also with apostille (the Hague) and translated, banks are happy to hold mortgage. Rates are more then anywhere else in europe, but that will hopefully come down.

With all due respect Brian, mortgages here are not eaily gotten for foreigners and no one should enter into a contract before receiving written guarantee. Bank managers will promise you anything you want with the famous Romanian phrase of 'No problem' then show how incompetent they are when it comes to delivering.

Mortgages are also not available for companies unless proof of income and self employed people will not be considered.

Bottom line, mortgages are not simplistic and we have numerous clients who are testament to this.

On taking into consideratin the above, it can be done, but anyone entering into a pre-contract and reliant on a mortgage must have a clause subject to finance or they will lose their deposit


David Howe LLB. LLM

www,investmentromania.com

 

[Transylvania Investment]

Attention! The requirements for credits offered by banks in Romania to private persons are very different than those for companies!
It is best to find out about it BEFORE someone tells you to buy on the company is the best move.
As for credits for foreigners, the offer is very limited at the moment for non residents and due to the crisis on the financial markets we will see more restrictions in the future. Honestly (even if that would turn into a risk for our business) I agree with these restrictions as it is not desirable for Romanian banks to have clients who often have credits all over the world, but claim not to have any and are at some point unable to pay the mortgage. Banks should not turn into real estate agencies, having to cope with all sorts of off-plan developments which suddenly enter their full possession. These speculations also put the price up for the locals, who can't afford a home anymore. The result is nobody profits from these games, most of the time the speculants also have to lose, except for the ones who were there first.


Elie Katz
Transylvania Investment Partner

 

[brigon]

With all due respect Brian, mortgages here are not eaily gotten for foreigners and no one should enter into a contract before receiving written guarantee. Bank managers will promise you anything you want with the famous Romanian phrase of 'No problem' then show how incompetent they are when it comes to delivering.

Mortgages are also not available for companies unless proof of income and self employed people will not be considered.

Bottom line, mortgages are not simplistic and we have numerous clients who are testament to this.

On taking into consideratin the above, it can be done, but anyone entering into a pre-contract and reliant on a mortgage must have a clause subject to finance or they will lose their deposit


David Howe LLB. LLM

www,investmentromania.com

Mortgages in Romania are no different then any other country when being a foreigner. Banks need to have their security for payment of the installments.
I agree totally that Romanian banks are more difficult, mortgages being fairly new to the market here.
Company wise, it is only logical, that newly formed companies will not be considered, not having any income to pay the mortgage. Its like a natural person without a job.
But for foreign investors their are many other possibilities to obtain a mortgage in Romania, and with better interest rates.

 

[zackn]

question about VAT and bare land in Romania

Hi there,

I wonder if VAT is applied to bare land when i have a compnay and resell the land to private individuals.

Do I have to charge VAT - if yes this is very bad as I have to be less competative than other private sellers.

thank you

I've heard many foreign investors saying they need to set up company in order to buy land in Romania. Most of the advisers in Romania teach them this is the only way to purchase land here. However there are serious reasons NOT TO form a company in Romania.
Reasons not to set up a company to buy residential property in Romania.

1. Rates/Council tax whatever you want to call them are 0.5% per year if you buy land in your own name. If you buy through a company they are 1.5%. This will equate to 1% of any gross rental income and probably close to 1.5% net rental income.

2. Costs for doing the accounts for a company will cost you in the region or in excess of 100 EUR per month.

3. Company formation is about 500 EUR and terminating the company will run you into into another 1500-2000 EUR.

4. When you sell as an individual you will be subject to 2% tax on the selling price, this is also applicable to a company. However, as an individual this is all you pay.

5. Additionally as a company you will have to pay 19% VAT on the sale price.

6. As a company you then pay an additional 16% on any profit made on your investment.

7. Then as a company you pay a further 16% on your dividends when you go to take your own money out of your own company.

More to what I've said before:
Buying residential property by setting up a LTD company is economic suicide. The idea is: set up company here ONLY if you consider doing business in Romania.
If you buy a property just to rent it or resell it when its value is rising, don't create a company here just to get the land under the building or if you buy land, the land itself. It's simply too much hassle. The last thing you want is to have to deal with accountants (here the accounting system is very complicated and good accountants are very important, rather hard to find and don't come cheap). Besides, to get over with the company takes a loooong time, so the costs are not only in terms of money, but also in terms of time.

I can tell you the ways on which you CAN buy in your own name.

The regions you want to invest in are around Bucharest, however your budget might prevent you to invest there, or Transylvania.

You can also ask for credit in Romania even as a non-resident citizen.

 

[David howe]

Hi there,

I wonder if VAT is applied to bare land when i have a compnay and resell the land to private individuals.

Do I have to charge VAT - if yes this is very bad as I have to be less competative than other private sellers.

thank you

Zack I wonder are you asking the question for sympathy or do you not understand what is written By Diana. I think she clearly outlines the repercussions applicable for you.

David Howe LLB. LLM

INVESTMENT ROMANIA - Investment in Romanaia, Property management, Due diligence, Renting in Romania

 

[Karl Wilkinson]

Zack...did you finally get your head around the financial and legal issues involved in purchasing land in Romania....I was just wondering if you or your fellow investors have decided to invest after your several due dilligence and fact finding visits? If you are still interest to discuss you can still contact contact me.