House prices may outpace earnings growth, but buying conditions are favorable for Romanians

As housing approvals decline and demand rises, the Romanian real estate market is poised for potential price increases that may outstrip average earnings growth. Colliers’ consultants warn that if current trends persist, residential property prices could see a return to double-digit growth, particularly as inflation decreases and wage growth continues.

Despite facing challenges like limited supply and high interest rates, the desire to buy remains strong. “Relative to incomes, Romanians are experiencing one of the most favorable periods in history to purchase a home,” said Gabriel Blăniță, Associate Director of Valuation & Advisory Services at Colliers Romania.

In the first half of 2024, major cities reported a notable rise in residential sales compared to the previous year, with Bucharest seeing a 22% increase. Data from Eurostat indicates that consumer confidence regarding home purchases remains high, although it has slightly declined from record levels. Factors such as accelerating wage growth and anticipated interest rate cuts by the central bank are creating a conducive environment for buyers.

Currently, house prices are rising at a single-digit pace, slightly below the average wage growth of around 13% annually, suggesting improved affordability. However, Colliers reports a decrease in residential project permits across the country, particularly in Bucharest, attributed to administrative issues and cautious developer sentiment.

In 2023, total residential deliveries saw a slight drop from the previous year, with approximately 71,000 units delivered compared to 73,000 in 2022. Interestingly, urban deliveries reached a new record, while rural areas experienced declines.

Preliminary data for 2024 indicates a significant reduction of about 20% in housing completions, with only 26,000 units delivered in the first half of the year, down from 32,000 last year. This slowdown reflects ongoing caution among developers amid economic uncertainties and high interest rates.

Looking forward, economic forecasts for 2024 have been downgraded, with Romania’s growth in the first half of the year falling below 1%. Factors such as decreased private consumption and challenges in key sectors like IT and industrial production are influencing this trend.

While the conditions for long-term growth remain intact, concerns about short-term impacts persist. “The housing market’s resilience could be tested by slowing economic growth and external demand,” Blăniță cautioned. He emphasized the importance of prudence for buyers considering long-term investments in light of these challenges.