Although the Romanian real estate market seems to have slowed down in January 2022, the house prices in Romania are already significantly inflated, in some cases by tens of thousands of euros. This is the general conclusion of economic analysts on Romanian market.
Romanian real estate market slowing down in 2022?
Number of homes sold on Romanian market decreased in January 2022, from approximately 75,000 homes sold in December 2021, to a number of more than 50% lower. This is also a significant decrease in number compared to January 2021. More exactly, in numbers the decrease is of over 9,000 homes sold, according to the Romanian Cadastre Agency and Real Estate Advertising.
Market analysts say that the start of a year is generally slower, as potential clients are not actively looking for buying apartments, as the month comes after the winter holidays. Many people are still on vacation for first half of January. Nevertheless, even if number of transactions is generally much lower at start of each year, in January 2022 a historic minimum was recorded.
The slow-down is also due to the recent increase in interest rates operated by most Romanian banks, according to market analysts. People are becoming more aware, and highly concerned, of what a 30-year loan means, considering the already increased bank interest rates.
Although banks do simulations, calculating mortgage rates that clients are due on monthly basis, people become aware of the financial efforts they must bear only when they actually pay them. So, from this perspective economic analysts say that fewer and fewer people in Romania can also afford to buy a home. This context is also aggravated by the increase in energy prices – i.e., fuel, gas, food, raw materials, etc.
House prices in Romania already overvalued in 2022
Although the real estate market seems to slow down, it is in the same time highly overvalued, say the analysts. The price of an apartment is, in many cases, with tens of thousands of euros higher than it should actually be.
Economic analysts say there are situations where an apartment of 50 to 60 sqm in Bucharest is sold for a price between 100,000 and 110,000 euros, and a similar one in Cluj-Napoca can be sold for up to 130,000 euros. Analysts say that in both cass, the value of such an apartment would actually be with approximately 30,000 euros less.
Analysts say that people buying a house really need to be aware of the real value of that asset. If a similar apartment was sold at a similar price, this doesn’t mean that’s the market value.
The value of any asset is given by the value it can actually produce for the owner. In the case of a house or an apartment, we have to look at income produced under the form of rent. So, people should think of this in terms of how much they could make from renting the asset, even if they do not plan on renting it out.
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The income you can generate from rent is what actually establishes the market value of a real estate. So, to determine that, one should first determine the monthly rent that could be collected from it, and multiply it by 12 (months) o determine the annual rental income. Then the annual income should be multiplied by 15, to determine the estimated income the asset can produce in 15 years.
Analysts say that the owner should always be able to get the investment back in 15 years. Then, from the entire income determined, you should deduct approximately 20% as maintenance and tax costs, and the probable gaps when the asset would not have a tenant.
If you do this calculation and determine that the net income determined is much lower than the price you have to pay for the house, you’ll know that the house is overvalued.