Colliers: The private rental sector is expected to grow in Romania in the coming years, driven by the high overcrowding rate
The private rental sector (PRS) sector is expected to grow in the CEE region as construction costs and inflation increase and overcrowding rates are higher than in the rest of the European Union (EU), reveals Colliers in his latest “The private rental sector: has it found a home in Central and Eastern Europe?»Report in collaboration with Greenberg Traurig and Kinstellar. Romania has the highest overcrowding rate in the EU, and although private ownership is very high, rising house prices and building costs make it harder for people to own a bigger house, resulting in significant growth in the private rental sector.
Home ownership in Romania is at the highest level in the EU. According to Eurostat statistics, around 96% of people own the property they live in, but some estimates cited by the Ministry of Development put the figure of rented apartments up to 20% of the total stock in large cities like Bucharest. and Cluj-Napoca. . There is a cultural bias to this choice as much as there is an economic reason. For a very long time, mortgages were more affordable than rents. In Bucharest, a monthly mortgage is on average 12% cheaper than the monthly rent, a level comparable to Warsaw or Sofia. For comparison, rents in Prague, for example, are more than 40% cheaper than a mortgage.
The overcrowding rate in Romania, based on room availability per person and average household size, was 45.8% in 2019, followed by Latvia (42.2%) and Bulgaria (41.1% ). Data suggests the majority of households in central Europe are more overcrowded than the EU average, but the long-term European trend shows a gradual decline in overpopulation and CEEC markets continue to converge, according to consultants from Necklaces. This long-term development will lead to a supply gap, more housing will be needed, and from this new supply, Colliers consultants would expect rental properties to be a reasonable share, subject to change. strategy from more developers and investors.
The continued increase in selling prices is another driver for the private rental sector, especially as central banks have taken some steps to limit the expansion of mortgage lending in recent years in the CEECs. This is particularly visible in the Czech Republic, with over 50,000 units in the private rental stock, but Poland is just starting to catch up, with over 10,000 units planned or underway, adding to a stock of 5,000. units.
Romania lags far behind the leaders in the EEC, with just over 1,000 units built, under construction or planned, but Colliers consultants expect increased interest in the rental industry in the coming years. An expected increase in selling prices – induced in particular by rising construction costs – coupled with a decline in the affordability of home purchase loans is likely to strengthen the case of rental housing in Romania.
“Over the past 5 years in Central and Eastern Europe, selling prices have increased rapidly, including in Romania, in part due to a shortage of supply, relative ease and low cost of debt. In addition, there is a desire for people to invest, in order to earn more money on their savings than they would receive in the bank. All of these were drivers of rising prices and costs, a trend that will force many Romanians in the long run to move towards private rental, ”said Gabriel Blăniță, Associate Director Valuation and Consulting Services at Colliers Romania. .
From a developer’s perspective, for residential rent to make financial sense, projects must be designed, engineered and built specifically for the rental market. As a result, a lot of time and planning is spent on this, especially in terms of combining units and services or equipment relevant to the location and target customer group.
“The private rental sector also requires special attention to tenant services. Having a professional platform where tenants can talk to someone, register issues, and get feedback or a timely resolution is something that many players have already implemented or are striving to achieve. . Advances in modern technologies (PropTech) make this management increasingly effective and efficient, ”explains Gabriel Blăniță, Associate Director of Assessment and Consulting Services at Colliers Romania.
In the private rental sector, yields depend on location and would range from 3.5-4% in the Czech Republic to 5-5.5% in Poland. Best estimates place the average performance level for Bucharest’s residential sector in the 6-6.5% range, but may vary slightly depending on location, according to Colliers consultants.
“The private rental sector as an asset class is a relatively new phenomenon in the CEECs, and you certainly have less of it as you move further east. Part of this has to do with inheritance: Homeownership has always been extremely high in CEECs and reflected a mindset that one needed to own one’s home. This is no longer necessarily the case. As demographics change and prices steadily rise for development in congested areas, opportunities become scarce and many people are excluded from the home buying market, we expect this class of ‘assets set up in Central and Eastern Europe ”, explains Victor Constantinescu, Managing Partner. Kinstellar Bucharest, co-responsible for the Firm-Wide Real Estate practice.
According to Eurostat data, the cost of building new residences in the EU increased by 15% during the period 2010 to 2019. Among the CEE Member States, the most significant increases were observed in Hungary (+ 47%) and Romania (+ 46%). In this context, many developers in the region are not tempted to deviate from the construction model to sell individual units.
If we look at the trend in Eurostat house prices between 2011 and 2020, there is a steady upward trend in the EU since 2013, with particularly large increases between 2016 and 2020. In total, there are had an increase of 25% in the EU between 2011 and 2020 Some of the largest increases were observed in the CEECs, the largest in Hungary (+ 96%), with large increases in the Czech Republic (+ 61% ) and Slovakia (+ 52%), followed by Bulgaria (+ 37%), Poland (+ 28%) and Romania (+ 23%). Bucharest has some of the most affordable residential units in the EEC, with an average selling price of around 1,800 euros per square meter in new apartment buildings. For comparison, in Budapest and Warsaw the average price is around 2,600 euros per square meter, while Prague has the most expensive residential area in the EEC, at 4,700 euros per square meter.
Across Europe, the private rental sector is one of the types of property most sought after by investors. According to Real Capital Analytics (RCA), it is the second most invested asset class in Europe, with Industrial and Logistics coming third. The residential sector converged with a declining retail investment sector in 2018 with transaction volumes of approx. 50 billion euros. Volumes reached more than 60 billion euros in 2019 and 2020, demonstrating a strong investor appetite and its resilience in the face of the pandemic.