Understanding post-Soviet home ownership and property management in Romania
A little-known fact about Romania is that it has the highest rate of private homeownership of any country in the world. According to 2021 Eurostat data, in Romania, there is a 96% rate of homeownership in which the owner lives in their own unit. And yet, professional property management of condominiums is practically nonexistent.
Even those who do rent often see it as a temporary solution on the path to homeownership. This perpetuates the need for many Romanians to apply for mortgages, even those who feel they can’t afford one. Many younger Romanians, seeing a mortgage as their only path, opt to stay in the family home longer, resulting in overcrowded cities, with multiple generations often living in one apartment.
Pains of the past
For Romania and its real estate market, 1989 was a pivotal year. The Soviet Union collapsed, and along with it, the Ceaușescu era. As Romania had been under the Soviet
yoke for decades, the housing supply mainly consisted of state-owned apartment blocks. Nicolae Ceaușescu, the communist leader of Romania from 1965 to 1989, ruled the country with authoritarian control, often resulting in vast housing shortages with long-lasting effects. These supply troubles lowered Romania’s overall living conditions, including within the properties where most people lived.
Mahmoud Turkmani, CPM®, points out that the conditions of existing residential buildings were further weakened in March 1977 by an earthquake that struck the capital city, harming the residential sector. “After the earthquake, affected buildings were categorized according to their level of structural risk, which continues to this day,” says Turkmani, who has worked in the Romanian real estate market for over a decade and earned his CPM in 2018.
Ceaușescu’s regime and the earthquake left Romanians in weakened housing, but living under communist rule had cultivated a growing desire for private homeownership among Romanians. In 1990, they were given a chance to buy out their current units at a significantly reduced price; most people rushed to snap them up.
Conditions of the condominium market
The legacy of communist construction practices continues to plague many condominiums on the market today. According to the Romanian National Institute of Statistics, 90% of the housing in Bucharest was built before 1989. The communist building model is seen throughout the former Soviet Union, where, to increase housing supplies, large apartment blocks were regularly constructed quickly and of mostly low-quality prefabricated elements. The Romanian government has since been following a long-term plan to assess and rehabilitate these older buildings. In the larger Romanian cities, newer construction options became available during a period of extensive development between 2010 and 2015. However, many of these older buildings still exist, and some are not well maintained.
Despite outdated facilities and troubled thermal insulation, one advantage these older buildings have is their location. Newly built apartments provide modern HVAC, greater energy efficiency, and more modern common areas and amenities, but they may not be as centrally located. Therefore, the price of older apartments depends mainly on the building’s location and structural risk category. “Rehabilitated buildings are more attractive and are showing some appreciation. Over time, the decreasing demand for older apartments should lower their value. This will finally make demolishing Romania’s older multifamily properties and building new modern ones financially feasible,” says Turkmani.
Property management in Romania
While conditions seem ripe for professional property management to take root, the profession remains not very well known, especially for condominiums. “I don’t think the Romanian market understands what professional property management really offers and how much it can help,” says Emanuel Istrate, who has been a real estate agent in Bucharest for seven years and became a REALTOR® in 2020. “As a result, hiring professional property management is a tough sell to Romanian homeowners. Romanians have gotten so used to managing all their properties themselves that they aren’t willing to pay for this kind of service.”
Nonprofit owner associations exist in Romania and are legally recognized to represent the interests of condo owners. However, condominium associations differ greatly between older and newer construction, according to Istrate. He says many of the associations in older buildings are ineffective, and it’s challenging to maintain common spaces or take care of large-scale repairs. “Residents in older buildings aren’t interested in keeping up the building and don’t care much about who is running the association.” Istrate hypothesizes that’s why property management is not more popular in Romania for condominiums. “People got used to these older buildings the way they are and don’t want to invest the funds needed to improve them,” he concludes.
Istrate does note that this isn’t the case for commercial property management, where there is greater acceptance of hiring outside firms. Turkmani agrees, saying, “The demand for property managers is still far greater in the industrial and commercial sectors than residential. Usually, small- to medium-sized companies prefer handling the property and facility management work in-house, usually to control costs better.”
Turkmani notes that even when a company grows, the owners often still prefer keeping the property management team internal, while the facility management services get outsourced. “Usually, the fee for facility management services is calculated per square meter, which allows for more stable and predictable costs for these owners,” Turkmani says. “That’s a big advantage since they can negotiate better prices and provide more competitive rental rates.”
Changing needs for homeowners
Over the last several years, Romania’s economy has been improving. According to a recent Cushman & Wakefield, AMO®, report, Romania was the only country in its region to record year-over-year growth in 2020. Turkmani observes that the residential sector witnessed a major drop in demand for properties located in the city center during the beginning of the COVID-19 pandemic, but now that demand is already back up to pre-pandemic levels. Prices for the residential sector remain incredibly high, but the effects of recent interest rate increases throughout global financial markets have yet to be fully priced in.
As investment activity increases and homeownership remains the common goal, Istrate foresees third-party management of condominium properties becoming part of the new normal. “I think the work-from-home mentality in Romania is here to stay. This means people are looking for bigger houses, leaving some office buildings empty. With all of these conditions in place, one would expect property management’s public reputation to get a big boost.”’
As homeowners better understand the value of professional property management, the demand for management services will increase, improving the country’s overall standard of living. Turkmani concludes: “Property management has been evolving a lot in Romania for the last few years, and I foresee it soon becoming a well-known and respected profession.”
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Understanding post-Soviet home ownership and property management in Romania