Real Opportunities in Romania
→ Eva Hegedüs-Brown
Before its accession to the EU on 1 January 2007 (and its consequential acceptance of the four freedoms of movement of persons, capital, goods and services), there was a comprehensive prohibition on non-Romanian nationals owning real estate in Romania. Since then there has been an incremental liberalisation of property owning rules, but some conditions remain, and at least one major anomaly appears to exist related to the free movement of capital for property investment.
The possibility of buying and owning real estate is a key consideration for long-term inward foreign investment, whether for the manufacturing or retail industry, or for capital investment on the commercial or individual level. Most countries protect or circumscribe such rights for both political and economic reasons at the national level, but the EU doctrine of the four freedoms has led to greater opportunity in Romanian real estate.
Land ownership by EU foreigners
In preparation for EU accession, Romania started by permitting property ownership by resident foreigners from an EU member state. Residency has been defined as:
- a foreigner who has the right of residency (drept de rezidenţă); or
- a foreign legal person who has at least a secondary seat in Romania.1
The wording of the first condition is ambiguous, but common sense would suggest that, to own property, the “right of residency” is actually being exercised. This common sense view is reinforced by EU Directive 2004/38/EC, as adopted by Romanian Government Ordinance 30/2005, which states that the right of residency exists for EU citizens who, in the host member state:
- are workers or self-employed there;
- have sufficient resources so as not to be a burden on the social assistance system; or
- are undergoing approved courses of formal education there and have “sufficient resources”.2
Thus, EU citizens who fulfil these criteria and are deemed a resident are entitled to own Romanian land.
This does not mean that non-residents were completely excluded. It has long been the case that foreigners who are not resident in Romania may own buildings and superstructures (ie, houses, apartments, offices, factories), but not the land on which the buildings sat.
No more need to set up a company
The solution to this conundrum has been to set up a Romanian registered company to hold title to the land. In practice, larger companies will normally create a local subsidiary for practical and economic reasons, so establishing a locally registered company has caused little additional inconvenience (despite the further expense and investment on top of the property costs).
This year, however, after a five-year transitional period, this situation changes for citizens of the EU/EEA who wish to “acquire ownership title to land for establishing a secondary residence or a secondary company seat.”3 So companies and individuals from the EU/EEA are now able to purchase land for a “secondary” residence or seat without the need to set up a locally registered company.
Another milestone: Agricultural and forest land
Another milestone will occur on 1 January 2014 when legal and natural persons of the EU/EEA will be able to own agricultural and forest land whether or not they are resident in Romania.4 Given the significant investment in such land by international enterprises and investment groups, both in Romania and other more recent EU member states, this is likely to have a positive impact on real estate market performance.
Missing: Free movement of capital
So it is now possible to own land in Romania either by becoming a resident or by having a secondary residence or company seat there while, from 2014, ownership of forest and agricultural land will also be open to non-residents or to those without a secondary residence.
But one category of potential ownership appears to have eluded the legislator. The Free Movement of Capital doctrine implies that a citizen in one EU member state may make a capital investment in another without additional obstacles or barriers. But the Romanian rules as they stand appear to bind real estate ownership (other than agricultural or forest land post-2014) to the concept of residence. A non-resident purchaser must still register a local holding company in order to hold title to land.
Many international commercial groups have already seen Romania’s investment potential, and the high level of pre-crunch real estate prices suggests that there will be a significant opportunity for future growth as economies recover. The Romanian economy may have its difficulties, but in 2011 Romania’s GDP grew an estimated 1.7% after adjustment for inflation (www.indexmundi.com). That was almost the same as France and far above Spain and Italy over the same period.
Of course, this optimistic picture must be tempered with legal caution and the services of a reputable lawyer are highly advisable to help steer a prospective buyer through the changing legislative landscape. For instance, discrepancies in the cadastral records and conflicts with the land registry are not difficult to resolve, but can cause unexpected frustration. Land registries are locally maintained and are still far from comprehensive – so searches can require personal visits to the relevant municipal office. Law firms with the necessary expertise and experience are well versed in helping clients overcome these challenges.
The Romanian economy may have its difficulties, but in 2011 Romania’s GDP grew an estimated 1.7% after adjustment for inflation. That was almost the same as France and far above Spain and Italy over the same period.
- Law 312/2005.
- EU Directive 2004/38/EC “On the right of citizens of the Union and their family members to move and reside freely within the territory of the member states” and integrated into Romanian legislation with Government Ordinance 30/2005, Article 7. For persons staying less than three months see Article 6.
- Article 4 Law No. 312/2005.
- Article 5 Law No 312/2005.