Residential construction is gaining pace in Romania. In Q1 2015 there was commissioned 9,232 dwellings across the country, exceeding the figure recorded during the same period a year earlier by 11.6 percent. It is worthy of note that this result was the best performance in six years, though still 15 percent less than the record set in 2008.
The same positive trend is observed when permits are analysed by area. The figure for 2014 was 7.4 million sqm, 4.8 percent more than that of 2013. The downward trend in the total useful area of residential property for which construction permits were issued levelled off in 2013, and is expected to maintain upward momentum in the coming years, supported by the low base effect and an on-going economic recovery.
The major driver behind the recent surge was the revival of residential construction activity in urban areas. Analysing the results for Q1 2015 there can be seen an impressive improvement in urban projects. In Q1 2015 in urban areas were put into use 18.9 percent more dwellings than during the same period a year ago while in rural areas were activated only 4.1 percent more houses. A more dynamic recovery in the urban residential construction sector is being supported to an important extent by the Prima Casa government support programme for mortgages.
The bulk of homes in urban areas are blocks of flats built between 1960 and 1989 and made of large pre-cast concrete panels. The wastewater pipes and water supply systems of many of these are in need of substantial improvement. It is estimated that there were 4.82 million homes in urban areas at the end of 2014, with only about 362,000 residences being activated in cities and towns between 1994 and 2014, which is less than 8 percent of the existing stock of property. Furthermore, it is estimated that the country’s urban housing stock expanded to 228.5 million sqm in 2014, and that only 24 million sqm were built between 1994 and 2014. The country’s improving macroeconomic conditions, mirrored by more dynamic increase of individual purchasing power and the mounting financial and property markets, are expected to fuel a more robust recovery of the residential construction market in the near future. Furthermore, the average per capita useful floor area in Romania is estimated currently at about 28 sqm, which is below the level recorded in many European countries, where the figure exceeds 30 sqm, thus providing an additional growth driver.
By analysing these statistics it appears that the residential construction market in Romania has considerable potential. We expect that in 2015 the number of construction permits issued in rural areas will also resume growth. The rural residential construction market is largely driven by funds earned by Romanians working in EU countries. As GDP growth is expected to gain ground in these countries in 2015 and to gain pace in the coming years, it is probable that the upward trend in the figures for the rural residential construction market in Romania will return, after the positive growth numbers seen in urban areas in the last few years.
Given the fact that urban residential projects are typically developed over several years, combined with the fact the Romanian economy is likely to expand by more than 3 percent in the next few years and including the expectation of economic recovery in the Euro area, developers should feel encouraged to increase residential construction activity in Romania in the short term.
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