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What a foreign investor should know about investing in Romania’s land market

What a foreign investor should know about investing in Romania’s land market

The real estate market in Romania becomes increasingly attractive especially for foreign investors, such as investment funds, real estate developers, banking institutions, end-users and other entities looking for new business opportunities with increased economic efficiency.

In Romania, the dynamic agricultural market keeps providing better yields to the foreign investors than in other EU countries. Given their growing interest, the representatives of the real estate agencies estimate that the agricultural market will be extremely dynamic in 2016 and 2017 will be an equally dynamic in this market, which current average trading prices range between 2,000 euro / ha and 7,000 euro / ha (in the western part of Romania).

SHORT HISTORY ON LAND ACQUISITION BY FOREIGNERS IN ROMANIA

Before the amendment of the Romanian Constitution in October 2003, foreigners, either natural or legal persons, were not allowed to acquire ownership over real estate in Romania.

According to the same, solely individuals with Romanian citizenship and/ or Romanian companies were able to acquire the ownership right over any real estate (including agricultural). How did then foreigners acquire the control over the (agricultural real estate)? Practically, subject to the legal provisions in force, foreigners would incorporate a company in Romania, which they would control, company which would acquire the ownership right over the said (agricultural) real estate.

As of 2003 the revised Romania Constitution allows foreign and stateless citizens to acquire the ownership over (agricultural) real estate pursuant to the conditions imposed by the Romania’s accession to EU and to other international treaties to which Romania is a party based on reciprocity, in the conditions provided for by Romania’s legislation, as well as through legal inheritance.

Consequently, Romania’s accession to EU on 1st of January 2007 triggered the entering into force of Law no. 312/2005 regarding the acquisition of ownership right over real estate by foreign persons, whether natural or legal and persons without citizenship (Law 312). Law 312 represents Romania’s commitment to grant to its citizens and to the citizens of EU countries the same treatment, on a reciprocity basis.

Each real estate project has particularities and effects which sometimes exceed Romania’s borders. Therefore, each and every investor should seek independent professional advice before making any kind of investment.

We have summarised below the main aspects that any investor should consider before making an investment in Romania’s real estate market.

ACQUIRING OWNERSHIP OVER LANDS BY CITIZENS OF THE STATE’S MEMBERS OF THE EUROPEAN UNION/THE EUROPEAN ECONOMIC AREA AND BY LEGAL ENTITIES HAVING THE NATIONALITY OF SAID STATES, AS WELL AS BY THE STATELESS CITIZENS DOMICILED IN A MEMBER STATE OR IN ROMANIA

  • The citizen of a member state, the person with no citizenship having his/her domicile in a EU member state or in Romania, the legal entity established in accordance with the legislation of a member state, may acquire the ownership over real estate in the same conditions as those provided for Romanian citizens/legal entities according to the legal provisions in force.
  • The citizen of a member state, non-resident in Romania, the person with no citizenship, non-resident in Romania, having his/her domicile in a member state, the non-resident legal entity, incorporated in accordance with the legislation of a member state, may acquire ownership over lands for secondary residences (secondary corporate seat, respectively) following a five (5) years’ period after the date of Romania’s accession to EU – as of 1st January 2012.
  • However, the said provisions do not apply to the farmers who carried out independent activities (i.e. any individual who carries out an agricultural or forest-related activity, in view of obtaining vegetal or animal agricultural products, as well as storing activities, activities of processing of the products obtained from their own activity, or who perform an activity in view of obtaining wooden or non-wooden products out of forest resources and attested by documents issued by the relevant authorities from the state of origin/ or by the Ministry of Agriculture, Forests and Rural Development for persons having their domicile in Romania) and who are either (i) citizens of EU member states or persons without citizenship having their domicile in a member state, who set up their residence in Romania, or (ii) persons without citizenship having their domicile in Romania.
  • The said persons shall obtain the right of ownership over agricultural lands, forests and forest lands in the conditions applicable to Romanian citizens, as of the date of Romania’s accession to EU.

ACQUIRING OWNERSHIP OVER REAL ESTATE BY FOREIGN CITIZENS, PERSONS WITHOUT CITIZENSHIP AND LEGAL ENTITIES BELONGING TO THE THIRD PARTY STATES / STATES THAT ARE NOT MEMBERS OF EU, NOR OF EUROPEAN ECONOMIC AREA

  • The foreign citizen, the persons without citizenship and the legal persons belonging to the third party states may acquire ownership over real estate, pursuant to the conditions provided by international treaties, on a mutual basis, but those conditions should not be more favourable than those applicable to the citizens of EU member states and to the legal entities established in accordance with the legislation of EU member states.

PRELIMINARY ASPECTS TO BE TAKEN INTO CONSIDERATION

Even if real estate representing private property, regardless of purpose is freely transferable pursuant to the provisions established by Romanian law, there are certain preliminary aspects which need to be checked before any transaction concerning the respective real estate is performed:

  • Checking the regime of the real estate (agricultural lands, forestry land, etc.).
  • A pre-emption right must be granted in certain cases.
  • The transfer of the ownership right over forestry land and/ or agricultural land/ and/ or plots of land where monuments are constructed, is subject to a pre-emption right, as provided by the Romanian legislation.
  • Certain limitations to the free acquisition of real estate are regulated by specific restitution laws (i.e. Law. 10/2001 on the legal status of real estate assets abusively taken by the State during 6 March 1945 – December 22, 1989 and Law 247/2005 on the reform of property and justice, as well as some additional measures.
  • Other aspects depend upon the real estate concerned and various particularities such as: the type of the real estate (agricultural or for construction purposes), the successive transfers of the ownership titles, encumbrances, pending or threatening litigations etc., registration with the land book registry.

CONCLUSIONS:

  • Currently, foreign citizens (whether citizens of EU countries or else) may acquire the ownership over real estate in Romania pursuant to the conditions established by the Romanian legislation and/ or by the treaties Romania is a party to.
  • Considering the legislative framework and the current business environment, Romania remains an attractive destination for foreign investments in real estate market.
  • Even if the investments in the Romanian real estate market may generate a good rate of return, it is advisable that prior to the development of a real estate project (including any acquisition of such kind), an in depth legal analysis is performed. In this case, the investor is aware of the risks which might generate the loss of profits or financial losses.