Romania’s construction works index edged up by 1.2% y/y in May after two months of negative annual growth rates, but the ytd volume of works this year still lags by 1.3% behind last year’s performance — which was 7.2% below the previous year’s index. Despite the very active developments in first-tier cities, the market is stagnating at around the same level seen over the past ten years since the recession put an end to the real estate bubble.

The central bank and the International Monetary Fund expressed concerns regarding the sustainability of the guarantees provided by the government for young families buying their first home — and indeed, the number of residential projects in the major cities, primarily Bucharest, have increased visibly and apartments are being sold in advance again as was the case before the recession. Projects worth €200mn were launched at the annual Timon annual event dedicated in Bucharest to the real estate segment. As opposed to other years, projects have been announced across the whole city, and both the upper and the lower end segments (in terms of location, but also price per sqm) had been approached so far. 

And yet, on average, the volume of works in the residential projects in Romania plunged by 25.8% y/y in January-May (-24.9% y/y in May). One year earlier, we were reporting 71% y/y annual growth for the same market segment.

Indeed, the base is particularly high after the major expansion of the market last year (the single major expansion episode in the post-recession period) when it soared by 70% y/y. Such growth rates cannot be sustained over long periods of time. But beside the high base, the gradual deterioration in consumer confidence, particularly in smaller cities and rural areas where the population is shrinking amid massive, mainly external, migration, also contributed to the sparser activity in the residential segment. Internal migration, particularly among younger age groups, is fuelling the rampant expansion of the first-tier cities. The demographics (and incomes, expectations and the whole economic profile) in major cities are visibly very different when compared to the smaller ones, despite the lack of accurate monitoring of the regional disparities.  

Civic engineering works edged up by 12.2% y/y ytd (+24% y/y in May) but the segment lags behind even the poor levels seen over the past decade. Indeed, last year the government cut investments and the volume of works in the segment highly dependent on the state dropped to its lowest level in the post-crisis decade. The slight improvement this year is thus far from the desired surge that would support major investment infrastructure projects.