IL Postcard

The Best Way to Buy in Romania

Date: 01/25/2008

Saturday, Jan. 26, 2007

Read more about investing in international real estate in International Living Postcards—Saturday Edition

Last week, I wrote about investing in Bucharest. A couple of readers who own real estate in Romania took issue with the following statement:

“While foreigners can’t own real estate directly in Romania, setting up a Romanian corporation to hold the property is straightforward. And the corporation can be owned 100% by a foreigner.”

They wrote in to say that they own apartments in Romania in their own name. While I am sure they believe they own their apartments in their own name, I went back to my contacts in Romania to clarify the situation.

The distinction is that foreigners cannot own land in Romania. However, foreigners can hold title to a structure directly in their own name. But what’s the point of owning the building that sits on a piece of land without owning the land? Of course you want to own the land, as well...so you need a corporation to hold the land. Rather than having two separate titles—one in your individual name to hold the house and one in the name of a Romanian corporation to hold the land—use one corporation to hold everything. It’s simpler...and it’s safer in the long run.

The readers who wrote in probably do hold title to their apartments in their own names, but they don’t likely hold title to their shares of the land that the buildings sit on. This shouldn’t be a big problem as long as you hold the property, but it could become an issue when you go to resell. If you don’t have proper documentation for the land from the previous owner, then you may have trouble selling the apartment.

A power of attorney from the original seller giving you the right to sell the land is one alternative that works according to my contacts in Romania. However, it isn’t clear that this method would continue to work through a string of future foreign buyers and powers of attorney.

The best thing to do is to use a Romanian corporation. It isn’t that expensive and there are potential tax advantages should you decide to rent out your property. You can reclaim VAT on purchases for the apartment if you own it in a corporation. However, as always, I’d recommend seeking advice of a local tax expert.

Local idiosyncrasies are one reason you should use a local attorney when buying real estate overseas. Speak with other investors to get a feel for the market and the rules, but always confirm things with your own attorney...and mine says as a foreigner you should hold your Romanian property in a Romanian corporation.

Lief Simon
For International Living

P.S. One reader who wrote in told me about the apartment he bought in Cluj in 1991. Over 16 years, its value has increased 10-fold. That’s a 13.5% annualized rate of return. However, if he continues to hold on to the apartment, I predict he’ll enjoy at least a few more years of double-digit appreciation. Though, if I were him, I’d want to verify that I own not only the apartment...but the land the apartment building sits on, as well.

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