Briefing Bucharest: ‘Juicy yield gap’ attracting investors to Romania

The growth differential and the yield gap are good reasons for investors to turn their attention to Romania, delegates heard at Real Asset Media’s CEE Outlook Investment Briefing, which was held in Bucharest last week.

‘There is a juicy yield gap between our products and those of all other countries, even in CEE,’ said Laurentiu Lazar, Managing Partner, Romania, Colliers International. ‘Compare the 5.6% record yield in 2007 before the crisis with 7-7.25 right now. All other countries, except Romania and Bulgaria, are below that. Romanian assets are very competitive, which is why I believe that after 5 year of stable 1 bn euros investments, this year we will do better’.

Economic dynamism is also a positive factor, as Romania’s GDP has been growing at about 4% a year for the last 19 years, while Europe has averaged 1.2%, he pointed out. ‘In terms of economic growth, this country is a very good bet for all investors,’ said Dimitris Raptis, Deputy CEO and CIO, Globalworth. 

Outlook 2019 CEE panel, Bucharest, February 2019

But the gap in prime assets is too big, he said: ‘In Warsaw yields are 4.75% which is an historical low, even lower than pre-crisis levels, while in Bucharest they are around 7%. Poland is a larger, more mature and more liquid market so there should definitely be a gap but I am not sure a gap of this size is justified, frankly’.

The yield gap will decrease in time but there are no signs it will happen in the immediate future. ‘The expectation in Romania is that the gap is really wide and over time yields will decrease, but it is not clear when that will happen,’ said Sergey Koynov, Director Investment & Asset Management, Lion’s Head Investments. ‘The reality is that in this market you can get great returns and the expectation that yields will go down creates an even better motivation to invest in this region.’ 

Romania is also actively trying to create better conditions by implementing more investor-friendly policies, delegates heard. Measures about to be approved include cutting red tape by speeding up the time it takes to obtain building permits, unifying all town planning regulations into one code for the first time and introducing tax deductions.

‘Many construction companies seem to be struggling with labour shortages but the Government has listened to investors,’ said Lavinia Ioniță Rasmussen, Partner, NNDKP. ‘As of January 2019 it has enacted a tax exemption, so workers will not pay tax on income and health insurance and will have significant benefits in terms of pension contributions’.

This in practice means that since the beginning of this year ‘a construction worker has a salary which is automatically 60% more than he had before, without any additional costs for the employer, so this is a huge step forward,’ said Klaus Bleckenwegner, CEO, PORR Construct. ‘We are confident we will see workers coming back and labour shortages will ease’.

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