6 answers for property taxes: An important hidden cost for foreign investors, especially for income properties

One of my expertises in Real Estate is buying income properties. This means commercial spaces, office buildings, big box retail and everything else that generates income. In the beginning very few owners of properties were able to adjust their price to the way we were calculating (yield etc). Now more or less this has changed, but there is a new problem that we face during the last years: The property taxes.

 

They have increased so much that they have reached 1,5% per year. 

– On what basis do we calculate this? 

On the purchase price, or the evaluation that we submit to the authorities. 

 

– Why is it so much?

Because this is an easy way for the authorities to collect money.

 

– Romanians pay the same as foreigners? 

No, because usually Romanians have their properties in their name (if we speak about commercial spaces), while foreigners are obliged to have a company in order to buy the property (yes, I know the exceptions but it is a long discussion). There are also some Romanian companies which own many spaces and they also pay a lot, but the vast majority of payers are foreigners.

 

– Is this fair? 

Not really and it should be changed, but I doubt it will.

 

– What does this mean for my investment? 

It means that when someone tells you that you will pay 100 Euro in order to buy something that produces 1 Euro per month (12 Euro / year), this does not mean that you reach a yield of 12%. You have to deduct the property taxes (plus any other potential costs) in order to reach your final annual income.

 

– "Does this mean that we should not invest in Romania?” 

No, there are many attractive properties. It just means that you should be very careful while calculating, in order not to wake up with surprises. 

 

I will return on this subject and analyze it more.

 

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