Colliers: Romania’s construction market is expected to be challenging in 2025 due to tax changes and delays in implementing reforms

Romania’s construction sector reached record levels in 2023 and 2024, supported by strong private demand for certain property segments and a significant increase in public investment, from major infrastructure projects to hospitals, financed by national and European funds. However, in the medium term, pending changes to the tax regime for construction workers, along with broader fiscal adjustments in Romania, could present challenges, according to Colliers’ report on real estate market developments in the first half of the year. Additionally, delays in implementing the necessary reforms to maintain access to European funds could create further difficulties.

Amid the tight labor market, construction prices resumed rising in 2024, reaching an annual growth rate of around 12 percent in May 2024 (the latest available data), following a period of stabilization in the first half of the previous year. One of the main drivers of this increase is labor costs. While commodity prices have stabilized, Colliers advisers point out that staff costs continue to rise. The number of construction workers reached a record high of nearly 453,000 in May 2024, reflecting a modest 1 percent increase from the previous year but a significant 15 percent increase compared to the pre-pandemic period.

According to Eurostat, hiring intentions remain positive, indicating that construction firms continue to seek workers, which is driving up wages. Over the past five years, wages in the sector have increased by 63 percent. Another key factor is that construction workers have benefited from tax exemptions since 2019, boosting their net income. However, due to pressure on the public budget, the government plans to abolish these tax breaks starting in 2025 (a measure not yet approved as of the beginning of the third quarter of 2024). This change could further complicate the market, putting pressure on companies’ profit margins as they may be forced to raise wages to retain or attract employees. Some of these additional costs are likely to be passed on to clients through higher prices.

“Although supply in the construction market is under significant pressure, demand remains strong. The first part of 2024 saw a slight slowdown, but European Commission surveys show that the sector continues to grow. The index measuring companies’ perceptions of overall order volumes remains comfortably above the historical average, signaling a robust sector not far from historical highs. Another relevant indicator is the analysis of building permits. While the number of residential building permits has slowed over the past two years, this is primarily due to administrative challenges in certain cities, particularly Bucharest. However, there is a trend towards returning to the average levels of the last cycle, following the record highs of 2021-2022. In the non-residential segment, although the data is variable, permitting activity remains solid, in line with the expansion of the industrial and retail sectors. Overall, while private investment in construction is not at record highs, it remains stable, supporting healthy market growth”, notes Alexandru Atanasiu, Board Member &  Head of Construction Services at Colliers.

A key factor driving the construction market to record levels has been increased public investment, financed by both national and European funds. In the highway sector, Romania currently has around 800 km of high-speed roads under construction, compared to an existing network of 1,100 km. Hundreds of additional highway sections are also in various stages of development, with some already out for tender. Major investments are not limited to road infrastructure; railway modernization is also underway, and in the first half of this year, construction began on several major regional hospitals.

The government spent over 11 billion euros on EU-supported capital projects in the first half of 2024, representing about 3.3 percent of GDP. In comparison, during the same period in 2019, government investment spending amounted to 3.5 billion euros, or about 1.6 percent of GDP. This substantial increase in public investment has played a key role in sustaining a high level of activity in the construction sector.

In the medium term, the construction market remains strong, with robust demand from beneficiaries and a steady flow of projects for construction companies. A variety of factors influencing demand creates a more favorable environment than in the past, particularly when compared to the 2006-2008 period, when the market was largely driven by private investors, especially residential developers. However, Colliers consultants also anticipate several challenges ahead.

“Beyond unpredictable external factors, particularly concerns about the global economy, upcoming changes in the tax regime for construction workers and broader tax reforms in Romania could pose challenges. Additionally, Romania’s delay in implementing the necessary reforms to maintain access to EU funds may introduce further difficulties. Therefore, while we anticipate positive results compared to recent years, achieving new highs seems unlikely. In this context, we expect pressures on the construction market to ease over the next year and a half,” concludes Alexandru Atanasiu.