Rising housing prices in Chisinau, yet no signs of a bubble

Background

The real estate market in Chisinau has undergone significant changes since 2019, raising questions about potential market imbalances and the presence of speculative bubbles. These developments occurred in a generally turbulent environment with COVID and the outbreak of the war in Ukraine, leading to high economic, social, and security uncertainties. On the demand side, key factors driving the market include increased investment by Moldovan diaspora, Ukrainian refugee inflows, and government-backed programmes like “Prima Casa” facilitat-ing homeownership for young families and first-time buyers. At the same time, supply-side constraints, in particular rising construction material costs and labour shortages in the construction sector, influenced the real estate market. To assess whether these trends signal the emergence of a speculative bubble in the housing market, the German Economic Team analysed several indicators. These include disparities between housing prices and rents, gross yield, price-to-income affordability ratios, and new housing loan trends.

Development of residential real estate prices

Between 2012 and 2019, real estate prices were relatively stable at around 628 EUR/m2. However, in 2020, prices increased by 10% yoy, possibly reflecting changes in demand related to the COVID-19 pandemic. In 2021, prices grew further by 19% yoy, driven by increased mortgage uptake and limited supply due to higher con-struction material costs and worker emigration. The outbreak of the war in 2022, added further demand pressures, contributing to a 12% price increase despite rising loan interest rates. In 2023 and 2024, prices continued growing by 10% and 12%. As a result of the cu-mulative effect of these trends, the market has been fundamentally reshaped, leading to long-term growth in nominal terms. By mid-2024, real estate prices average about 1200-1300 EUR/m2, double the 2019 level.

Development of rent prices

Rent prices also surged significantly over the period. In domestic currency terms, rent prices doubled, while in euro terms, they rose by approximately 80% since 2019. Two-room flats, the most in-demand category, showed the largest increases, particularly in high-demand areas where prices doubled. Although rental growth was relatively stable in earlier years, peaks were observed during periods of heightened demand from Ukrainian refugees, such as between Mar-22 and Dec-22. Following this period of rapid growth, rents began showing signs of slight stabilisation in mid-2024.

Market bubble assessment

With real estate prices growing fast in recent years, a relevant question is whether there is a bubble on the real estate market in Chisinau? One typical sign of a bubble presence is when property prices have decoupled from rental prices and rise significantly faster than rents. However, contrary to what the price dynamics may suggest, there is no evidence of a housing bubble in Chisinau. Rent growth has kept pace with housing prices, indicating that the rise in prices is supported by market fundamentals rather than speculative forces.

This is further supported by the gross yield, which measures the return on investment. The yield increased from 5.4% in 2020 to 5.9% in 2023. Although a minor decline in yield may have occurred by mid-2024, this remains within the range of reasonable market returns. This is important because it shows if price increases are backed by rental income. When the gross yield stays steady or rises, it means the market is healthy and prices are justified by real value, not speculative activity.

Affordability and accessibility

Monthly wages saw significant wage growth, with average monthly wages increasing from EUR 422 in 2019 to around EUR 900 by mid-2024. The wage growth out-paced the rise in real estate prices, leading to an improved affordability: the wage-to-square meter ratio rose from 0.65 (2018–2020) to 0.68 (2021–2024). Moreover, the real prices in Moldovan leu after adjusting for inflation and exchange rate, turns to have remained quite stable since 2013. This finding is important, considering that the incomes of Chisinau residents are re-ceived mostly in national currency, while housing prices are nominated in euro.

At the same time, access to real estate has improved, supported by the development of the financial market and the emergence of bank mortgage programmes.

Mortgage loans provided by commercial banks saw a substantial growth, with outstanding amounts rising from MDL 2.3 bn in 2016 (roughly EUR 100 m) to MDL 14.9 bn in 2024 (EUR 760 m). Meanwhile, the share of non-performing loans in total mortgages decreased from 6.1% in 2017 to 2.1% in 2023/24, indicating house-holds’ improved ability to service the loans. These trends suggest enhanced affordability and accessibility for potential homebuyers.

Conclusion

The current data suggests that Chisinau’s real estate market remains fundamentally stable, with no urgent need for market interventions. Key indicators show a stable balance between real estate prices and rents and gross yield. With the wages in Chisinau growing fast, the economic affordability of the real estate has improved. At the same time, the development of the mortgage sector has expanded financing opportunities. Nevertheless, certain risks require close monitoring. A potential return of Ukrainian refugees could reduce demand pressures, while a tightening of credit conditions could af-fect affordability. Ensuring transparency in real estate market operations could also improve long-term resilience.

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This newsletter is based on our Policy Briefing  “Real estate market development 2020- 2024”.

This text reflects the opinion of the author and does not necessarily represent the views of the German Economic Team.