LM Legal Services Blog

Due to the debt crisis in the Eurozone, the demand for mortgages in Bulgaria has shrunk. The size of the average mortgage has decreased in October 2011 in comparison with September 2011 according to the Bulgarian National Bank. The number of the repaid mortgages has exceeded the number of the new mortgages. This is the third decrease in the number of the new mortgages since the beginning of the recession. The previous two decreases took place in January 2009 and in January 2011, as the first month of the year is traditionally bad for lending. In the last three years only the number of the new mortgages has been steadily rising by about 2% on annual basis.
This third decrease was minimal – by only 340 000 levs (about 170 000 Euros) – but according to analysts it shows the decrease in the demand in the last two months. However, it occurred exactly at the climax of the active crediting season when banks are most active. The reason is the deepening debt crisis in the Eurozone.

The bad and the restructured credits reached 9.022 billion levs ( 4,5 billion Euros) or 22% of the credit portfolio, non-inclusive of the overdrafts. The increase in the last month was by 222 million levs (111 million Euros) due to the increase of the bad business credits by 172 million levs reaching 5.6 billion levs (2.7 billion Euros). The size of the unpaid or restructured mortgages is 1.7 billion levs and of the bad personal credits – 1.5 billion levs .
The total size of all credits lent both to businesses and individuals is 51.8 billion levs (25 billion Euros).

According to the property analysts 40% of the property buyers in Bulgaria are prepared to pay between 50 and 80 000 Euros for their purchase. They are the largest group of property buyers in the country. In the second place (23%) are the buyers ready to pay between 80 000 and 120 000 Euros and in the third place (again 23%) are those under the 50 000 Euros margin.
According to the official statistics 40% of the sales have been of properties that cost from 30 000 to 50 000 Euros, followed by a group of properties (24%) that cost between 50 000 and 80 000 Euros. Although apartments under 30 000 Euros are the least in demand, the actual sales of such properties are 14% of the total number of the sales. The sales of apartments with prices exceeding 120 000 Euros are 7% of the actual sales which is equal to the number of enquiries for properties within this price margin.
Concerning rent, almost 60% of all enquiries were for apartments that rent for less than 250 Euros per month, of them 40% fall in the 150-250 Euro margin. However, the highest number of rental contracts (66%) is signed for properties that rent between 250 and 500 Euros per month. In the second place (17%) are those that rent for more than 500 Euros per month and in the third place (17% again) are properties renting for less than 250 Euros per month.

During his meeting with some large Czech investors the Bulgarian Prime Minister Boiko Borissov has announced that his government will introduce new concessions for large companies investing in Bulgaria. The PM explained that these concessions will include lower taxation and support with plots of land and infrastructure. The Bulgarian government thus will try to attract large companies to the country.

According to the Czech government, some of the largest Czech investments abroad are in Bulgaria. PM Borissov underlined that it is not clear if the budget of Bulgaria will be able to provide funds for the Bulgarian-Czech Euro projects in the next two years.

The total  value of the properties owned by Bulgarian families was 140 billion levs (about 70 billion euros) in the end of 2009, while in the end of 2008 it was 176 billion levs (about 80 billion euros), according to Industry Watch. The drop is due to the devaluation of the properties during the recession and Industry Watch expect that this tendency will continue in the next six months.

The  devaluation of properties has slowed down in the last quarter of 2009 and it has reached 2% in the end of 2009 in comparison to the previous quarter. Because of this devaluation the purchase power of the middle class Bulgarian measured in square metres of living area has increased by 50% in 2009.

The financial resources of the Bulgarian families were 36 billion levs (18 billion euros) in total in the end of 2009 and this is an increase by 7% in comparison with 2008. The annual speed of the growth has slowed down, however, as in 2007 the growth was by 28.5% while in the last year it was just 8%. The amount of 36 billion levs does not include the debt and the credits of the Bulgarians. Last year the debt of the Bulgarians was 1/3 of their financial resources, now the level of debt has decreased according to Industry Watch.

The last quarter of 2009 was the worst one for the Bulgarian economy. According to the National Statistics Institute Bulgaria’s GDP has fallen by 6.2% and it has been 17 billion levs (about 8.5 billion Euros). The real annual drop for 2009 was of 5.1% in comparison with 2008. The official forecast of the Bulgarian government made in the autumn of 2009 was for a drop of 6.3% which later has been corrected to 4.9%.