PRICES IN SOFIA DROP BY HALF
It is expected that the average price of properties in Sofia will drop by half. Six months ago the middle class apartment used to sell for 1300 Euros per sq.m., while now it sells for 1000 Euros per sq.m., but there are only a few buyers on the market. This trend suggests that within six months the prices will fall to 800 Euros per sq.m. At the moment this is the price for an off-plan property in the up-market Manastirski Livadi district.
The panic due to the global financial crisis, the outflow of foreign investors and the high mortgage interest rate by all means shall have a long term effect on the property market. It is expected that alongside the falling prices, the quality of the construction and of the finishing will increase due to the competition. Completely finished apartments are already on offer and it is expected that developers will come up with new customer orientated payment plans.
Thousands of newly finished apartments remain unsold in Sofia. Developers try to negotiate with potential buyers and offer different incentives only to sell their properties. Many of those who bought as investment try to sell their properties with a small profit or without a profit, just to get their money in cash. They even offer higher commissions to the estate agents in order to sell. The few buyers on the market tend to wait longer before making a purchase and expect to receive more for their money.
NO SKYSCRAPERS
There won’t be any skyscrapers in the near future in Sofia. The fear of bankruptcy put on hold all projects Manhattan style in the Bulgarian capital. Some of the projects for new shopping centres have also been stopped indefinitely. Many of the investors contemplate selling their plots of land rather than pushing ahead with their plans. Others decided to make completely new projects. They think that it is safer to have their money in cash which will give them the opportunity to buy bigger plots of land in two years time.
Due to the unpredictability of the property market at the moment, nobody expects the investors to pay the fee for planning permission for the first skyscraper in Sofia, despite the fact that ten companies have expressed interest in the project. Nobody can predict the fate of the first 90 m high skyscraper in Sofia which had to be built behind the central railway station. The project is only at the planning stage and the developers have not submitted the documentation in the municipality.
Some of the investors who started building office buildings combined with apartments, now would like to change their plans because of the falling prices of apartments.
“At the moment there are several projects approved by the municipality but they have not been launched yet by the developers. Everybody waits to see which way things will go. In March of next year the first blows will come. Then we shall see who will sell and who has the real intention to build”,
said Petar Dikov, the Chief Architect of Sofia. A clear example is the shopping mall on the junction of Todor Kableshkov Blvd and Bulgaria Blvd which for the second consecutive year has not even reached the ground level stage. A Lithuanian investment company has put on hold for an indefinite period their 500 million Euro project called Sofia Acropolis. The initial plans were to build a 800 000 sq. m. of shopping and entertainment area.
However, having in mind the atrocious practice of the last years to give planning permissions virtually for any building anywhere, if the uncontrolled construction stops, there are expectations that this might be to the benefit of Sofia.
FALLING PRICES
Because of the lack of demand in the last year the prices of rural properties fell dramatically. Plots of land around Sofia have decreased in price by 50%. The trend at the Bulgarian Black Sea coast is exactly the same. In the last 12 months mainly Bulgarians bought properties near to the big cities according to Dobromir Ganev, executive director of Foros Estate agents. The main reason for this is the world financial crisis and prospective buyers have become more cautious, especially when applying for mortgages.
A regulated plot of land of 1020 sq m situated between Sofia and Pernik has decreased by 50% in price and it is now on offer for 12 000 levs (apprx 6 000 Euros). An old two-storey house in a village with a garden of about 1500 sq m can be purchased for 6-7 000 levs (apprx. 3 000 Euros). In the past the prices of rural properties in the area of Bansko, Sunny Beach and Burgas have been artificially increased but now they have fallen dramatically. The purchases of property for investment have almost stopped and most people buy for their own needs.
The financial crisis have affected the sales of land for the construction of industrial developments. All investors have experienced difficulties in financing and several projects in Varna and Sofia have stopped.
The sharpest fall of the prices according to analysts and advisors are in holiday properties. Due to over supply in Bansko only the prices have fallen by 48%. The number of one-bedroom apartments on offer is astonishing and prices range from 780 to 2015 Euros per sq m.
PROPERTY PURCHASE IN THE TIME OF CRISIS
The slowing down of the Bulgarian property market is most obvious at the Black Sea resorts, namely the Sunny Beach and the Golden Sands, and in the mountain ski resorts like Bansko and Pamporovo. The price of properties there have reached their peak levels and the number of purchases has been falling. There is no demand for such properties, while the the properties on offer are many. This is the reason why the Bulgarian banks avoid financing such purchases, as well as the construction of properties along the coast. According to leading business and legal advisers, the prospective investors can not rely on off-plan sales at the moment. Many hotels along the Bulgarian Black Sea coast have been put up for sale and there are no prospective buyers interested in them. This means that most of them will be acquired by the Bulgarian banks which credited their construction. In the long run if the intensive construction does not stop, many hotels along the coast will have to be demolished like in Spain. However, in order to do this, a new legislative framework needs to be introduced by the Bulgarian parliament, and leading solicitors have been investigating the Spanish experience and preparing the necessary amendments to the current Bulgarian laws. Generally, the lawyers and the law companies seem to be more occupied than anybody else involved in the construction business.
Away from the Black Sea and the mountain resorts, the Bulgarian property market keeps moving because traditionally Bulgarians consider buying a property not only an investment but most of all a form of security.
SUNNY BEACH - NEW DEVELOPMENTS
Despite the looming global financial crisis. New developments open in the Bulgarian Black Sea resort of Sunny Beach.
Oasis VIP Homes and Blue Pearl Apartment Complex in Sunny Beach will be presented at the largest property exhibition on the Balkans - BalPex. Oasis VIP Homes is the first luxury development of Galaxy Property Group in Sunny Beach. The development is in Mediterranean style with a park of more than 10 000 sq.m. and with three swimming pools. This project includes also Royal Sun development with 530 apartments.
The other project Blue Pearl is a development with apartments situated in the central part of the Sunny Beach. It comprises of 85 apartments overlooking the bay with Nessebar and St. Vlas, 16 shops, barber shop, gym and two swimming pools with a bar.
PROPERTY SALES DROP
The sales of properties have decreased twice in the first three months of 2009 in comparison with the same period in 2007. The main reason is the shrinking of the market. The investments in the property market are much less than in previous years.
In order to attract clients the construction companies now tend to building longer - up to 3 years. At the same time they accept smaller instalments during the construction and a bigger final instalment when the project is ready. It is difficult to make predictions at the moment but for the time being there are no significant changes in the cities.
PROPERTY PRICES
Despite the financial crisis, the property prices in the suburbs of Sofia have been constantly increasing due to the migration of people from smaller towns and villages who seek employment in the capital. In the last year, more than 30 000 people have relocated to Sofia, while 12 000 people have moved to Varna, the second largest Bulgarian city. The same tendency can be seen in Plovdiv, Russe and Burgas. The newcomers to the cities usually look for cheaper properties in the suburds. As result the prices of apartments in those areas keep rising. The average porperty price in Sofia is 1094 Euros per square metre, while in the county it is 588 Euros per square metre. The studios seem to be very popular and their sales have increased by 17% in the last months. At the same time the demand for one-bedroom apartments have decreased by 28% and of larger apartments by 3%. Most of the sales are of newly built properties.
NEW CREDIT RULES
The Bulgarian banks have introduced tougher rules for lending money after two days of stopping crediting. Now they lend money only for the purchase of properties which can be easily sold if reposessed. Families with total income under 1500 levs per month can not take a mortgage to purchase an apartment in one of the larger cities. To such families the banks offer only small size credits with monthly instalments not exceeding 50 Euros. While in the past the banks were satisfied if the monthly repayment instalments were up to 50% of the total income of a family, now they restrict the instalments to not more than 39% of the monthly income. The average mortgage interest is 8.2% per annum and the average instalment is 360 Euros per month, which is an increas of 40 Euros for the last six moths.
PROPERTY MARKET - PREDICTIONS
Office and retail rents fall and will keep falling in the next two years according to Raiffeisen Property. In short term the office space on offer will outnumber the demand. The same tendency is valid for retail space, as only in the next 2.5 years it is expected that the retail space will increase eight times.
Meanwhile the interest of investors is expected to decrease due to the world crisis which has hit the property market. As result the secondary market will become rather active. Those who bought property as investment will rush to sell it. The demand will be focused mainly in the cities. The prices of high quality residential property will rise in expensive city areas.
In the mountain and sea resorts there are too many properties on offer. In the end of 2007 there were more than 80 000 newly built properties there, while currently there is demand for about 65% of them.
NEW CREDIT TENDENCIES
According to Credit Centre the most popular mortgage in Bulgaria at the moment is for a plot of land and a prefabricated house. More and more Bulgarians prefer to move in the outskirts of their cities and to build their own house, rather than to buy an apartment in a block, where two-bedroom apartments are in the same price bracket.
Another new trend is the increasing number of customers who restructure their debt, due to the increase of the interest rate. Many Bulgarians face difficulties repaying their mortgages and some even their utility bills. According to Credit Centre in September each sixth credit has been taken to pay old debt.
In general more than 79% of the mortgages are for the purchase of property and only 1.3% for construction.
Another tendency is that for a second consecutive month the average size of the mortgage has decreased to 43 000 Euros, while during the peak of the property boom it has exceeded 50 000 Euros. Customers freeze their purchase or redirect to a cheaper property. The change is more obvious among the most popular customers - the middle class ones - who used to take a 80 % mortgage for the purchase of one-bedroom apartments. Now these clients are seeking smaller apartments and try to pay a large proportion of the price with their own funds.
