LM Legal Services Blog

Last year 60% of the mortgage applications in Bulgaria have been made for the purchase of a second home, according to Bulgarian bankers. Bulgarians used to buy properties for investment, expecting high returns and constantly increasing property prices.

This year the number of the mortgage applications have decreased ten times. According to bank managers this is due to the different expectations of sellers and buyers. The buyers expect prices to go further down and do not rush to buy, while sellers do not drop the prices of their properties and wait for the market situation to change back to the time of the property boom.

The banks lend much less money than before and cover a much smaller proportion of the price of the properties. At the same time prospective buyers are unwilling to take large mortgages and prefer smaller ones. Most of the buyers now have savings but they still need to borrow some money to buy a property.

Leading bankers think that the lending will not go back to the levels during the property boom of the last two years. They expect that at the end of the recession the ratio of the savings to the size of the mortgage will be 50:50 and in the following new boom it will go to 30:70.

The Bulgarian bank managers expect that in the next 6 months two new types of clients will enter the property market. The first type are people with good incomes and substantial savings. Currently, in Bulgarian banks there are 110 000 savings accounts with amounts exceeding 30 000 levs (15 000 Euros) with 76 000 levs (38 000 Euros) on average per account, according to the official statistic of the Bulgarian National Bank. Obviously, these people wait for the right moment to invest.

The second type are people who are not covered by the official statistics. They either keep their money at home or have incomes from the grey economy. Such kind of customers usually apply for mortgages that cover 20% to 30% of the price of the property.

At the moment the mortgage interests of Bulgarian banks are between 8% and 10%. Nobody expects any change until the end of the year, as bankers wait for the first encouraging signals from the U.S.A and Europe, in order to make a move.

Because of the recession many sellers drop the prices of their properties to be able to sell them. The number of prices of apartments in the big Bulgarian cities which are under 30 000 Euros have drastically increased in the first three months of this year. One of the reasons for this is the lack of buyers due to the strict rules of the bank for lending. A few months ago all Bulgarian banks stopped lending money for the purchase of apartment in prefabricated blocks from the communist era. After that the banks have sharply increased the mortgage interest rates and have decreased the size of the mortgages, thus have put off many prospective buyers. In reality the Bulgarian property market have moved back to the situation years ago of expensive mortgages.

In Plovdiv 70 apartments are on the market for prices under 30 000 Euros. Only 20 of them are off plan. Prefabricated apartments with total area exceeding 90 sq m are for sale for as little as 13 000 Euros.
In Varna the number of the apartments under 30 000 Euros is 60, the cheapest property is a one-bedroom apartment for 20 000 Euros in the outskirts of the city. There is ever an apartment in the central parts of Varna offered at 30 000 Euros, which is still at the off-plan stage. Prefabricated apartments sell for about 25 000 Euros in the outskirts of Varna.

In the second largest city on the Black Sea, Burgas, the number of apartments on offer are twice more than in Varna but most of them are off-plan and in the outskirts of the city. The cheapest offer, €15 120, is for an off-plan apartment with are of 41 sq m. There are ten prefabricated properties for sale at prices starting at 24 000 Euros. All of them are located in the outskirts of Burgas.

In Russe there are 20 apartments under 30 000 Euros. The cheapest offer is for a studio for 12 900 Euros. Prefabricated apartments start at 15 000 Euros.

While in the country at the moment prices range from 440 to 580 Euros per sq m, in the capital Sofia, the property prices have dropped everywhere, apart from the central parts of the city. The sharpest drop of prices is in the southern parts of the city where there are more unfinished buildings then anywhere else in the city. The prices of prefabricated apartments have fallen more than any other. While last year they used to sell for more than 1000 Euros per sq m, now they are on offer for under 750 Euros per sq. m. Newly finished properties are offered for 700 – 800 Euros sq m. Off-plan apartments are offered for 500 Euros per sq m. Some developers offer discounts of 20 % of the prices of their finished apartments in cases of payment in cash. Others who are stable financially offer 15 leasing schemes to their customers.

The rent of industrial plots of land in Sofia have increased by 8% or by 0,5 Euros (1 lv) per sq m in 2008 in comparison with 2007. The average rent of industrial land in the country is 6.5 Euros per square metres. This is by 1 Euros more expensive than the neighbouring countries. The reason for this situation is that more and more companies have been looking for industrial land while there have not been many plots on offer.

This year the tendency outlined by the recession is owners first to find tenants and only then to start turning their land into an industrial one. Estate agents expect that the demand for industrial land will not be affected by the recession, as it is expected that more companies will relocate from Western into Eastern Europe.

Some analysts predict further 15% decrease of the property prices in Bulgaria. However, they do not expect prices to drop before the value.

The advise of the experts is to buy apartments now, while buyers of office and industrial space will have to wait for another 2-3 years for price to fall further down.

The number of purchases in the first three months of this year has fallen three times in comparison with the same period last year.

Although banks’ interest rates of savings accounts are still high, in February those of one- and three-month deposits started decreasing. At the same time the interest rates for six- and twelve-month fix term saving deposits are still increasing.

UniCredit Bulbank did not continue with their promotions and decreased the interest rate of the fourth period of their Increasing Interest scheme from 12% to 9% for the deposits in levs and from 10% to 7% for the deposits in Euros. The interest for their one year fix term deposit has dropped from 8.80% to 4.85%.

First Investment Bank did not continue their promotion Golden Deposit. The bank has launched their product March Deposit, a three month fix term deposit with interest rate, both for deposits in Euros and in levs, of 8.75% instead of 9.75% like the previous promotion.

Most other banks still keep increasing the interests of savings accounts in order to attract fresh money. Among them are: PostBank, Raiffeisenbank, Eibank, Invest Bank and Alpha Bank.

Concerning customer loans, all banks have increased their interest rates by about 1% in February, apart from Alpha Bank who decreased it by 0.7%.

Most of the mortgage rates have not increased and in the rare cases of an increase, it does not exceed 1%.