LM Legal Services Blog

Sofia is in third place among the European capitals in terms of profitability of office space. A high quality office building can have a 10% annual return. Only the Russian capital Moscow (11.5%) and the Ukrainian capital Kiev (14%) are rating better than Sofia. The profitability of office space in the Bulgarian capital has increased by 3% or 300 points from its lowest position three years ago. The figures for Belgrade are similar – 10% – while for the other Balkan cities this ratio varies from 7% to 8.5%. Only offices in the Romanian capital Bucharest show higher annual return of 9.5%. The more developed markets of office space like Prague, Budapest and Warsaw have much lower levels of annual returns of 6.75 % – 7.75%.

The rent of office space in the Bulgarian capital has actually decreased by 6.85% in the last year and now is 17 EUR/sq.m. on average as it is linked to the decreasing prices of properties in general. There is similar decrease of office rent in Madrid, Dublin, Moscow, Kiev, Belgrade, Budapest, Warsaw and Bucharest. In the 15 older EU-member states the office rent has decreased by 4% on average.

The investment funds will be able to buy properties on territory of EU-member-states, according to the draft amendments of the law for the investment funds suggested by the Committee for Financial Supervision. Until now these funds could invest only in Bulgaria. The other significant amendment is that the minimal capital will increase from 600 000 levs to 1 million levs. The funds will be able to cooperate and work together on large property project which they would not be able to do on their own. The requirement that the depository bank which holds the money of the fund should give credits to them shall be removed. Other amendments include the possibility for investment in bonds and futures issued with the aim to finance major infrastructural projects. The requirement to obligatory increase the initial capital in order to get the right to operate as a fund will be also removed.

The rules for terminating the license of the company. The fund will be able to request it and in such case it will continue to operate as a normal company not as an investment fund.

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 recession has led to diversification of the rental market in Bulgaria. Many tenants are unable to pay high rent because of decreasing incomes and the landlords have reacted accordingly – in the last 12 months while in some parts of Sofia rents have increased by 15 %, in others it has decreased by 20%. The area where the property is situated is of primal importance, as well as the condition of the property itself. The size of the property is more and more important. It is very difficult to find studios as they are in demand. Their rent have remained more or less the same in the last twelve months, even in expensive parts of Sofia like Lozenets, Oborishte and Yavorov. In these areas studios can be rented for 250 Euros per month, while in the central parts of the capital the rent has decreased from 291 Euros to 257 Euros. At the same time studios is in the area of the Medical Academy now rent for 22% more than last year, the highest increase in the city.
The rent of one-bedroom apartments in the expensive areas like Boyana have decreased by 25% as there is no demand. In March 2007 a one-bedroom apartment in Boyana rented for 400 Euros per month but now it rents for 300 Euros. The tendency is the same in affluent Dianabadt and Strelbishte, while in Kniazhevo, Lagera and Mussagenitsa rents of one-bedroom apartments have increased by 15%.
The recession is most seriously felt in the renting of two-bedroom apartments. The demand is so limited that although landlords have put down rents, still tenants can not be easily found. The decrease of rents have reached 20% and in upmarket Lozenets such apartment can be rented for 570 Euros on average, which is 100 Euros less than last year.
Generally,the purchase prices of the most popular apartments have gone down to the prices of 2007.

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.