LM Legal Services Blog

According to the Land Registry, the property sales in the Bulgarian capital Sofia have increased for a second consecutive quarter reaching 3324 sales in the first three months of 2012. On the average in Sofia have been completed 37 sales per day – an annual decrease of 8.8%. The property prices in the capital have increased on the whole and now properties in Sofia are more expensive than properties in Varna, Bulgaria’s Black Sea capital, where for years property prices have been the highest in the country. The average price in Sofia is 1 453.30 levs (appr. 750.5 Euros)/square metre, while in Varna it is 1439.00 levs (appr. 740 Euros)/square metre. In third place are property prices in the second largest Bulgarian city on the Black Sea – Burgas – 1158.83 levs (appr.592 Euros)/ square metre.

Although in comparison with other Central and Eastern European capitals the property market in the Bulgarian capital Sofia is not so profitable at the moment, still in 2011 it has displayed signs of stabilization. In comparison to 2010, there was not much change in the demand and in the properties on offer. The situation in Sofia looked similar to the one in Budapest, Kiev, Bucharest, Zagreb and Ljubljana. However, the experts claim that this is the beginning of stabilization. The volume of the purchases in 2011 has increased steadily and at the same time there was a slight increase in the number of the properties for sale. The decrease of the selling price in the last year has not been so drastic as in 2009 and 2010. However, Sofia is far away from Warsaw and Ljubljana where the average prices were close to 90% of the prices during the property boom years.

Analysts expect that 2012 will be again the year of the buyers. Most buyers will be first-timers. The hope is that those who have savings or free money will be bold enough to spend them on properties because of the attractive prices.

The property prices in Bulgaria will continue to fall in 2012, however the analysts do not dare to give forecasts about the amount to which the prices will drop. The expectations are that the buyers and the tenants will dictate the property prices. Most of the buyers of holiday apartments and houses will be Russian, while the buyers of all other types of property will be mostly Bulgarians.  The expectations are that in 2012 cheap properties not exceeding 55 000 Euros will be in demand.  Although the number of the property sales in 2011 has increased by 30% in comparison with 2010 unlike a year ago, now the buyers are spending mostly on cheap properties.

Concerning the survival of the construction companies, the European money will be of prime importance for many of them.  In just one year the income of the construction industry has shrunk from 11.7 billion levs to 9.9 billion levs in 2011. Big companies will focus on the construction of apartment buildings and private investors will commission them for the construction of individual buildings. The construction of big shopping centres will continue.

The money from the European programmes will be spent for the reconstruction of hospitals, schools and cultural monuments.  The greatest amount of the European money will go for the development of infrastructure.  Some of these projects have to be completed in 2012.

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).

The Bulgarian economy will continue sinking in 2010. The decrease of the GDP will be of 1%, according to the Agency for Economic Analysis and Forecasts.  For 2009 the expectations are of a significant  decrease of the GDP of 6.3%.  Bulgaria will be in recession for two consecutive years.  The decrease of the investments and the retail index will continue in 2010.  The expenses in Bulgaria’s budget will not increase in order to avoid deficit.  The major reason for this is the world wide recession. Although there have been signs for upcoming end to the recession in the USA, the risks for the world and the European economy are still there.

The slowing down of the economies of Bulgaria’s major trading partners has led to shrinking of Bulgaria’s export. The export of goods has decreased by 30,7% in the first five months of this year and it is expected that the decrease will be 10,5% on an annual basis. This has its effect on the transport and freight. As result the total volume of the export will shrink by 12,3%. The limited crediting and the slow increase of the personal incomes has led to a decrease in the investments and the sales in the country itself. The expectations are that in 2009 the spending of the average household will shrink by 4.5% and of the government by 3%.

In the following years the domestic demand, which has been generating mostly by the foreign investments, will be hard to resume the growth of the  Bulgarian economy to the levels of the last years.  That is why the recuperation of the economy is expected to materialise through the export. Having in mind the current world wide tendencies, this will not happen in 2010.  To the contrary, the export will continue decreasing and the expectations are that it will shrink by 3,8% next year.  That is why the forecast is for economic decrease of 1% in 2010. This will be accompanied by relatively low inflation about 2,2%.