LM Legal Services Blog

Despite the recent credit boom, Bulgaria still is in one of the last places in EU concerning the number of mortgages per capita, according to the European Mortgage Federation.

In 2008 the total amount of the mortgages in comparison to the country’s GDP is 12%, while at the same time the other EU citizens have taken mortgages to the amount of 6.1 trillion Euros or more than 50% of the total GDP of the EU. In the U.K. and Germany alone this rate is 70%.

This ratio shows how important is crediting for the EU economy. The bad debt is mainly due to mortgages. Mortgage landing has allowed 70.4% of the EU’s citizens to buy property and this ratio is similar to the one of the USA.

Despite the growth of the mortgage market in the last two years, the Bulgarian economy is still not fatally dependent on mortgages. Apart from the very low level of lending from which the boom started two years ago, the other positive factor is the high level of home ownership -  90% of the homes in the country are private property.

At the same time, the largest mortgage market is the U.K. The debt of the Brits to the banks amounted to 1.75 trillion Euros in 2007.

The high level of debt of the European citizens alongside the fact that European banks which have invested in the USA now have “toxic” assets in their portfolios are the major reasons for the growth of the crisis in Europe. The result is stagnation of the credit market – the banks’ requirements are restrictive and the price of the mortgages is high.

According to the European Mortgage Federation, in the last three months only 12% of the purchases of property in Bulgaria have been carried out with the help of a mortgage. In Sofia alone for this period, 34% of the purchases of properties have been at prices ranging from 30 000 to 40 000 Euros for properties with living area of 40-45 sq m, mainly in the less prestigious areas of Liulin, Drujba and Ovcha Kupel.  30% of the purchases of property have been at prices ranging from 50 000 to 70 000 Euros for properties with living area of 45 – 67 sq m  in the areas of Liulin, Mladost and Drujba.  According to the federation the buyers and the developers still can not adapt to the situation of falling prices and still accept prices of last year. This is why between the advertised and the real price of the purchase there is a difference of 10%-20%.  The newly completed properties sell for prices which are up to 15% lower than in 2008. The sharpest drop of prices is of off-plan properties, of prefabricated apartment blocks and of agricultural properties. In such cases in comparison with last year’s prices drop by 40%. The most insignificant reduction of the price is for newly completed properties which have received Permission for Use (Protocol 16).  Only luxury properties have kept their prices from last year and this is only in case that their owners are not desperate to sell.

According to the European Mortgage Federation many estate agencies in Bulgaria will close this year. In January alone between 150 and 200 agencies have closed down. In comparison in Spain in 2008 60% of all estate agencies have gone bankrupt.

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.