LM Legal Services Blog

Now is the best time to buy a property. the property prices have dropped significantly and there are no expectations for further decrease, according to large estate agencies. The average decrease of the prices in Sofia since the beginning of 2009 is 6%. The price drop is more significant – of up to 15% – in affluent areas where the prices have been unreasonably high during the property boom, like the Doctor’s Garden in Sofia, as well as in areas with bad infrastructure. By the end of the year prices will drop further by 5-6% but not more, say analysts. Even if there are further price reductions, buying property now will be profitable in the long run. Buyers can naturally wait a bit longer but it is not sure how much of their money will be eaten by the inflation.

The development of the property market in the next few months will depend on the economic recovery and on the job security of the buyers. According to bankers, many governments work toward the increase of the amount of cash in their countries so the increase of inflation is a normal consequence of the recession. As Bulgaria is in the conditions of a monetary board, the inflation is imported and it is a sign of the recovery. However, the recovery will not be felt before the middle of 2010. In this connection, prices will fall further but only of properties which are of lower quality or those belonging to developers who are now experiencing cash problems.

According to some analysts the property market in Bulgaria will reach the bottom by the end of this year. The professionals are of the opinion that it is more important how the Bulgarian property market will start moving rather than when. It seems that the Bulgarian government does not have priorities and the economic recovery will be long and difficult. Around the world the property markets will recover with a different speed and at different times. The huge property markets in the USA and the UK give clear signs to the investors that the prices have become attractive and the expectations are that by the middle of the year there will be an increase in the number of purchases.
Developers operating in Bulgaria have raised their voices to request a more open business environment during the recession and clearer rules concerning their relationship with the state. They outline as a serious problem the behaviour of the electricity, water and heating suppliers which are huge monopolies. The suppliers do not invest in infrastructure but wait for the developers to build it and then buy this infrastructure from them, nobody knows when and how. The developers request that the state regulates these relations.

The demand for properties in Sofia has sharply decrease int he last six months and the prices have subsequently fallen in all areas of the capital.

The lending of mortgages has decreased by 80% by November 2008, totalling 82 million Euros. The interest rate has increased by 2 points.  The banks have decreased the size of mortgages from 90% of the price of the property to 50% – 70%. Buyers do not buy off plan.

The price of properties in Sofia started falling from the middle of the last year. In comparison to the first half of 2008 the decrease of the prices of newly built southern areas of Sofia, like Vitosha is 9%; in affluent Lozenets is 8% and 2% in Ivan Vazov.

In Iztok area the prices have been catching up and they grew by 18%, while in the area of the Doctors’ Garden they grew by 11%.

In the first six months of 2009, the recession will influence the property market and most of the future projects will be put on hold or delayed.

The existing infrastructure, the positioning of the property and the access will influence prices much more than before.

The demand for middle and high class properties will decrease, as there are difficulties in finding mortgages. The market will rely on buyers who have enough money to pay the full price and on different leasing plans offered by the developers.

The cold weather and the financial crisis have made their impact on the construction industry. According to the  Bulgarian National Statistic Institute (NSI) in November 2008 the volume of construction has decreased by 14.9% in comparison to October 2008.

The most serious decrease is in the construction of buildings – 15.7% – while the construction of infrastructure has decreased by 13.2%. The decrease is typical for this industry in this part of the year according to the analysts, as this industry depends heavily on the weather conditions. The entrepreneurs, however, explain it with the recession which has hit them since the summer of 2008. The investors on their part wait to see the depth of the recession and its duration in time.

This is the reason why many prospective purchases of plots of land and many construction projects have been frozen. The entrepreneurs who rely on bank loans do not want to stop work but this is still better than sinking into yet more debt. According to some professionals the official statics lie and the real decrease of the volume of construction exceeds 15%.

The speed of work on many projects have decreased dramatically due to the lack of new purchases. Because of difficulties in getting bank loans many preliminary contracts for purchases of properties have been terminated.

The annual statistincs of the National Statistic Institute (NSI) still show a slight increase of the volume of construction in comparison to 2007. For November it has been of 1%. However, the expectations for 2009 are for general increase of the volume of 2 to 3% due to infrastructural projects and general decrease in the construction of homes and offices.

The turnover of the largest Bulgarian construction companies in 2007 was 2.7 billion levs according to the Builders’ Chamber in Bulgaria (KSB) which announced the annual statistics on the eve of the day of the builders, St Dimitre’s Day. More than 2400 Bulgarian construction companies have provided information for these statistics.

The largest construction company in Bulgaria is Glavbolgarstroy AD with a turnover reaching 228.9 million levs. Roads Holding is in the second place with 151.7 million levs. It seems unlikely a company building roads to take the first place, as there are no infrastructure projects for the time being.

The growth of the construction industry according to its chamber demonstrated a growth of 16% per annum but this year there will be a slow down. This recession has been expressed in the halting of investment projects and of planning permissions. If the European funding has not been stopped, the construction industry would have maintained its growth.