LM Legal Services Blog

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.

Mortgage interest rates offered by Bulgarian banks have reached their peak in November. According to the specialists the increase of the interest rates have stopped rather then the lending of new mortgages itself. Most of the banks have tightened their conditions last month and the largest mortgages now cover not more than 75% of the price of new properties in the big Bulgarian cities, while in smaller towns they do not exceed 65% of the price. Concerning apartments in prefabricated blocks from the days of socialism, mortgages do not go over 60% of the price.  At the same time, the number and the size of the new mortgages have decreased in November.

According to Credit Centre the most popular mortgage in Bulgaria at the moment is for a plot of land and a prefabricated house. More and more Bulgarians prefer to move in the outskirts of their cities and to build their own house, rather than to buy an apartment in a block, where two-bedroom apartments are in the same price bracket.

Another new trend is the increasing number of customers who restructure their debt, due to the increase of the interest rate. Many Bulgarians face difficulties repaying their mortgages and some even their utility bills. According to Credit Centre in September each sixth credit has been taken to pay old debt.

In general more than 79% of the mortgages are for the purchase of property and only 1.3% for construction.

Another tendency is that for a second consecutive month the average size of the mortgage has decreased to 43 000 Euros, while during the peak of the property boom it has exceeded 50 000 Euros. Customers freeze their purchase or redirect to a cheaper property. The change is more obvious among the most popular customers – the middle class ones – who used to take a 80 % mortgage for the purchase of one-bedroom apartments. Now these clients are seeking smaller apartments and try to pay a large proportion of the price with their own funds.