LM Legal Services Blog

The new year is wonderful for the buyers of properties in Sofia. Those who have money and can negotiate are able to secure unexpected reductions and perks. Most of the sellers are immediately ready to reduce their price by 20% and at the moment there are no purchases without bargaining.

According to estate agents, in the last year virtually in all parts of Sofia the prices of properties have dropped. The most stable market is in the southern districts of the city where the demand is generally higher and in the last months prices have dropped by merely 5 to 15%. At the moment the prices there vary from 1050 to 1250 Euros per square metre. In the central parts of the city, the decrease is insignificant and the highest price is 2000 Euros per square metre. There are no more offers in the range 3000 to 6000 Euros. The most significant drop of prices is in the northern and western parts of the city where the decrease have reached 20%. New properties in Nadezhda and Levski are offered for 700 Euros per square metre while exactly a year ago they were offered at 900 Euros per square metre.

The loan interests in Bulgaria have risen to the levels of 2005. In December 2008 half of the banks in the country have increased their interest and some of them have also increased the fees for servicing a loan.

It is unlikely that loan interests will fall in the first six months of 2009. Some bankers expect this to happen at the end of the year. This means that the prices of credits will not decrease. It is expected that the level of bad debt will increase.

According to analysts there are two scenarios for the future development of the property market in Bulgaria. If by March 2009 the Bulgarian economy continues to grow, even by a fraction of the recent growth, the property market in the country will calm down and there will be no serious crisis. The demand will continue to decrease and as result the prices of newly built properties will stay at the same levels while the prices of apartments in prefabricated blocks will decrease from 10% to 15%. The total number of the sales will decrease, not only because of the caution of the purchasers but also because of the more difficult process of getting mortgages. Part of the projects will be put on hold, especially those relying on off-plan financing but on the whole this will be good for the market. At the moment there are no signs for upcoming bankruptcies of developers, although there might be some in the future but it is expected that this will not have a dramatic effect on this sector.

However, if the economic recession becomes more serious in the first six months of 2009, the level of the unemployment increases and the purchase power diminishes, the property market shall experience serious crisis which will be fatal for some of the players. In case of such developments the prices will fall dramatically and there will be a small number of sales. Though possible, these kind of developments seem less likely to occur in Bulgaria because the level of home ownership is rather high and the relative ratio of the mortgages that have been lent is low, while the banking system is still stable. To this adds the typical Bulgarian mentality to re-pay debts, despite difficulties. That is the reason why the expectations are for a weak and inactive market, rather than a dramatic crisis.

According to Bulgarian estate agents in the first half of the year it will be more sensible to rent rather than to buy. Although property prices have decreased in comparison to the last year, they are still high. At the same time, mortgages have become more expensive because of the high interest. As result, mortgage instalments are higher than monthly rents.

However, those who offer their property to tenants can not expect high profits. The number of prospective tenants is on the decrease because of the recession. High number of people from the country who had been looking for work in Sofia have gone back to their home towns and villages as there they can survive better during the recession due to the fact that living costs are cheaper.

On the other hand, those who have bought properties for investment can not sell at the moment and try to rent them. The supply of apartments for rent has increased while the demand has decreased and it is expected that this will lead to the drop of prices and of rents.

It is expected that in the second half of 2009 it will be profitable to buy property. Prices of properties are expected to drop further and by the end of the year it is expected that the mortgage interest will start decreasing, as of 1 January 2009 the Bulgarian National Bank has decreased the basic interest from 5.77 to 5.15, which is the first decrease since June 2005.

The notaries at the Black Sea reported that the number of deals have decreased  sharply in comparison with last year. In the last 2 wees there have been days without a single purchase. The purchases for investment have almost stopped. Only people who need cash urgently sell. In such cases prices drop dramatically up to three times.

Purchases are made only of home to live. They have drop by 50% in Kavarna, while in Balchik by 10%.  Concerning the plots of land, the tendency is similar. Only agricultural land sells.  In some cases prices have fallen from 20 to 5 Euros per sq.m. due to the lack of buyers.