The average decrease of  property prices in Bulgaria is by 23% in the first six months of 2009. There are areas of the country and especially cities where due to  overpricing, now the decrease is exceeds 30%. The expectations of analysts are that by the end of the year prices will decrease further by 5% to 15%.

The most significant price decrease in the capital Sofia where the prices of newly built developments in the area of Obelya have dropped by more than 40%. The lowest price drop is in Student Town – by only 10%. In the affluent Lozenets and Iztok where the price exceeded 2000 Euros/sq m in 2008,  now there is a decrease by 1/3. The decrease is similar in Liulin and Ovcha Kupel. In the down-market Banishora the lowest price of newly built apartments is 390 Euros/ sq m.  The lowest prices are in the southern and the eastern parts of the city because there many apartments have been bought off-plan as investment and now they have been completed and put on the market.

In the first half of this year buyers preferred mostly one-bedroom apartments not exceeding 50 000 Euros per sq m.  In the last month two of every ten buyers have purchased in the end a bigger and more expensive apartment than planned in the beginning due to the lower prices.  The number of owners who sell their property to buy a bigger one has increased, as the difference in the price is lower than ever.

In most cases buyers used their savings for the purchase of a property, while 44% of them have taken small mortgages or even consumer loans. 32% of the buyers who took mortgages have problems repaying them regularly but only 17% of them cannot repay their mortgage at all.

Village houses with big yards sell even under their value around Veliko Turnovo, Pernik, Sliven, Haskovo and Yambol, as owners just want to get rid of them. In smaller towns the purchase of property is rarely for the purpose of investment but mainly it is in case of change of the marital status and the recession is felt stronger on the property market. Unemployment is growing faster and first time buyers are very cautious.

The direct foreign investment in  construction and in properties  in Bulgaria in the first quarter of 2009 was 208 million Euros which is a decrease by 59.3% in comparison to 2008 whe it was 511.2 million Euros.

In the first half of 2009 the prices of properties for sale in the country have decreased by 5.95% on average while the rents have decreased by 6.59%, according to the official statistic. From December to May the prices of properties have fallen by 10% in Sofia, by 6.13% in Varna and by 10.25% in Burgas. The most insignificant price drop was in Blagoevgrad – 0.67%.

Most of the deals, however,  were at 20% lower prices than the advertised prices.  The number of purchases from January to March 2009 was 35 433 which is by 37.27% less than in the same period of 2008 when there were 56 483 purchases.  Some analysts expect the number of the purchases to fall by 50% on annual bassis.

In this year due to the limited mortgage lending 70% of the sales were financed by personal savings while in 2008 not less than 80% of the properties were purchases with mortgages.

According to the State Agency for Tourism (DAT), three-four hotels go bankrupt every week in Bulgaria. They are unable to re-pay their mortgages. Many hotels are put for sale but there are no buyers and banks repossess them but it remains unclear if the banks will be able to sell them.

It seems that Bulgaria follows the road of Spain where the state buys the bankrupted hotels and demolishes them, in order to create parks.

According to the statistics, in the first half of the last year, 820 new hotels have opened on the Black Sea coast. As result of the construction boom the number of hotels and holiday properties is much higher than the number of  the tourists.  Many hotels can not sell all their beds and their owners suffer losses. All this makes it impossible for the hoteliers to repay their mortgages and other credits and go bankrupt.

Although banks’ interest rates of savings accounts are still high, in February those of one- and three-month deposits started decreasing. At the same time the interest rates for six- and twelve-month fix term saving deposits are still increasing.

UniCredit Bulbank did not continue with their promotions and decreased the interest rate of the fourth period of their Increasing Interest scheme from 12% to 9% for the deposits in levs and from 10% to 7% for the deposits in Euros. The interest for their one year fix term deposit has dropped from 8.80% to 4.85%.

First Investment Bank did not continue their promotion Golden Deposit. The bank has launched their product March Deposit, a three month fix term deposit with interest rate, both for deposits in Euros and in levs, of 8.75% instead of 9.75% like the previous promotion.

Most other banks still keep increasing the interests of savings accounts in order to attract fresh money. Among them are: PostBank, Raiffeisenbank, Eibank, Invest Bank and Alpha Bank.

Concerning customer loans, all banks have increased their interest rates by about 1% in February, apart from Alpha Bank who decreased it by 0.7%.

Most of the mortgage rates have not increased and in the rare cases of an increase, it does not exceed 1%.

In 2008 in Bulgaria the number of purchases of property was 309 788 which was 4.79 % less than in 2007 when their number was 325 385.
The direct foreign investment in property in Bulgaria in the first nine months of 2008 amounted to 1190.5 million Euros which is a decrease of 33.34% in comparison to 2007. At the same time the direct foreign investment in construction in the same period showed a decrease of 27.99% and amounted to 405.2 million Euros.
The average property price increase in Bulgaria for 2008 was 14.88% due to the expansion of the construction industry in the first half of the year unlike the stalemate of the last months. The average increase of the rent was 4.74%. Most of the buyers in 2008 were Bulgarians and Russians. The average monthly yield in 2008 was 6.34% which is about the average for Europe. In Sofia it was 5.89%, in the second largest Bulgarian city Varna it was 4.97%, while in Plovdiv, the third city it was 4.86%.
The average mortgage in February was 36 100 Euros. Mostly people who have savings able to cover 40% of the price of the property take mortgages at the moment. In Sofia the average mortgage was 45 200 Euros, in Varna – 36 140 Euros, and in Plovdiv – 25 400 Euros. Nobody takes mortgages exceeding
70 000 Euros at the moment and the banks do not lend mortgage which cover 80% or 90% of the price of the property.

The rent of apartments in Bulgaria is expected to increase by 10% during 2009 because more and more people prefer to rent due to the stricter rules of banks for lending.

The most popular apartment for rent are located in the central parts of Sofia and the neighbouring areas like Reduta, Geo Milev, Pliska, Strelbishte and Ivan Vazov. Concerning the size of the rental apartments the studios and the one-bedroom apartments are mostly in demand.  Depending on the location and if the apartment is furnished, it can get a rent of 350 Euros per month. In the up-market Lozenets the rent of luxury apartments is 1000 Euros per month.

Apart from the central parts of the city, Mladost and Drujba in the outskirts are also very popular. Until now, studios and one-bedroom apartments were rented for 250-350 Euros per month but from the next month is expected that these rents will increase by 20 Euros per month. Most tenants try to secure a clause in their rental contracts that their rent will not increase in the next twelve months.

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.

There is a big difference between the property prices officially declared on the Bulgarian market and the willingness of the buyers to pay them. The drop of the number of purchases of property in the last months of 2008 has lead to a new tendency – the buyers dictate the situation on the property market.

According to the official information in the last year Bulgarian property prices have increased by 22%, which has been wiped out by the decrease of the demand for properties by 20% for the same period.

From the beginning of 2009 there is a new trend – the higher proportion of the purchase price  the buyer can pay without a mortgage, the higher reduction of the final price he will get. January 2009 was the first month without foreign participation on the Bulgarian property market. There were no buyers from abroad – neither Bulgarians, nor foreigners.

Due to the recession, renting has become a more popular option than buying. The lack of stability and the uncertainty have forced people to avoid long term bank loans.  At the same time those who have bought a second home have started renting it and the properties for rent have increased by 20%. The highest increase in the number of the rentals was in Rousse – of 31% – while in Blagoevgrad this increase has been the smallest in the country – only of  5%.

In comparison with 2007, the highest increase of the property prices was in Plovdiv – 32% – where the average price in 2008 was 756 Euros/sq.m. The capital Sofia was in second place with increase of 30.13% and an average price of 1087.33 Euros per sq. m. Veliko Turnovo and Rousse share the third place with 27%.

Due to the recession the banks have now offered higher interest rates for savings accounts which range from 6% to 10%. The most popular are fifteen day, one month and three month savings accounts because there is no loss of the interests.

With the increase of the savings accounts’ interests, the loan interest has also increased by 2% on average. Concerning  mortgages, in the last months there has not been any increase due to the fact that customers are unwilling to take new mortgages. The interest rates remain 8% for the mortgages in Euros and 9,5% for the mortgages in levs.

The situation on the Bulgarian property market in the beginning of 2009 remains similar to the one in the end of 2008. There are no deals, the number of the properties for sale increase, while serious buyers take their time before they commit themselves to a purchase. The new features are – perks offered by the developers, estate agencies who do not take commissions and the birth of a new type of property in the property web sites – “property with falling prices”. Only on 3 and 4 of January 2009 the number of the properties with falling prices increased to fifteen. In this category the decrease of the prices of  houses beats all other properties  -  15 – 20%. Plots of land are in the second place, closely followed by offices and garages.  House prices fall everywhere – from Sofia to small towns like Smolyan. Even prestigious locations in the centre of Sofia can not prevent prices from falling.  The price of a house in Dondukov Boulevard in Sofia which has been for sale for some time has dropped by 40% to 450 000 Euros. It is difficult to say whether this will attract new buyers. One thing is certain, the Bulgarian property market has entered a period at the end of which the prices of properties will be very different from the price of the last two years.

The developers are the ones who experience the harshest problems. This is the reason why they look for solutions in all possible ways. Apart from dropping the prices, they have started to lease the apartments built by them to buyers with a minimal interest. Their return has been delayed by 15 years in some cases, thus preventing them from making new investments. Other bonuses include fitted kitchens costing up to 3000 lv and in the cases of two-bedroom apartments complete furnishing plus one or two parking lots. Some developers add to this a plasma TV. However, the analysts do not believe that these perks will do the trick and attract more customers. All these bonuses can not solve the problems of the buyers in getting a mortgage.

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.

It is expected that the average price of properties in Sofia will drop by half. Six months ago the middle class apartment used to sell for 1300 Euros per sq.m., while now it sells for 1000 Euros per sq.m., but there are only a few buyers on the market. This trend suggests that within six months the prices will fall to 800 Euros per sq.m. At the moment this is the price for an off-plan property in the up-market Manastirski Livadi district.

The panic due to the global financial crisis, the outflow of foreign investors and the high mortgage interest rate by all means shall have a long term effect on the property market. It is expected that alongside the falling prices, the quality of the construction and of the finishing will increase due to the competition. Completely finished apartments are already on offer and it is expected that developers will come up with new customer orientated payment plans.

Thousands of newly finished apartments remain unsold in Sofia. Developers try to negotiate with potential buyers and offer different incentives only to sell their properties. Many of those who bought as investment try to sell their properties with a small profit or without a profit, just to get their money in cash. They even offer higher commissions to the estate agents in order to sell. The few buyers on the market tend to wait longer before making a purchase and expect to receive more for their money.

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.

The average price of properties in Bulgaria in the first half of the year has been 1418 levs per sq.m. according to the National Statistics Institute. The most expensive properties have been in Sofia where on average they sold for 2470 levs per sq. m. Varna has been in the second place with 2130 levs per sq.m. In third place was Burgas with 1755 levs per sq.m., closely followed by Plovdiv (1655 levs per sq.m.) and Veliko Turnovo (1331 levs per sq.m.). The cheapest properties have been in Kiustendil (751 levs per sq.m.) and Silistra (763 levs per sq.m.).

According to the analysis of UniCredit Group presented at the Euromoney Conference in Salonica, the average Bulgarian household consists of 2.8 rooms, while the average for the European Union is 4.2 rooms. However, the size of the living area in Bulgaria fairs better than in many other countries in Eastern Europe like: Romania (2,6 rooms), Ukraine (2.3 rooms), Lithuania (2.5 rooms) and Latvia (2.4 rooms).

According to the UniCredit Group Bulgaria has the highest number of home owners in the EC. There are on average 486 apartments per 1000 people in the country, while this ratio for the EU is 472 apartments and in South-East Europe – 413.15% of the Bulgarians intend to buy their own property in the next decade. However, according to the legal and financial advisers the recession will lead to slowing down in crediting. The growth of crediting in 2007 has reached 63%, while this year it will barely come to 40% and it is expected to slow down to only 25% in 2009.

The Bulgarian banks have introduced tougher rules for lending money after two days of stopping crediting. Now they lend money only for the purchase of properties which can be easily sold if reposessed. Families with total income under 1500 levs per month can not take a mortgage to purchase an apartment in one of the larger cities. To such families the banks offer only small size credits with monthly instalments not exceeding 50 Euros. While in the past the banks were satisfied if the monthly repayment instalments were up to 50% of the total income of a family, now they restrict the instalments to not more than 39% of the monthly income. The average mortgage interest is 8.2% per annum and the average instalment is 360 Euros per month, which is an increas of 40 Euros for the last six moths.

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.

After the property boom in the last 5 years, the market has calmed down according to the big Bulgarian property agencies. The supply has exceeded the demand by 50%. At the moment more than 4 million square metres of living area is being built in Sofia alone, which in other terms means about 60 000 apartments that will be on the market in 2 years time. In the first six months of 2008 the prices of apartments have increased on average by 17% in the Bulgarian regional centres, while for Sofia this figure is 21%. Due to the increase of the interest rate and the inflation the number of the purchases has decreased after April by 10%. At the same time, banks have been trying to activate the market by keeping the interest rates low and by giving mortgages in stable but not so popular currencies like Swiss Francs. Four factors determine the development of the property market – the supply, the inflation rate and the higher price of mortgages and the more strict criteria of the banks. According to specialists, the property market in Sofia has reached its peak and a secondary market of the newly built properties has emerged. However, more serious conclusions can be drawn in the end of the year.