LM Legal Services Blog

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.