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.

The number of property purchases in Bulgaria has decreased by 40% in 2008 in comparison with 2007, and in the mountain ski resorts like Bansko, Pamporovo and Borovets it has reached a decrease by 80%, while at the Black Sea cost it is significantly less – by 30%.  This has lead to a price drop and in the resorts currently there are very cheap properties on offer.

At the same time in Sofia the decrease in the number of purchases is 33%, while in Plovdiv it is 50%. The smallest decrease is in Vidin, where it is only 15% in comparison with 2007.

This is mainly due to the recession in the last three months of 2008. Until October 2008 the purchase prices have been on average 26% higher than the ones in 2007.  The the market virtually went dead and it has not been possible to make real statistics of the prices, in some cases prices were 20% lower than in 2007.

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.

Despite the financial crisis, the property prices in the suburbs of Sofia have been constantly increasing due to the migration of people from smaller towns and villages who seek employment in the capital. In the last year, more than 30 000 people have relocated to Sofia, while 12 000 people have moved to Varna, the second largest Bulgarian city. The same tendency can be seen in Plovdiv, Russe and Burgas. The newcomers to the cities usually look for cheaper properties in the suburds. As result the prices of apartments in those areas keep rising. The average porperty price in Sofia is 1094 Euros per square metre, while in the county it is 588 Euros per square metre. The studios seem to be very popular and their sales have increased by 17% in the last months. At the same time the demand for one-bedroom apartments have decreased by 28% and of larger apartments by 3%. Most of the sales are of newly built properties.

Office and retail rents fall and will keep falling in the next two years according to Raiffeisen Property. In short term the office space on offer will outnumber the demand. The same tendency is valid for retail space, as only in the next 2.5 years it is expected that the retail space will increase eight times.

Meanwhile the interest of investors is expected to decrease due to the world crisis which has hit the property market. As result the secondary market will become rather active.  Those who bought property as investment will rush to sell it. The demand will be focused mainly in the cities. The prices of high quality residential property will rise in expensive city areas.

In the mountain and sea resorts there are too many properties on offer. In the end of 2007 there were more than 80 000 newly built properties there, while currently there is demand for about 65% of them.