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May 30, 2012


Bulgarian house price falls continue, but at a slower pace


 Bulgaria house prices

After three years of house price falls, the Bulgarian housing market remains in the doldrums.

During the year to end-Q1 2012, the average price of existing flats in Bulgaria dropped by 4.3% to BGN884 (€452) per square metre (sq. m.), after price falls of 6.4%, 6.1% and 6.2% over the year to the previous three quarters, according to the National Statistical Institute (NSI). Property prices in Bulgaria are 38% lower than the Q3 2008 peak of BGN1,418 (€725) per sq. m..

In Sofia, the capital, the average price rose by 0.8% q-o-q in Q1 2012 to BGN1,465 (€749) per sq. m., but there was still a y-o-y fall of 2.1%. Compared to the housing price peak of Q3 2008, the average price in Sofia has now fallen by 38% (-41% inflation-adjusted).

A massive house price boom led prices to surge by around 300% from 2000 to 2008. However, contagion from the global financial crisis caused the Bulgarian property bubble to burst by end-2008.

  • In 2009, the average price of existing dwellings plunged by 26.3% (-26.4% inflation-adjusted) from a year earlier
  • In 2010, house prices dropped by 5.6% (-9.5% inflation-adjusted) from the previous year
  • In 2011, the average price of existing dwellings fell by 6.2% (-9% inflation-adjusted) from a year earlier

In 2011, there were a total of 13,953 dwellings completed in Bulgaria, down by 11.5% from a year earlier and down by 36.7% from 2009.

The economy grew by a modest 1.7% in 2011, from a GDP growth of 0.4% in 2010 and a contraction of 5.5% in 2009.

In 2012, the Bulgarian economy is expected to slow to 0.5%, due to the eurozone debt crisis, and so Bulgaria’s housing market is expected to remain depressed in 2012.

Foreign demand has fallen off a cliff

Bulgaria FDI flow graph

A large part of foreign investments (FDI) entering Bulgaria in recent years went into real estate, and these have shrunk dramatically. Real estate FDI was only €61 million in Q1 2010, down from €182.2 million a year ago, and massively down from the peak of €853.6 million of Q3 2007.

The housing downturn in Bulgaria started when the global financial crisis hit Europe in late 2008.

Sales are picking up

Despite the weak prices, some agents say sales surged by 40% in Q1 compared to the same quarter last year. According to Colliers Bulgaria, sales began to pick up as early as August 2009, after months of stagnation. Houses priced below €1,000 per square metre were the most marketable.

British and Russians are the top foreign buyers of Bulgarian real estate, buying holiday houses near the Black Sea and the Danube River. Hit by the financial crisis, in Q1 2010 there was a net outflow of €30 million of UK investment from Bulgaria, in sharp contrast to the inflow of €129.8 million in Q1 2009.

Russians remain net buyers. There was an investment inflow from Russia of €43.6 million in Q1 2010, down from €73.7 million the year earlier, in Q1 2009.

The economy has emerged from recession

Bulgaria gdp growth graph

Bulgaria’s GDP rose 0.3% seasonally-adjusted q-o-q to Q3 2010, after a 0.5% expansion in Q2. From a year earlier, the economy expanded 0.2% in Q3 after a -0.3% in Q2 and -0.8% in Q1 2010. The over-all change in GDP for 2010 is expected to be around -0.5%.

Economic growth is expected to accelerate in 2011, with a GDP expansion of 2.6%. Then 3.2% growth is likely in 2012, according to the European Commission.

Unemployment is expected to climb to 9.8% by the end of 2010, from 6.3% in 2008 and 9.1% in 2009. Unemployment is anticipated to ease slightly to 9.1% in 2011 and 8% in 2012.

The global financial crisis sent Bulgaria into recession in 2009. After growing by 6% in 2008, the Bulgarian economy shrank 5% in 2009. Exports, consumption and capital formation were all down. The economy continued to deteriorate in Q1 2010, with GDP down by 4% from Q1 2009 – the second largest GDP fall among European Union countries.

Bulgaria dwellings completed graph

The unemployment rate rose to 10.2% in Q1 2010, significantly higher than last year’s 6.8%. This was also the highest since 2006.

Many housing construction projects have been halted. Dwellings completed in Q1 2010 were 26.9% down from Q1 2009, and building permits were 32.8% lower. But the really significant decline had happened a year earlier - Yambol and the capital city of Sofia had huge declines of more than 70% year-on-year to Q1 2009.

The struggling mortgage market

Bulgaria outstanding housing loans graph

Weak credit demand and stringent loan policies have meant a decrease in the amount of housing loans New housing loans granted from January to May 2010 amounted to BGN501.3 million, 4.9% higher than during the same period last year, but 65.9% lower than during the same months in 2008.

In May 2010, non-performing housing loans reached BGN 48.6 million, or 13.1% of the Bulgaria’s total bad debts. In response, banks lowered the maximum loan-to-value ratio to 50%, and have implemented strict income and property requirements.

Bulgaria interest rates graph

The average mortgage interest rate in May was down to 8.55%, from 10.09% in 2009, for BGN-denominated loans. Euro-denominated loan rates were down to 8.29%, from 8.59% in 2009.

   





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