Bulgaria’s housing market still resilient
Lalaine C. Delmendo | October 15, 2021
After six years of strong house price rises, Bulgaria’s housing market remains vibrant. The nationwide house price index rose by 7.51% (6.83% inflation-adjusted) during the year to Q1 2021, accelerating from a y-o-y rise of 4.7% during the same period last year, according to the National Statistical Institute (NSI) – the strongest house price growth in three years.
- Prices of new dwellings rose by 6.7% during the year to Q1 2021, sharply up from the previous year’s 2% y-o-y rise. When adjusted for inflation, prices increased 6%. During the latest quarter, prices of new dwellings were up 3.4% (2.5% inflation-adjusted).
- Prices of existing dwellings rose by 8% (7.3% inflation-adjusted) in Q1 2021 from a year earlier, the biggest y-o-y growth since Q1 2018. Quarter-on-quarter, existing house prices increased 3% (2.2% inflation-adjusted).
In recent years almost zero interest rates on bank deposits have encouraged people to invest in real estate. That’s why the housing market started to rise in 2014 and has been accelerating ever since, recovering from a massive crash after the boom from 2000 to 2008, when residential property prices surged around 300%.
HOUSE PRICE INDEX, ANNUAL CHANGE (%)
|Sources: National Statistical Institute, Global Property Guide|
Demand continues to rise. In Sofia, Bulgaria’s capital, there were 6,683 registered property sales in Q1 2021, up by 26% from a year earlier, according to the Registry Agency.
“The housing market made a very strong start in 2021. The activity was greater than in the beginning of 2020 before the pandemic, and from the same period of 2019. At times it was even euphoric. It seems that the housing market has overcome the pandemic crisis and continues its upward cycle,” said Polina Stoykova Mrics of Bulgarian Properties.
In H1 2021, residential building permits rose by 21.3% y-o-y to 3,291 while completions increased 13.8% y-o-y to 1,763 units. However construction is expected to slow in the short term due to the rising construction materials costs. New construction prices will go up by 10% to 13% in the coming months, according to Bulgarian Properties.
“It is expected that demand will outpace supply, due to its high levels and the slower pace of new construction in the second half of the year,” said Colliers International in its H1 2021 Residential Market Report. “The rising prices of construction materials could affect the start of some projects, postponing them until next year. In the short term, this will lead to a decline in supply and higher prices.”
The economy is projected to grow by 4.6% this year and by another 4.1% in 2022, after declining by 4.2% during 2020, according to the European Commission. In Q2 2021, Bulgaria’s economy expanded by 9.9% from a year earlier, following a 1.8% contraction in Q1, according to NSI. It was the first quarter of y-o-y expansion in five quarters, mainly due to low base effect from the pandemic shock last year.
European Union citizens can purchase properties in Bulgaria, including land. Before January 2012 foreigners could purchase land only in the name of a legal entity and were not allowed to own a property.
Local house price variations
Most of Bulgaria’s major cities saw strong to moderate house price rises during the year to Q1 2021.
- Sofia, Bulgaria’s capital, saw the biggest y-o-y house price increase of 11.6%. Prices for new dwellings rose by 11.9% while existing dwellings saw a price increase of 11.4%.
- Plovdiv, the second largest city in Bulgaria, saw a modest overall house price growth during the year to Q1 2021, at 4.3%. Prices of new dwellings increased slightly by 0.8% while existing dwelling prices rose strongly by 7.1%.
- Varna, the largest city and seaside resort on the Black Sea Coast, saw almost steady house prices during the year to Q1 2021. Over the same period, prices of new dwellings rose by a miniscule 0.4% while existing dwelling prices fell by 0.9%.
- In Burgas, overall house prices rose by 4.9% during the year to Q1 2021. New dwelling prices were up 5.5% while existing dwelling prices increased 4.6%.
- In Ruse, overall house prices rose by 5.3% in Q1 2021 from a year earlier. New dwelling prices fell slightly by 0.9% while existing dwelling prices rose by 6.5%.
- In Stara Zagora, overall house prices increased 7% y-o-y in Q1 2021. New dwelling prices rose by 4.6% while existing dwelling prices surged by 7.9%.
Most sought-after locations in Sofia
Sofia, Bulgaria’s capital city, remains one of the most preferred locations in the country. In H1 2021, the average sales price ranged from €156,000 to €194,000 for two-bedroom apartments and from €226,000 to €270,000 for three-bedroom apartments, according to Colliers International. Prices of houses start at €486,000.
Sofia’s Southern districts are currently experiencing strong interest from both locals and foreign buyers. In Lozenets and the city center, demand remains high despite that fact that these locations have the highest property prices in the country, currently at an average of €2,000 per sq. m. Strelbishte and Gotse Delchev are also preferred neighbourhoods with property prices between €1,200 and €1,500 per sq. m.
The Krastova Vada and Hladilnika districts, particularly along the Cherni Vrah Boulevard and around the Paradise Center shopping mall, are also popular because of their amenities, trade centres, improved infrastructure, proximity to Vitosha Mountain and the future opening of metro stations. The average residential property price in Kraskova Vada currently stand at about €1,300 per sq. m.
Other districts in demand include Studentski Grad and Vitosha because of the availability of newly-built homes at affordable prices. The average price of dwellings in Vitosha is currently at €1,200 per sq. m. while it is €1,100 per sq. m. in Studentski Grad. Manastirski Livadi, Mladost and Vrabnitsa districts are also popular with average house prices ranging from €1,000 to €1,300 per sq. m.
Seaside resorts remain resilient
Amidst the pandemic, many investors have turned their focus to Bulgaria’s mountain resorts. In the first half of 2021, almost twice as many deals were made in the seaside resorts compared to a year earlier, according to Bulgarian Properties. The deals were also higher than in the same period of 2019.
South of Bourgas, apartments with seaviews in Sozopol, Chernomorets, and Lozenets remain some of the most popular. Top complexes offer properties at €2,000 per sq. m. but one can still fetch properties at €1,000 to €1,500 in other locations.
In the Sunny Beach, the country’s largest resort, prices of one-bedroom apartments currently stand at €490 to €500 per sq. m. In the neighboring Sveti Vlas, which offers many seaside properties, prices are higher, at about €600 per sq. m.
Pomorie is also gaining popularity among investors, especially from Bulgarians and Russian buyers. Also, the regions of Kayarna, Byala, and Blachik near the Northern Black Sea coast, have recently seen an increase in buyer interest.
Investors are looking for investments that provide capital gains and rental returns. Holiday homes in seaside and ski resorts are now considered attractive as rental income investments. Most properties are purchased for cash.
Rental yields are moderately good
Sofia has moderate to good gross rental yields - i.e., the rental return on a property if fully rented out, before all expenses. Yields in the centre were almost unchanged in the past few years, at around 4% to 6%, based on a research conducted by the Global Property Guide. Yields a little further out are similar.
Doctor’s Garden, Ivan Vazov, Iztok and Lozenets are among the most sought after addresses in the centre. Embassies, museums and universities are located here. These areas also have many parks and green spaces, making them popular with expats.
In the southern part of Sofia in Vitosha Mountain (or in the vicinity) are prestigious suburban neighborhoods like Boyana and Dragalevtsi. Though new developments being built here are increasing the stock of rental apartments, we find better yields here on the very smallest apartments, with yields stretching up to 6.4%.
The Global Property Guide was not able to provide yields in Bulgaria’s beach and ski areas, because rents in these areas are highly seasonal.
Transaction costs in Bulgaria are moderate, and more or less evenly split between buyer and seller.
The rental market remains stable despite the pandemic. In H1 2021, the average monthly rent in Sofia ranged from €950 to €1,200 for two-bedroom apartments and from €1,300 to €1,600 for three-bedroom apartments, unchanged from a year earlier, according to Colliers International. Rents for houses start at €2,000 per month.
Demand remains strong
Despite the pandemic, demand remains strong, thanks to growing household incomes, low mortgage rates, as well as low unemployment. During 2020, residential property transactions rose by 4.6% in 2020 from a year earlier, according to the Eurostat.
Strong demand continued this year. In Sofia, there were 6,683 registered property sales in Q1 2021, up by 26% from a year earlier, according to the Registry Agency.
“High levels of demand characterized the first half of 2021 – the property types attracting highest interest were houses with 3 bedrooms, ground floor apartments with courtyards and villas near Sofia,” said Colliers International. “Newly built residential properties continued to be preferred by buyers. Transactions were also concluded at early construction stages as with the progression of the development choices became more limited.”
Supply still rising, but to slow in the coming months
Residential construction activity continues to rise, but it is expected to slow in the coming months due to the rising prices of construction materials. During 2020, dwelling completions reached a record high of about 15,000 units, despite pandemic-related restrictions.
From 2005 to 2011, 16,700 dwelling units were completed every year. Construction peaked in 2009 when dwellings completed exceeded 22,000 units. However completions then fell sharply, and in 2018 only 8,136 units were built - a similar low level to previous years since 2010. Construction activity bounced back strongly in 2019, with the total number of newly built dwellings surging almost 49% y-o-y to 12,105 units, according to the NSI.
In H1 2021, residential building permits rose by 21.3% y-o-y to 3,291 while completions increased 13.8% y-o-y to 1,763 units.
The total dwelling stock rose by 0.4% y-o-y to 3,985,172 units in 2020, according to the NSI.
Interest rates remain low
The average mortgage interest rate for BGN-denominated loans fell to a record 2.73% in June 2021, from 2.92% in a year earlier, according to the Bulgarian National Bank. Likewise, the average mortgage rate for euro-denominated loans fell to 3.11% in June 2021, down from 3.53% a year ago.
For BGN-denominated loans, in June 2021:
- Interest rate fixation (IRF) of up to 1 year: 2.74%, down from 2.91% a year earlier
- IRF over 1 and up to 5 years: 2.46%, down from 2.73% a year ago
- IRF over 5 and up to 10 years: 1.76% (in May 2021), down from 4.38% a year ago
- IRF over 10 years: 4.07% (in May 2021), up from 3.56% a year earlier
For Euro-denominated loans, in June 2021:
- IRF of up to 1 year: 3.13%, down from 3.53% a year earlier
- IRF over 1 and up to 5 years: 2.59%, down from 3.22% a year earlier
- IRF over 5 and up to 10 years: 4.59%, up from 4.33% a year ago
- IRF over 10 years: 3.56%, down from 4.54% a year ago
Mortgage market is growing strongly
Bulgaria’s mortgage market continues to grow strongly. In the first half of 2021, new housing loans were up 36.6% from the same period last year, with about BGN2.4 billion (€1.2 billion) new loans. About 94% of the new housing loans are BGN-denominated loans, with IRF of up to 1 year.
Total outstanding housing loans increased strongly by 11.2% to BGN 12.94 billion (€6.62 billion) y-o-y in June 2021, reaching 10.2% of GDP, according to the Bulgarian National Bank. The mortgage market experienced massive expansion during the boom years from just 0.38% of GDP in 2000.
In Q2 2021, Bulgaria’s economy expanded by 9.9% from a year earlier, following a 1.8% contraction in Q1, according to NSI. It was the first quarter of y-o-y expansion in five quarters, mainly due to low base effect from the pandemic shock last year.
In Q2 2021:
- Domestic consumption rose by 6.2%, a sharp improvement from the prior year’s meager growth of 0.4%
- Gross fixed capital formation surged 12.2%, in contrast to a y-o-y fall of 14.1% in Q2 2020
- Exports rose strongly by 20.4% y-o-y, in stark contrast to a 19% fall in Q2 2020
- Imports surged 28.4% y-o-y, a sharp turnaround from the prior year’s 19.1% decline
On a quarterly basis, the economy expanded slightly by 0.6% in Q2 2021, a slowdown from a 2.5% q-o-q growth in the previous quarter but a sharp improvement from the record 10.1% fall in Q2 2020.
Bulgaria’s economy is projected to grow by 4.6% this year and by another 4.1% in 2022, after declining by 4.2% during 2020, according to the European Commission. Before it contracted last year, the economy had been expanding by an annual average of 3.6% in 2015-19, sharply up from an average growth of 0.4% in 2009-14.
During 2020, the budget deficit reached BGN 4.06 billion (€2.76 billion), equivalent to 3.4% of GDP, in contrast to a surplus of 2.1% of GDP in 2019 and breaking the country’s four consecutive years of surpluses.
Unemployment declined to 5% in July 2021, down from 7.9% a year earlier, thanks to the government’s job support schemes aimed at helping businesses weather the effect of the pandemic. Nationwide unemployment averaged 5.2% in 2017-20.
Inflation accelerated to 3% in July 2021, the steepest rise since March 2020, amidst an increase in housing and utilities, and transport costs, based on figures from the NSI. Overall inflation is expected to increase to 1.9% this year, from just 1.2% in 2020, according to the European Commission.
- Economic forecast for Bulgaria (European Commission): https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/bulgaria/economic-forecast-bulgaria_en
- Bulgaria reports EUR 2.76 bln budget deficit in 2020 (Budapest Business Journal): https://bbj.hu/economy/finance/debt/bulgaria-reports-eur-2-76-bln-budget-deficit-in-2020
- Rental yields are moderate in Sofia, Bulgaria (Global Property Guide): https://www.globalpropertyguide.com/Europe/Bulgaria/Rental-Yields
- Residential Market Overview H1 2021 (Colliers International): https://www.colliers.com/en-bg/research/residential-market-overview-h1-2021
- Interest Rate Statistics Archive, 2021 (Bulgarian National Bank): https://www.bnb.bg/Statistics/StMonetaryInterestRate/StInterestRate/StIRArchiveInterestRate/index.htm
- Statistics on Loans and Deposits by Amount Category and Economic Activity (Bulgarian National Bank): https://www.bnb.bg/Statistics/StMonetaryInterestRate/StDepositsAndCredits/StDCCredits/StDCDataSeries/index.htm
- How Covid pandemic affected Bulgaria’s property market and house prices? (Bulgarian Properties): https://www.bulgarianproperties.com/Newsletter_archive/bulgarian-property-market-2020_521.html
- Hot summer for sea properties in Bulgaria - analysis of prices and trends in 2021 (Bulgarian Properties): https://www.bulgarianproperties.com/Property_news/sea-property-report-2021_9148.html
- Mihail Chobanov for BNR: Real estate market is booming in midst of Covid-19 epidemic (Bulgarian Properties): https://www.bulgarianproperties.com/Property_news/mihail-chobanov-za-bnr_9131.html
- Number of newly-built residential buildings, dwellings rises in Bulgaria in Q2 (Xinhuanet): http://www.xinhuanet.com/english/2020-08/07/c_139272983.htm
- Bulgaria - Residential Building Completions (Moody’s Analytics): https://www.economy.com/bulgaria/residential-building-completions/not-seasonally-adjusted
- Bulgaria House Price Index: by Regions and Major Cities: 2015=100 (CEIC): https://www.ceicdata.com/en/bulgaria/house-price-index-by-regions-and-major-cities-2015100
- Bulgaria House Price Index: 2015=100: New Dwellings (CEIC): https://www.ceicdata.com/en/bulgaria/house-price-index/house-price-index-2015100-new-dwellings
- Analysis of Bulgarian Properties for the housing market in Sofia in Q1 of 2021 (Bulgarian Properties): https://www.bulgarianproperties.com/Property_news/_9089.html
- Bulgaria’s house prices rising rapidly, due to strong economic growth - January 21, 2017
- Bulgaria’s housing market - getting better - April 15, 2016