Bulgaria’s house price rises decelerating

Lalaine C. Delmendo | October 04, 2019

After five years of strong house price rises, Bulgaria’s housing market is slowing sharply.  Bulgaria’s economy is expected to contract by around 7% this year because of the coronavirus pandemic.

Bulgaria house prices

The nationwide house price index rose by 4.72% (1.69% inflation-adjusted) during the year to Q1 2020, following y-o-y rises of 6.21% in Q4 2019, 5.58% in Q3, 5.02% in Q2 and 7.29% in Q1, according to the National Statistical Institute (NSI) - the slowest house price rises since Q1 2016.

  • Prices of new dwellings rose by 2% during the year to Q1 2020, sharply down from the previous year’s 11.9% y-o-y rise. In fact when adjusted for inflation, prices dropped 0.9%. During the latest quarter, prices of new dwellings fell slightly by 0.9% (-1.2% inflation-adjusted).
  • Prices of existing dwellings rose by 6.3% (3.2% inflation-adjusted) in Q1 2020 from a year earlier, higher than the 5% y-o-y growth in Q1 2019. Quarter-on-quarter, existing house prices increased 2.4% (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 (%)

Year Nominal Inflation-adjusted
2009 -25.72 -26.14
2010 -4.96 -9.08
2011 -5.81 -8.33
2012 -1.30 -5.33
2013 -1.20 0.40
2014 2.78 3.69
2015 3.98 4.37
2016 8.11 8.01
2017 8.15 5.24
2018 5.54 2.79
2019 6.21 2.31
Sources: National Statistical Institute, Global Property Guide

Demand is now falling. In Sofia, Bulgaria’s capital, property sales fell by 6.3% to 5,285 units in Q1 2020 from a year earlier, according to the Registry Agency.

In the first half of 2020, newly built dwellings soared 52% y-o-y to 7,133 units, following an almost 49% increase in 2019. Yet dwelling permits and starts have been derailed by coronavirus-related restrictions. In H1 2020, dwelling permits fell by almost 25% y-o-y to 12,245 units while dwelling starts dropped 9% y-o-y to 9,220 units.

House prices are expected to remain more or less steady in the medium term, amidst falling demand as well as supply.

“Supply is expected to shrink. It is likely that some sellers postpone the sale of their properties until the containment of the pandemic,” said Colliers International. “Projects that are scheduled to start construction in 2020 could potentially be delayed or suspended until next year. This will reduce supply in the short term and keep prices at their current level.”

Bulgaria’s economy is expected to contract by 7.1% this year, according to the European Commission, following expansions of 3.4% in 2019, 3.1% in 2018 and 3.8% in 2017 and annual average growth of 1.2% from 2009 to 2016.

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

All Bulgaria’s major cities saw strong to moderate house price rises during the year to Q1 2020.

  • Sofia, Bulgaria’s capital, saw an overall house price increase of 6.2% y-o-y in Q1 2020. Prices for new dwellings rose by 5.1% while existing dwellings saw a price increase of 7%.
  • Plovdiv, the second largest city in Bulgaria, saw the strongest price growth during the year to Q1 2020, at 8.3%. Prices of new dwellings increased 7.3% while existing dwelling prices rose by 9.2%.
  • Varna, the largest city and seaside resort on the Black Sea Coast, recorded an overall house price rise of 4.5% during the year to Q1 2020. Over the same period, prices of new dwellings rose by a miniscule 0.2% while existing dwelling prices increased strongly by 6.9%.
  • In Burgas, overall house prices rose by a modest 3.2% during the year to Q1 2020. New dwelling prices fell by 1.7% while existing dwelling prices increased 7.5%.
  • In Ruse, overall house prices rose by 4.3% in Q1 2020 from a year earlier. New dwelling prices increased 1.7% while existing dwelling prices rose by 4.7%.
  • In Stara Zagora, overall house prices increased 6.5% y-o-y in Q1 2020. New dwelling prices surged by 11.2% while existing dwelling prices rose by 4.9%.

Bulgaria house price annual dwellings

Most sought-after locations in Sofia

Sofia, Bulgaria’s capital city, remains one of the most preferred locations in the country. In H1 2020, the average sales price ranged from €145,000 to €180,000 for two-bedroom apartments and from €210,000 to €250,000 for three-bedroom apartments, according Colliers International. Prices of houses start at €450,000.

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, at an average of €1,900 per sq. m in Q1 2020, according to Bulgarian Properties. Strelbishte and Gotse Delchev are also preferred neighbourhoods with property prices between €1,100 and €1,400 per sq. m.

Bulgaria dwellings stock units

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 €1,250 per sq. m. in Q1 2020, according to Bulgarian Properties.

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 €1,100 per sq. m. while it is €1,000 per sq. m in Studentski Grad. Manastirski Livadi, Mladost and Vrabnitsa districts are also popular with average house prices ranging from €1,000 to €1,200 per sq. m. in Q1 2020.

In Sofia, there were 5,285 property sales in Q1 2020, down 6.3% from 5,641 sales a year earlier, according to the Registry Agency.

Ski resorts remain resilient

Amidst the pandemic, many investors have turned their focus to Bulgaria’s mountain resorts. From March to July 2020, deals in the mountain resorts increased 30%, according to Bulgarian Properties.

Borovets, the gateway to numerous ski and snowboard runs on Rila National Park’s craggy Musala Ridge, is leading the growth. The other two big ski resorts, Bansko and Pamporovo, have also recorded strong sales.

“The advantage of Borovets ski resort is that it is suitable for year-round tourism due to the availability of various activities and attractions in all seasons,” said Bulgarian Properties. “Also, in recent years, rental yields have gradually increased and have reached levels that attract investors who seek rental return on their investment.” Bulgarian Properties also added that the supply of properties in Borovets is limited, making it a more stable investment.

Bulgaria hpi major cities

In Euphoria Club Hotel & Resort, a luxury year-round complex in Borovets, the price of studios starts at €48,000 and one-bedroom apartments are offered for €63,000. Maisonettes and luxury villas are priced from €119,000 to €146,000.

Investors are looking for investments that provide capital gains and rental returns. Holiday homes in ski resorts are now considered attractive as rental income investments. Most properties are purchased for cash.

Residential construction derailed

Dwelling permits and starts have been derailed by coronavirus-related restrictions. In H1 2020, dwelling permits fell by almost 25% y-o-y to 12,245 units while dwelling starts dropped 9% y-o-y to 9,220 units.

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.

Bulgaria residential construction

Construction activity bounced back strongly last year, with the total number of newly built dwellings surging almost 49% y-o-y to 12,105 units, according to the NSI.

Interest rates remain low

The average mortgage interest rate for BGN-denominated loans fell to 2.89% in July 2020, from 3.07% in a year earlier, according to the Bulgarian National Bank. In contrast, the average mortgage rate for euro-denominated loans increased to 3.51% in July 2020, from 3.33% a year ago.

Bulgaria interest rates

For BGN-denominated loans, in July 2020:

  • Interest rate fixation (IRF) of up to 1 year: 2.89%, down from 3.07% a year earlier
  • IRF over 1 and up to 5 years: 2.69%, slightly down from 2.82% a year ago
  • IRF over 5 and up to 10 years: 4.38% (in May 2020), up from 3.73% a year ago
  • IRF over 10 years: 2.53%, down from 3.4% a year earlier

For Euro-denominated loans, in July 2020:

  • IRF of up to 1 year: 3.53%, up from 3.28% a year earlier
  • IRF over 1 and up to 5 years: 1.49%, sharply down from 5.04% a year earlier
  • IRF over 5 and up to 10 years: 2.27%, down from 3.03% a year ago
  • IRF over 10 years: 4.54%, down from 5.01% a year ago

Mortgage market still growing

Bulgaria’s mortgage market continues to grow strongly. In the first seven months of 2020, new housing loans were up 11.6% from the same period last year, with about BGN2.1 billion (€1.1 billion) new loans. More than 92% of the new housing loans are BGN-denominated loans, with IRF of up to 1 year.

Bulgaria housing loans

Total outstanding housing loans increased strongly by 12.7% to BGN 11.41 billion (€5.83 billion) y-o-y in July 2020, reaching 9.3% 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.

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 around 4% to 6% in 2019, almost unchanged from a year earlier, based on recent Global Property Guide research. 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.

In H1 2020, 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, according Colliers International. Rents for houses start at €2,000 per month.

Coronavirus hits Bulgaria’s economy

In Q2 2020, Bulgaria’s economy shrank 8.5% from a year earlier, as the COVID-19 pandemic hit the economy, according to the NSI. It was the biggest y-o-y contraction since Q4 1996.

In Q2 2020:

  • Domestic consumption growth slowed to 0.4% y-o-y, following a 4.1% growth in Q1 2020
  • Gross fixed capital formation fell sharply by 14.1% y-o-y, following an annul decline of 5.6% in the previous quarter
  • Exports were down 19% y-o-y, following a decline of 1.9% in Q1 2020
  • Imports fell by 19.1% y-o-y, far worse than the previous quarter’s 1.2% drop

On a quarterly basis, the economy contracted 10% in Q2 2020, the second-largest decline on record.

The Bulgarian government declared a State of Emergency on March 13 due to the pandemic, shutting down many businesses as it introduced social distancing measures. The declaration has been extended several times, most recently until end of September.

Bulgaria gdp inflation

Bulgaria’s economy is expected to contract by 7.1% this year, according to the European Commission, following expansions of 3.4% in 2019, 3.1% in 2018 and 3.8% in 2017 and annual average growth of 1.2% from 2009 to 2016.

Bulgaria’s deficit is expected to rise to 3% of GDP this year, amidst falling revenues coupled with rising spending. The country recorded a budget deficit of about 1% of GDP in 2019, mainly due to the country’s US$1.256 billion deal with the United States to acquire eight F-16 fighter jets.

Unemployment stood at 7.5% in August 2020, down from 7.9% in July, 8.3% in June, 9% in May and 8.9% in April, thanks to the government’s job support schemes aimed at helping businesses weather the effect of the pandemic. But it remains far higher than the 5.3% unemployment rate in August 2019.

Inflation was 1.2% in August 2020, down from 2.9% a year earlier, based on figures from the NSI. Overall inflation is expected to slow to 1% this year, according to the European Commission.


Sources:

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