Bulgaria’s house prices continue to rise strongly

Lalaine C. Delmendo | December 10, 2018

Bulgaria house pricesBulgaria´s housing market remains strong, buoyed by low interest rates and a strong economy.

The nationwide house price index rose by 7.51% (4.22% inflation-adjusted) during the year to Q2 2018, according to the National Statistical Institute (NSI). During the latest quarter, house prices increased 2.8% (2% inflation-adjusted) in Q2 2018.

  • Prices of new dwellings rose by 7.2% (3.9% inflation-adjusted) during the year to Q2 2018, almost unchanged from the previous year´s 7.3% y-o-y rise. During the latest quarter, prices of new dwellings increased 3.9% (3.1% inflation-adjusted).
  • Prices of existing dwellings rose by 7.7% (4.4% inflation-adjusted) in Q2 2018 from a year earlier, lower than the 9.2% y-o-y growth in Q2 2017. Quarter-on-quarter, existing house prices increased 2.3% (1.5% inflation-adjusted).

The almost zero interest rates on bank deposits have encouraged people to invest in real estate, and also encouraged purchases of pre-construction residential property.

Despite strong demand, construction remains low. During the first three quarters of 2018, newly built dwellings fell by 9.2% to just 5,759 units from the same period last year, according to the NSI.

From 2000 to 2008, Bulgaria had a house price boom, with residential property prices surging around 300%. The bubble burst at the end of 2008.

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
Source: National Statistical Institute

Demand for properties in the major cities continues to grow, and supply is increasingly limited by low levels of new construction.

Bulgaria´s economy is expected to expand by 3.5% this year and by 3.7% in 2019, after 3.8% in 2017 and annual average growth of 1.2% from 2009 to 2016, according to the European Commission.

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

Bulgaria house price annual dwellings

All Bulgaria´s major cities saw strong house price rises during the year to Q2 2018.

  • Sofia, Bulgaria´s capital, saw an overall house price increase of 8.3% y-o-y in Q2 2018. Prices for existing dwellings rose strongly by 10.1% while new dwellings saw a price increase of 4.4%.
  • Varna, the largest city and seaside resort on the Black Sea Coast, recorded an overall house price rise of 5.6% during the year to Q2 2018. Over the same period, prices of new dwellings rose by 5.1% while existing dwelling prices increased 5.9%.
  • In Plovdiv, the second largest city in Bulgaria, saw the biggest house price rise of 12.9% during the year to Q2 2018. Prices of existing dwellings increased by 14.4% while new dwelling prices rose by 10.1%.
  • In Burgas, overall house prices increased 6.4% during the year to Q2 2018. New dwelling prices rose by 7.1% while existing dwelling prices increased 5.1%.
  • In Ruse, overall house prices rose strongly by 10.5% in Q2 2018 from a year earlier. New dwelling prices increased 9% while existing dwelling prices rose by 10.8%.
  • In Stara Zagora, overall house prices increased 5.8% y-o-y in Q2 2018. Existing dwelling prices surged by 7.4% while new dwelling prices rose by just 0.8%.

Most sought-after locations in Sofia

Bulgaria dwellings stock units

Sofia, Bulgaria´s capital city, remains one of the most preferred locations in the country. In H1 2018, 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, ranging from €1,500 to €2,000 per sq. m. Strelbishte and Gotse Delchev are also preferred neighbourhoods with property prices between €1,100 and €1,400 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 €1,200 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 €1,100 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 €800 to €1,100 per sq. m.

Ski resorts led sales growth

Bulgaria hpi major cities

Bansko in southwestern Bulgaria, gateway to numerous ski and snowboard slopes on Todorka Peak, saw transactions surge by 15% during the first three quarters of 2018, according to Bulgarian Properties.

The other two big ski resorts in the country, Pamporovo and Borovets, also recorded strong increases in sales volumes of 10% and 11%, respectively.

"This shows that the ski resort property market in Bulgaria is already active all-year-round, and during the summer months there is a particularly high demand for property to buy," said Polina Stoykova, the Executive Director of Bulgarian Properties.

"The main reasons for the increasing attractiveness of the properties in the ski resorts are the attractive prices on one hand, which are the best in Europe, and on the other hand - the improving infrastructure, the easy and fast access from the big cities, the accumulated experience in the management and maintenance of the complexes and above all - the ski resorts in Bulgaria have turned into all-year-round resorts," Stoykova added.

Only about 40% of property buyers in Bansko are Bulgarians and the rest are foreigners. This is in contrast to Borovets and Pamporovo where almost all buyers are Bulgarians who live in Sofia and other major cities.

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.

In Sofia, property sales also increased 12% y-o-y to 5,631 units in Q1 2018 – an acceleration from annual growth of about 8% in 2015 and 2016 and 6% in 2017, according to the Registry Agency. The most active districts are Krastova Vada, Manastirski Livadi, Mladost 4, Studentski Grad and Vitosha.

Construction still way below peak, and falling

Bulgaria residential construction

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 2017 only 8,384 units were built - a similar low level to previous years since 2010.

During the first three quarters of 2018, dwelling newlybuilds fell again by 9.2% to just 5,759 units.

Interest rates remain low

Bulgaria interest rates

The average mortgage interest rate for BGN-denominated loans fell to a record low of 3.33% in September 2018, from 3.88% in a year earlier, according to the Bulgarian National Bank. The average mortgage rate for Euro-denominated loans increased slightly to 4.41%, from 4.18% a year ago.

For BGN-denominated loans, in September 2018:

  • Interest rate fixation (IRF) of up to 1 year: 3.33%, down from 3.88% a year earlier
  • IRF over 1 and up to 5 years:  3.47%, down from 4.06% a year ago
  • IRF over 5 and up to 10 years: 4.2%, down from 4.75% a year ago
  • IRF over 10 years: 3.31%, down from 4.68% a year earlier

For Euro-denominated loans, in September 2018:

  • IRF of up to 1 year: 4.49%, up from 4.18% a year earlier
  • IRF over 1 and up to 5 years: 3.45%, down from 4.05% a year earlier
  • IRF over 5 and up to 10 years: 4.21%, down from 4.79% a year ago
  • IRF over 10 years: 4.58%, slightly up from 4.53% a year ago

Small mortgage market

Bulgaria´s mortgage market is now showing signs of improvement, after several years of decline. In September 2018, there were about BGN245.65 million (€125.63 million) new housing loans drawn, up 11.6% from the same period last year. 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 9.9% to BGN10.23 billion (€5.23 billion) in September 2018 from the same period last year, according to the Bulgarian National Bank.

In 2017, the size of the mortgage market expanded slightly to 9.58% of GDP, up from 9.35% of GDP in 2016 but still down from 11.65% of GDP in 2010.

The mortgage market experienced massive expansion during the boom years from just 0.38% of GDP in 2000.

Rental yields are moderately good

Bulgaria gdp inflation

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 6% in September 2018, 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. 

Robust economic growth, improving finances

In Q2 2018, Bulgaria´s economy expanded by 3.4%, slightly down from the previous quarter´s 3.5% expansion and the prior year´s 3.7% growth, according to the NSI.

In Q2 2018:

  • Domestic consumption rose by 4.8% y-o-y, up from 3.3% growth in Q1 2018
  • Gross fixed capital formation rose by 4.6% y-o-y, down from 7% growth in the previous quarter
  • Exports increased 1.7% while imports rose by 4.3% from a year earlier

Bulgaria´s economy is expected to grow by 3.5% this year and by another 3.7% in 2019, from an annual growth of 3.8% in 2017, according to the European Commission.

The country recorded a budget surplus of 0.9% of GDP in 2017. It was the country´s second consecutive year of budget surplus since 2008. During the first nine months of 2018, the country recorded a budget surplus of BGN2.66 billion (€1.36 billion), equivalent to 2.5% of this year´s estimated GDP.

Inflation reached 3.6% in September 2018, the highest level for six years, based on figures from the NSI. Consumer prices are expected to increase by about 2.6% this year, after inflation of 1.2% last year and deflations of 1.3% in 2016, according to the IMF.

Unemployment stood at 5.3% in September 2018, down from 6% a year earlier, according to the Eurostat. Unemployment is expected to be 6% this year and 5.8% in 2019, according to the European Commission.

  

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