Bulgaria Residential Real Estate Market Analysis 2022
Lalaine C. Delmendo | December 27, 2022
After eight years of strong house price rises, Bulgaria’s housing market remains vibrant. The nationwide house price index rose sharply by 14.6% during the year to Q2 2022, accelerating from a y-o-y rise of 9.1% during the same period last year, according to the National Statistical Institute (NSI) – the strongest house price growth since Q3 2008.
However in real terms, house prices actually fell by 1.9% y-o-y in Q2 2022, amidst surging inflation. Overall inflation accelerated to 17.7% in August 2022, sharply up from just 3.7% in the prior year and the highest reading since May 1998.
Source: National Statistical Institute
Quarter-on-quarter, nationwide house prices rose by 3.1% in Q2 2022 but actually declined 1.4% in real terms.
By property type:
- Prices of new dwellings rose by 12.3% during the year to Q2 2022, up from the previous year’s 7.2% y-o-y rise. When adjusted for inflation, prices dropped 3.9%. During the latest quarter, prices of new dwellings were up 2.4% (-2.1% inflation-adjusted).
- Prices of existing dwellings rose by a huge 16% (-0.7% inflation-adjusted) in Q2 2022 from a year earlier, the biggest y-o-y growth in recent history. Quarter-on-quarter, existing house prices increased 3.5% (-1% inflation-adjusted).
Demand continues to rise strongly, thanks to growing household incomes, low mortgage rates, as well as low unemployment. In the second quarter of 2022, the number and value of residential property transactions in Bulgaria soared by 26.8% and 38%, respectively, as compared to the same period last year, according to figures from the NSI.
Despite rising demand, residential construction activity is now showing signs of slowdown, due to the rising prices of building materials, coupled with supply chain disruptions. In the first half of 2022, dwelling completions fell by 6% y-o-y to 8,125 units.
Bulgaria’s housing market is projected to continue growing in the medium term, albeit at a slower pace, amidst weaker economic growth and an expected rise in interest rates. The nervous political situation in the country also increases uncertainty in the housing market, with President Rumen Radev calling for a snap election on October 2 – Bulgaria’s fourth parliamentary vote within two years – after the collapse of ex-Prime Minister Kiril Petkov’s government in June. The country is currently under the caretaker government of Prime Minister Galab Donev until a new administration is formed.
National Real Estate Association Chairperson Dobromir Ganev expects house prices in the country to increase by just 2% to 3% by end-2022. Yet Ganev reiterated that prices are unlikely to fall due to limited housing supply, especially in Sofia.
Bulgaria’s economy had been expanding by an annual average of 3.6% in 2015-19, before it contracted by 4.4% in 2020 due to the Covid-19 pandemic. The economy returned to growth in 2021, registering a real GDP growth rate of 4.2%. Economic growth is expected to slow to 2.8% this year, 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.
Bulgaria’s housing cycle
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 in 2009-13 caused by the global financial crisis and the eurozone debt crisis.
Prior to the global crisis, Bulgaria experienced a massive boom from 2000 to 2008, with residential property prices surging around 300%.
HOUSE PRICE INDEX, ANNUAL CHANGE (%)
|Sources: National Statistical Institute, Global Property Guide|
Local house price variations
Most of Bulgaria’s major cities saw strong house price rises during the year to Q2 2022.
- Sofia, Bulgaria’s capital, saw one of the biggest y-o-y house price increase of 17.3%. Prices for new dwellings rose by 14.4% while existing dwellings saw a price increase of 19.4%.
- Plovdiv, the second largest city in Bulgaria, saw a more modest overall house price growth during the year to Q2 2022, at 8.6%. Prices of new dwellings increased moderately by 3.6% while existing dwelling prices rose strongly by 12.9%.
- Varna, the largest city and seaside resort on the Black Sea Coast, registered a y-o-y house price increase of 7.9% in Q2 2022. Over the same period, prices of new dwellings rose by a miniscule 0.2% while existing dwelling prices increased 12.4%.
- In Burgas, overall house prices rose by 14.9% during the year to Q2 2022. New dwelling prices were up 16.4% while existing dwelling prices increased 14.9%.
- In Ruse, overall house prices rose by a huge 23.3% in Q2 2022 from a year earlier. New dwelling prices skyrocketed by 28.6% while existing dwelling prices rose by 22.3%.
- In Stara Zagora, overall house prices increased 12.6% y-o-y in Q2 2022. New dwelling prices rose slightly by 2.2% while existing dwelling prices surged by 17.3%.
Most sought-after locations in Sofia
Sofia, Bulgaria’s capital city, remains one of the most preferred locations in the country. In H1 2022, the average sales price for two-bedroom apartments ranged from €180,000 to €230,000, up from €156,000 to €194,000 in the same period last year, according to Colliers International. For three-bedroom apartments in the capital city, prices also increased to €240,000 to €300,000 in H1 2022 from €226,000 to €270,000 a year ago. 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 the fact that these locations have the highest property prices in the country, currently at an average of €2,100 per sq. m. Strelbishte and Gotse Delchev are also preferred neighbourhoods with property prices between €1,300 and €1,700 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 €1,400 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 €1,400 per sq. m.
Seaside resorts are booming
Bulgaria’s sea and mountain resorts are experiencing a boom in demand. Some of the reasons, according to Bulgarian Properties:
- Increased need for a private place to retreat outside the big, crowded cities;
- Ability to work remotely, which turned some vacation properties into long-term residences, and;
- An increasing number of people are investing in safe assets like real estate due to soaring inflation.
As a result, transaction volumes in Bulgarian resorts are rising strongly. “Examples of this are Nessebar with nearly 90% growth in the second quarter of 2022, Tsarevo and Smolyan - with 34% each, Balchik - 30%, Pomorie - 17%,” said Bulgarian Properties.
South of Bourgas, apartments with seaviews in Sozopol, Chernomorets, and Lozenets remain some of the most popular. Top complexes offer properties at €2,000 to €2,500 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, the average residential property price reached €580 per sq. m. in Q2 2022, based on real transactions according to Bulgarian Properties. This is an increase of almost 20% from €490 per sq. m. a year ago.
In the neigboring Sveti Vlas, which offers many seaside properties, prices are higher, at more than €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 May 2022 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.
For those who are really chasing yields, Studenski Grad apartments may be worth considering, with gross rental yields of 7% for the smaller sizes.
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 Sofia, the rental market remains strong despite the pandemic and heightened global economic uncertainty. In the first half of 2022:
- Two-bedroom apartments: the average monthly rent ranged from €1,000 to €1,300, slightly up from €950 to €1,200 a year earlier, according to Collier International’s H1 2022 Residential Market report for Sofia.
- Three-bedroom apartments: rents averaged €1,400 to €1,700 per month, up from €1,300 to €1,600 per month in H1 2021.
- Houses: monthly rental rates start at €2,150, up from €2,000 in the previous year.
Property transactions rising strongly
Demand continues to rise strongly, thanks to growing household incomes, low mortgage rates, as well as low unemployment.
In the second quarter of 2022, the number and value of residential property transactions in Bulgaria soared by 26.8% and 38%, respectively, as compared to the same period last year, according to figures from the NSI.
Over the same period:
- New dwellings: the number of transactions rose by 21.9% y-o-y and transaction value increased 36.9%.
- Existing dwellings: the number and value of transactions rose by 28.9% and 38.7%, respectively.
Figures from the Registry Agency showed more muted growth, with property transactions in the country rising by a modest 4.3% in Q2 2022 from a year earlier, following an annual increase of 30% in 2021. This slowdown was mainly due to limited supply, according to Bulgarian Properties.
“…demand continued to be supported by favorable bank lending and rising incomes. Interest rates on mortgage loans continued to fall, and the volume of newly granted loans - to grow, maintaining the pace of 40% growth from 2021,” said Bulgarian Properties. “The other factors that influence the housing market also continued to have a positive impact - unemployment remained at low levels - around and below 5%, and incomes continued to grow - by around 10% on average for the country and 12% for Sofia in the first quarter according to NSI data.”
Construction activity slowing
Residential construction activity is now showing signs of slowdown, mainly due to the rising prices of building materials, aggravated by the disrupted supply chain of materials. In the first half of 2022, dwelling completions fell by 6% to 8,125 units as compared to the same period last year, according to NSI.
“New construction projects got off to a slower start due to rising material prices and supply difficulties, and those that were on the market were actively selling “off-plan”,” said the Bulgarian Properties.
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.
Despite the Covid-19 pandemic, residential construction activity continued to surge. Dwelling completions rose by 15.9% y-o-y to 17,868 units in 2021, following a 27.3% growth in 2020.
The total dwelling stock rose by 0.4% y-o-y to 4,001,873 units in 2021, according to the NSI.
Interest rates remain low
Though movements are mixed, the overall level of interest rates in Bulgaria remains relatively low. The average mortgage interest rate for BGN-denominated loans fell to a record 2.47% in July 2022, from 2.71% a year earlier and 2.89% two years ago, according to the Bulgarian National Bank.
On the other hand, the average mortgage rate for euro-denominated loans rose to 3.47% in July 2022, from 3.23% a year ago. This is not surprising given the recent decision of the European Central Bank (ECB) to raise its key rate from 0.5 % to 1.25 %, in an effort to rein in inflationary pressures in the region.
For BGN-denominated loans, in July 2022:
- Interest rate fixation (IRF) of up to 1 year: 2.47%, down from 2.71% a year earlier and 2.89% two years ago
- IRF over 1 and up to 5 years: 2.58%, up from 2.49% a year ago but down from 2.69% two years earlier
- IRF over 5 and up to 10 years: 3.3%, up from 1.76% in the previous year but down from 4.38% two years ago
- IRF over 10 years: 2.78%, from 3.56% a year earlier and 2.53% two years ago
For Euro-denominated loans, in July 2022:
- IRF of up to 1 year: 3.47%, from 3.23% in July 2021 and 3.53% in July 2020
- IRF over 1 and up to 5 years: 2.63%, up from 2.12% a year earlier and 1.49% two years ago
- IRF over 5 and up to 10 years: 2.07% (April 2022), from 4.59% a year earlier and 4.05% two years ago
- IRF over 10 years: 4.14%, from 3.5% in the previous year and 4.54% two years ago
Mortgage market is growing strongly
Bulgaria’s mortgage market continues to grow strongly. In August 2022, total outstanding housing loans increased strongly by 18% to BGN 15.58 billion (€7.97 billion) from the same period last year, following annual growth of 16.5% in 2021, 11.6% in 2020, 14.5% in 2019 and 11.8% in 2018, according to the Bulgarian National Bank.
More than 92% of the outstanding housing loans are BGN-denominated, with initial rate fixation (IRF) of over 5 years.
The mortgage market experienced massive expansion during the boom years. From just 0.38% of GDP in 2000, the size of the mortgage market grew to about 10.6% of GDP of 2021.
Modest economic growth, surging inflation
In Q2 2022, Bulgaria’s economy expanded by 4% from a year earlier, following y-o-y growth of 4.2% in Q1 2022, 5% in Q4 2021, 5.3% in Q3 2021 and 7.8% in Q2 2021, buoyed by strong domestic consumption, according to the NSI. Over the same period:
- Domestic consumption rose by 5.2% y-o-y, following a 5.1% growth in the previous quarter
- Gross fixed capital formation declined by 7.8% y-o-y, after falling 5.7% in Q1
- Exports were up 10.4% but imports increased at a faster rate of 16.7%
On a quarterly basis, the economy expanded by 0.8% in Q2 2022, at par with the previous quarter.
Recently, the European Commission raised Bulgaria’s economic growth forecast for 2022 to 2.8%, up from its spring estimate of 2.1%. However, it downgraded its 2023 growth projections from 3.1% to 2.3%.
“Overall, real GDP is expected to grow by 2.8% in 2022 and 2.3% in 2023. Compared to the Spring Forecast, the real GDP growth rate is 0.7 pps. higher in 2022 and 0.8 pps. lower in 2023,” said the European Commission. “The upward revision in 2022 reflects mainly the strong recovery in the first quarter of this year. The weaker external environment and tighter lending conditions, combined with the weaker real wage growth, explain the downward revision for 2023.”
Before it contracted by 4.4% in 2020 due to the Covid-19 pandemic, 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. The Bulgarian economy bounced back in 2021 with a 4.2% growth.
During 2021, the budget deficit reached BGN 5.43 billion (€2.78 billion), equivalent to 4.1% of GDP, based on figures released by the NSI, slightly up from a 4% shortfall in 2020 and in sharp contrast to a 2.1% surplus in 2019. The government debt amounted to BGN 33.28 billion (€17 billion) last year, which is equivalent to 25.1% of GDP.
Inflation accelerated to 17.7% in August 2022, sharply up from just 3.7% in the prior year and the highest reading since May 1998, amidst surging food and energy prices. Overall inflation is expected to increase to 12.5% this year, from just 2.8% in 2021 and 1.2% in 2019, according to the European Commission.
Despite this, the labour market remains strong. Unemployment declined to 4.7% in Q2 2022, down from 4.9% in the previous quarter and 5.6% a year earlier, as economic activity increases amidst the easing of pandemic-related restrictions, coupled with the government’s job support schemes aimed at helping businesses. Nationwide unemployment averaged 5.2% in 2017-21.
- House price statistics (National Statistical Institute): https://www.nsi.bg/en/content/13025/housing-price-statistics
- Sofia Residential Market Overview H1 2022 (Colliers International): https://www.colliers.com/en-bg/research/residential-market-overview-h1-2022
- The housing market in Sofia in 2022 - accelerated price growth and low supply (Bulgarian Properties): https://www.bulgarianproperties.com/Property_news/sofia-housing-prices-2022_9301.html
- Appreciation of Housing Prices to Slow Down by 2-3% by End-2022 (BTA Bulgarian News Agency): https://www.bta.bg/en/news/economy/312543-appreciation-of-housing-prices-to-slow-down-by-2-3-by-end-2022
- Newly built residential buildings completed (National Statistical Institute): https://www.nsi.bg/en/content/5781/11-newly-built-residential-buildings-completed
- Newly built dwellings completed (National Statistical Institute): https://www.nsi.bg/en/content/3137/newly-built-dwellings-completed
- Main Labour Force Survey Results, Second Quarter of 2022 (National Statistical Institute): https://nsi.bg/en/content/19734/%D0%BF%D1%80%D0%B5%D1%81%D1%81%D1%8A%D0%BE%D0%B1%D1%89%D0%B5%D0%BD%D0%B8%D0%B5/main-labour-force-survey-results-second-quarter-2022
- Unemployed and unemployment rates – national level; statistical regions (National Statistical Institute): https://nsi.bg/en/content/3998/unemployed-and-unemployment-rates-national-level-statistical-regions
- Bulgaria reports 0.8% economic growth in Q2 2022 (The Sofia Globe): https://sofiaglobe.com/2022/09/07/bulgaria-reports-0-8-economic-growth-in-q2-2022/
- Economic forecast for Bulgaria (European Commission): https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/bulgaria/economic-forecast-bulgaria_en
- Deficit and Debt of General Government Sector in the Republic of Bulgaria in 2021 (preliminary data) (National Statistical Institute): https://nsi.bg/en/content/19488/%D0%BF%D1%80%D0%B5%D1%81%D1%81%D1%8A%D0%BE%D0%B1%D1%89%D0%B5%D0%BD%D0%B8%D0%B5/deficit-and-debt-general-government-sector-republic-bulgaria-2021-preliminary-data
- Rental yields are moderate in Sofia, Bulgaria (Global Property Guide): https://www.globalpropertyguide.com/Europe/Bulgaria/Rental-Yields
- The housing market in Sofia in 2022 - accelerated price growth and low supply (Bulgarian Properties): https://www.bulgarianproperties.com/Property_news/sofia-housing-prices-2022_9301.html
- New chapter for the holiday homes in Bulgaria - market report (Bulgarian Properties): https://www.bulgarianproperties.com/Property_news/vacation-homes-in-Bulgaria-report-2022_9314.html
- Bulgarian president calls snap election on October 2 (Politico): https://www.politico.eu/article/rumen-radev-kiril-petkov-bulgaria-parliamentary-election-october-2nd-2022/
- Bulgaria’s house prices rising rapidly, due to strong economic growth - January 21, 2017
- Bulgaria’s housing market - getting better - April 15, 2016