Bulgaria’s housing market stagnating

January 21, 2013

  Bulgaria house prices

Bulgaria’s housing market remains sluggish.  Price declines are slowing, and the economy is improving a little, but the changes are happening so slowly that Bulgaria’s housing market seems unlikely to go anywhere soon.

In Q3 2012, the average price of existing flats in Bulgaria declined by 2.2% to BGN 881.2 (€451) per square metre (sq. m.), according to the National Statistical Institute (NSI). This price drop was a slight improvement on the 6.1% decline in 2011 and the 4.3% fall during the year to Q1 2012.

Property prices in Bulgaria are now 38% lower than at their Q3 2008 peak, when they reached BGN 1,418 (€725) per sq. m.

In Sofia, the capital, the average price of dwellings was down by 0.6% from a year earlier and by 41% from the peak, at BGN 1,447 (€740) per sq. m..

Out of 28 provinces of Bulgaria, 18 experienced price falls over the year to Q3 2012. Sharp price drops were recorded in Montana (-13.2%), Vratsa (-7.3%) and Pernik (-7.2%). Moderate price increases occurred in Targovishte (4.5%), Stara Zagora (4.5%) and Veliko Tarnovo (3.5%).

Bulgaria house prices oblast

From 2000 to 2008, Bulgaria had a house price boom. Residential property prices surged by around 300%.  However, the property bubble burst towards the end of 2008:

  • In 2009, the average dwelling price fell by 21.4% (-23.5% in real terms) from a year earlier;
  • In 2010, the average dwelling price fell by 10.1% (-12.2% in real terms);
  • In 2011, the average dwelling price plunged by 6.1% (-9.9% in real terms).

European Union citizens can now purchase properties in Bulgaria, including land.  The 5-year moratorium on land purchases, set as a condition in the Accession Treaty between Republic of Bulgaria and The European Union, was lifted in January 1, 2012.

Previously, foreigners could purchase land only in the name of a legal entity and were not allowed to own a property. The lifting of the ban now gives European citizens the right to own property as individuals.

Foreign demand has collapsed since the boom

Bulgaria foriegn investment

From 2006 to 2008, real estate was a quarter of total foreign direct investment (FDI) in Bulgaria, with a quarterly average of €541 million.  However, real estate FDI has shrunk since 2009. In Q3 2012, real estate FDI was only €7.6 million, down from the previous year’s €66.6 millio

Real estate deals up, a little

Despite sluggish house prices, Bulgaria managed a 6.6% increase in the number of property deals during Q3 2012, according to Bulgaria’s Registry Agency. In Sofia, real estate deals rose by 6%.

As of Q2 2012, foreign buyers of Bulgarian real estate made up of around 15% of the market, higher than 8% recorded in 2009, according to Stanislav Petrov, Select Properties Bulgaria’s sales manager.

Most foreign buyers are Russians, or around 80% of the total.  They are typically interested in one bedroom apartments costing €25,000 to €30,000, according to Kosta’s Homes Ltd. Real Estate Agency. British buyers are more interested in houses on the Black sea coast, and countryside homes.  The foreign investment inflow from Russia amounted to €64 million in Q3 2012, although it was still down from €79.5 million in Q3 2011.

The British investment net inflow, slowly recovering, amounted to €6.3 million in Q3 2012, an improvement on the €18.9 million net outflow in Q3 2011.

Economic growth is weak

Bulgaria dwellings

Bulgarian economic growth has been disappointing. The Bulgarian economy expanded by 0.5% during the year to Q3 2012, and has recorded the same growth rate for three consecutive quarters.

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. In 2010, the economy rebounded slightly, expanding by 0.3%. This was followed by 1.7% growth in 2011.

The IMF expects a 1% overall GDP growth in 2012 due to stronger domestic demand boosted by EU funds. With an expected recovery of exports, an economic expansion of 1.5% is likely to happen in 2013, according to the IMF.

Bulgaria housing loans

The unemployment rate rose to 11.5% in Q3 2012, higher than 10.2% during the same quarter in the previous year.   Unemployment rates reached double digit levels in 2010 after single digit rates from 2006 to 2009. The IMF predicts a slight reduction in unemployment to 10.2% in 2014.

With slower economic growth and a housing market still in the doldrums, it’s not surprising that housing construction projects have declined. Dwellings completed in Q3 2012 were down by 18.4% to 2,652 units from 3,250 units in Q3 2011. During the same period, building permits also fell by 13.2%. Building permits issued in the capital city of Sofia also dropped 14.7% y-o-y to Q3 2012.

Interest rates are declining

Bulgaria interest rates

Credit demand remains weak. The total of new housing loans granted from January to November 2012 amounted to BGN 1,048.2 million, 8.2% down on the same period in 2011, and 65.8% down on 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.

The average mortgage interest rate for BGN-dominated loans was 7.12% in November 2012, down from 8.23% in 2011. The Euro-dominated loan rate was 7.40%, down from 7.85% in 2011. The declining mortgage rate trend is likely to continue in 2013, according to Levon Hampartzoumian, chairman of the Bulgarian Association of Banks.

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