Bulgaria’s Residential Property Market - 2008

OVERVIEW
The residential market has been one of the most dynamic real estate segments in Bulgaria. Intensive construction of new residential properties has lead to a continuous increase of the residential inventory, especially in the big cities like Varna, Burgas, Russe, Plovdiv, Stara Zagora, Veliko Tarnovo and, of course, the capital Sofia.

Despite the huge increase of construction projects, the residential stock in the cities still consists mostly of one- and two-bedroom apartments in old buildings. On the other hand, demand for new quality housing is increasing together with the growing population of the cities, the increasing purchasing power of the locals, the rising foreign property investments and the expanding credit opportunities.

Till the end of 2007, the prices of high-quality and low-quality residential properties, such as panel blocks, seemed to increase with a similar pace and this led to incorrect pricing of the properties of different standard. In 2008 a gap between supply and demand for low-quality properties appeared and this will naturally lead to cooling of the prices of low-quality real estates, so that the supply can meet the demand at the right price level. In the same time, the supply of high-quality housing is not sufficient to meet the demand, which will lead to a steady increase in property prices in this segment. The construction of gated complexes and satellite cities also continues, as these properties are in high demand but they will have to offer adjacent facilities and services, as well as reasonable prices.

PROPERTY PRICES
The increasing demand and low supply of residential properties in the cities resulted in continuous increase in prices over the past 10 years. The increase of the average asking prices in 2007 compared to 2006 was about 30% - maybe the highest in the world. However, in 2008, the market is cooling slightly, and we expect that the average prices of residential properties will continue to rise but with rates close to the inflation rate. So, investment in residential properties will be good for protection against inflation, not for speculative purchases for fast resale and huge return on investment.

MORTGAGES
Mortgage penetration level is reported to be healthy – about 20-25%. Together with this, wages have a sustainable level of increase, so there is no risk of credit crisis in Bulgaria, especially in the segment of residential properties. The banks haven’t changed their policies towards granting of loans – they have only made a small increase in the interest rates. As for the investors and developers’ financing – the banks have become more selective and tend to grant loans only to experienced investors with high-quality projects in terms of design and construction.

FUTURE TRENDS
The residential inventory will continue to increase in the coming years. The reason for this is the combination of a stable economic situation in Bulgaria and a developing market, which contribute to the formation of favorable conditions for real estate developers. Asking prices will continue to increase, especially for high-quality new developments in good locations, due to an increasing demand for such properties. As the residential market is becoming more and more mature, the buyers will become more and more selective and will focus on all of the fundamentals of real estate investment – location and quality of construction, not only return on investment, although this will also remain stable. We can say that over the next couple of years the foundations of a mature and professional residential real estate market in Bulgaria will be laid.