19.11.2019 The Residential Market in Sofia in Q3 of 2019 and Perspectives for 2020

At the end of the year we start presenting you market data and specialized reports to keep you informed about the current trends and the expectations for the next year. This is part of the full service BULGARIAN PROPERTIES provides to its clients and newsletter subscribers.

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An exceptional year for the property market in Sofia is coming to an end with stable prices, increased sales and excellent housing affordability.

In the very beginning of this year the property market in Sofia switched to a higher speed and this trend continues still present, with the last quarter being particularly strong.

The rate of the property price increases expectedly slowed down, and this year we have unchanged prices based on real deals. In addition to the stable prices, all the factors that affect the property market have a strong positive impact resulting in a market upturn and positive perspectives for the coming few years.

The main highlights of the year are:
- Retaining the prices at the reached market levels
- Sales volume increase
- Record-breaking affordability of the properties
- Historically low mortgage interest rates
- Growing incomes and record low unemployment
- Stabilized volume of new construction and more moderate increase of new issued building permits
- Slowing down of the increase in the volume of new granted mortgage loans
- Total dominance of demand for new construction properties
- Expanding of the perimeter of demand and supply, which has lead to a greater market activity in all areas of Sofia.

Average Prices and Annual Change

BULGARIAN PROPERTIES’ data shows that based on concluded deals the prices in Sofia remain unchanged compared to a year earlier. The average price of homes sold in Sofia in the third quarter of 2019 is 1,088 EUR / sq.m. compared to 1,090 EUR / sq.m. for the same period last year.

This is indicative enough to confirm our expected slowdown in the price increase and reaching a plateau, which we mentioned in our analysis from the beginning of this year.

The average final purchase price of homes in Sofia is 89,307 EUR compared to 86,260 EUR for the same period last year. Over the last few years, the average purchase price has been around 90,000 EUR, with changes around that amount depending on what type of homes dominates the purchases throughout the quarter.

Housing Affordability

The affordability indicator measures the ratio of the property price per square meter to the average monthly salary in the capital, showing how many monthly salaries are needed to buy 1 sq.m.

For Q3 of 2019 its value is 1.25, which means that it takes an average of 1.25 salaries to buy 1 sq.m. In 2019 we measured the lowest value of this indicator for the last 10 years, meaning that this year the properties in Sofia are most affordable to the local buyers. This is due to both a slowdown in price growth and a continued income increase, which for Sofia is about 13% on an annual basis.

The affordability indicator is well below its peak value in 2008, when 3.5 monthly salaries were needed to purchase 1 sq.m. residential area in Sofia.

Mortgage Volume and Interest Rates

Mortgages represent another aspect of the housing affordability through the availability of bank financing for their purchase.

By this indicator too the real estate is currently the most affordable for the entire history of mortgage loans in Bulgaria, as interest rates on loans are currently at their lowest historical average of about 3% for the third quarter of 2019 and the expectation is that these levels will remain the same next year.

The volume of newly granted home loans continued to grow and reached over 900 million BGN in the third quarter, which is comparable to the volumes of 2007/2008. But at present the economic situation is very different, the gross domestic product is significantly higher and compared to it, newly granted home loans are below 3%, while in 2007/2008 their volume exceeded 6% of the GDP.

Over the 9 months of 2019, newly granted mortgages have grown by about 4.2% YoY, which is below the growth levels of previous years and is rather a moderate growth following the pace of the economic development.

New Construction

The new issued permits for residential buildings in Sofia in 2019 for the first 9 months remain at the same levels as in 2018, the difference being that in 2019 the buildings have about 10% more dwellings and come with larger built-up area by about 8.5%.

This is a significant slowdown in the growth rate of the newly issued permits which grew by 26% in 2018. So, on the supply side we also have stabilization and much smoother growth.

Throughout 2019, new construction buildings in Sofia enjoyed very strong interest, even exceeding those of previous years.

According to BULGARIAN PROPERTIES, new construction already accounts for 90% of the deals.

Sales Volumes

According to the Registry Agency, in the third quarter of 2019, 6,874 property sales were recorded in Sofia, compared to 6,376 for the same period in 2018, which is an increase of about 8% on an annual basis.

Preferred Neighborhoods and Property Prices

The development of new projects has continued from where it stopped 10 years ago, namely in the areas around the Southern arc of the Ring Road. In the current boom cycle, they were the first to develop and attract the interest of buyers. Along with that, there is a process of improving the infrastructure and the facilities and services available in these neighborhoods of the Bulgarian capital. Regardless of the disadvantages of neighborhoods like Manastirski Livadi and others, it is an undisputed fact that they are southern neighborhoods with improving infrastructure, situated near Vitosha Mountain and close to the center and to major points of the city. For these reasons they still occupy the top positions in the buyers’ preferences.

On the other hand, there is a process of increased investment interest in the northern and western quarters, where the subway gives significant advantages, there are available terrains and there is a huge potential for development of new projects. This has lead to a tendency for buyers to reconsider their demand, to look at a larger perimeter of neighborhoods and to give a chance to new areas with lower real estate prices. As a result, the neighborhoods that buyers are interested in this year are much more diverse, and their interest is usually driven by one or a few major development projects that give a whole new look to these areas.

BULGARIAN PROPERTIES' observations show that Banishora district has attracted considerable interest with the hit residential complex Park View Residence, which we offer exclusively and 2/3rds of which we have managed to sell within 10 months (200 out of 300 homes).

Manastirski Livadi district came forward and ranked in the top three with our active sales of homes at AMur Residence, as well as in other new buildings. Manastirski Livadi is gradually returning to the focus of the buyers due to its central location on Bulgaria Blvd. and being located near Vitosha Mountain.

Vitosha district remains one of the most preferred neighborhoods by the buyers because of its proximity to central boulevards, business centers, Vitosha Mountain, as well as the excellent low-rise gated residential complexes on the market. One of these projects is our best-seller - Modera Residence complex, which is near completion and the availability of homes for sale is already limited.

Next in the list of the buyers is Krastova Vada quarter, where the emblematic Vitosha View complex plays a leading role in attracting the buyers’ interest. The construction of the 5th building of the complex is progressing.

Housing was also actively traded in the residential district of Lyulin 2, where the only new building with Permission to Use is on the market with asking prices between 650 and 700 EUR / sq.m.

Other popular districts in Sofia are Dianabad, Mladost, Malinova Dolina, as well as some more suburban neighborhoods like Vrabnitsa.

The average prices in the most popular neighborhoods in Q3 2019 are:

• Banishora - 985 EUR /sq.m.
• Manastirski Livadi - 1042 EUR/sq.m.
• Vitosha - 990 EUR / sq.m.
• Krastova Vada - 1308 EUR / sq.m.
• Dianabad - 1296 EUR / sq.m.
• Lyulin 2 - 688 EUR / sq.m.

Parameters of the Purchased Dwellings

In the third quarter of 2019, the most purchased apartments are those with one bedroom. They make up 65% of the purchased dwellings and 30% are 2-bedroom apartments.

The average area of the purchased properties is 81 sq.m. - a drop from 89 sq.m. at the beginning of the year due to the increase in the share of one-bedroom apartments.

The most purchased are the apartments set on the 4th floor, however, we notice an increased interest in properties set on the higher floors.

Currently on the market there are projects with 10 or more floors, which offer great views from the high floors and buyers are increasingly appreciating the opportunity to live high, amid more space and light and enjoy views, being away from the urban noise.

Another interesting fact from the third quarter is that the period for concluding a deal has shortened - currently it takes 93 days on average or exactly 3 months for the sale of a property in Sofia. In all the complexes that we offer, we observe a rather fast absorption. This trend shows that the market is still far from being saturated.

This year, there is a continued interest in gated complexes with private gardens and parks, greenery, playgrounds and recreation areas for their residents. Young families often prefer to buy a ground floor home that goes with a small garden. Complexes that are traffic free and have underground parking lots are among the most promising in terms of comfort for families and their children.

Perspectives for 2020

In the last months of the year, the property market in Sofia and throughout the country experiences an increased activity, which reinforces the overall positive sense of the market and the prospects for its development.

With overall expectations for continued economic growth, low mortgage interest rates, rising incomes and record low unemployment, in 2020 we cannot expect anything different from a continued property market growth.

We consider that 2020 will be very similar to 2019 - with only small price changes, stability in the property market, high activity and volume of transactions. Next year we will have the opportunity to witness a mature property market with a high intensity and a sense of stability and liquidity.

There will continue to be a great variety and excellent supply of all types of properties at virtually unchanged prices, combined with higher incomes, low employment and even lower mortgage interest rates.

Generally, the interest rates are the main driver of the real estate market development, but due to their almost exhausted downward movement, other macro factors will have an increasingly strong impact - especially the labor market, the labor migration and the related demographic factors.

The tendency is that the incomes of the population will continue to increase due to the convergence with the European incomes and the need for skilled labor, therefore, more attention should be paid to unemployment. Its increase from the current record low levels will give an early signal for the reversing of the real estate market trends. So far, this seems like a distant prospect, but it should be carefully monitored as a process.

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