03.05.2018 Sofia Housing Market in Q1 2018: The Price Increase Slows Down
Polina Stoykova MRICS, Managing Director & Head of Research
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After the best year for the property market in the last decade, 2018 starts more moderately with a more mature housing market in Sofia. Again, we see a growth in all indicators, but these growths are now much smoother.
Buyers continue to consider their purchases well, they look at as much properties as possible on the market and don’t buy at any price. This elasticity in demand has, as we expected last year, slowed down the rise of the residential property prices in Sofia. At the beginning of this year it is slightly below 11% on an annual basis and the average prices remain below the barrier of 1,100 €/sq.m.
The continuing GDP and income growth, low unemployment, and still low interest rates on mortgage loans in 2018 will continue to have a favorable effect on the residential property market, but with a lower dose of enthusiasm and stubbornness than those we have observed over the past two years.
Average prices and Affordability
BULGARIAN PROPERTIES data show that Q1 of 2018 prices in Sofia remained on the levels reached at the end of last year, and their annual growth has slowed down.
The average property price in Sofia for this period was 1,092 Euro/sq.m. compared to 1,095 Euro/sq.m. at the end of 2017. It seems that after the speedy passing of the 900 and 1,000 Euro/sq.m. borders, prices have become more uncertain in passing the next barrier of 1,100 Euro.
The average purchase price of the dwellings in Sofia is 91,335 Euro.
The annual price increase in Q1 is 10.86%, compared to an annual increase of 16% in 2017, as measured by us.
The graphs show the annual growth of quarterly prices. It accelerates significantly in the end of 2016 and early 2017, and has slowed down in the past three quarters. Thus, our expectations from last year for a price growth slow down to around 10% and for a gradual balancing of the market in Sofia for the moment prove to have been right.
The price affordability index in Sofia (ratio of the price of dwellings per sq.m to the average salary in the capital) is 1.45 at the end of 2017 and is considered to be within good levels. There is a slight improvement compared to Q3 of 2017, when the indicator was 1.48. This is beacause with the increase of the property prices, the salaries in Sofia also increased (with 10.4% in 2017 according to NSI data). The ratio remains relatively stable and far from the values from the previous boom when it reached nearly 3.5.
According to the data of the Registry Agency for the first quarter, 5631 real estate sales were registered in Sofia compared to 5023 for the same period in 2017, resulting in an increase of 12% on an annual basis.
The data also shows that the growth rate of the property sales in Sofia is accelerating (from around 8% in 2015 and 2016 and 6% for 2017).
BULGARIAN PROPERTIES data show that new construction continues to account for over 60% of the sales in Sofia.
New building permits issued in Sofia according to NSI data are 201 for the 4th quarter of 2017. Thus, 2017 ended with 827 issued permits for new residential buildings in the capital compared to 695 in 2016, a growth of 19%.
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Preferred Neighborhoods and Property Prices
Our observations show that the most purchased apartments in the beginning of 2018 are located in Studentski Grad, where prices are most attractive compared to other southern neighborhoods, especially in the Academica Complex.
The other most popular districts in Sofia are Krastova Vada, Vitosha and Mladost 4. Also, Vrabnitsa 2 district with ongoing active sales of new-build dwellings in Sofia North Park complex, which is near the North Park and a metro station.
The average property prices in these neighborhoods are as follows:
• Studentski Grad - 956 Euro/sq.m.
• Vitosha - 1,045 Euro/sq.m.
• Krastova Vada - 1,130 Eurp/sq.m.
• Mladost 4 - 1,080 Euro/sq.m.
• Vrabnitsa 2 - 960 Euro/sq.m.
The most expensive apartments for sale are located in Lozenets, which remains the most desired district in Sofia. The average prices for the past quarter are 1,675 Euro/sq.m.
The district of Darvenitsa has recently attracted attention as a neighborhood with an increasing supply of new construction at prices of around 1,050 Euro/sq.m. It is a neighborhood that has facilities, transportation and rental potential due to the proximity to university and office centers.
There is demand also for the broad center in the area around Opalchenska metro station and Todor Alexandrov Blvd., where there is new construction available at prices of about 1,000 Euro/sq.m, which are attractive for such a central city area.
Parameters of the Purchased Homes in Q1 of 2018
At the beginning of the year the 1-bedroom apartments were with the largest and rising share of the purchased apartments. They make up 67% of the total purchased homes in Sofia, with their availability in the newly constructed buildings continuing to run out quickly. Up to 23% of the purchased dwellings are 2-bedroom flats, and the 3-bedroom and multi-room dwellings have the smallest share - 10%.
The average built area of the purchased apartments is 81.5 sq.m. and decreases by about 5 sq. m. compared to the last quarter of 2017.
The most frequently purchased apartments are located on the 2nd and 3rd floors - 38% of the purchased ones, followed by the flats on the 4th, 5th and 6th floors - 33%. The share of dwellings on the first and ground floor continues to be large - 27%.
56% of the purchased dwellings are with central heating.
The average stay of properties on the market at the beginning of the year is 122 days (about 4 months) and decreases from 138 days at the end of the 2017. The discounts made on the offer prices are insignificant - 0.14% and this is their lowest level since 2008.
Perspectives for 2018
As early as the first months of the year we can feel and balancing of the housing market in Sofia as a result of the increased supply, which has led to a slowdown in the price increase in Sofia to the expected level of 10%. The capital residential market continues to enjoy strong activity and this year it will be again among the most attractive markets for investment.
Following a record 38%-growth in mortgage lending in 2017, the banks credit expansion continues this year, with an increase of about 15% in the first months, and interest rates on loans remaining at their lowest levels - from 3.7 to 4%.
In addition to the accessible bank lending, we continue to feel the beneficial impact of other macroeconomic factors - the economic upturn and all subsequent positive trends such as income growth, low unemployment and the overall sense of greater security for jobs and incomes.
Local demand continues to be the major driver of the housing market in Sofia, with signs for an increasing activity of foreign investors early this year.
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