Bulgaria’s house prices rising rapidly, due to strong economic growth

2018-01-11   |

Source: Global Property Guide, data by National Statistics and BULGARIAN PROPERTIES

After almost five years of stagnation, Bulgaria’s house prices are now rising rapidly, thanks to falling interest rates and strong economy.

The nationwide house price index rose by 8.59% (6.55% inflation-adjusted) during the year to Q2 2017, from y-o-y rises of 8.98% in Q1 2017, 8.11% in Q4 2016, 8.8% in Q3 2016 and 6.55% in Q2 2016, according to the National Statistical Institute (NSI). During the latest quarter, house prices increased 2.41% (2.53% inflation-adjusted) in Q2 2017.

• Prices of new dwellings rose by 7.32% (5.3% inflation-adjusted) during the year to Q2 2017, an improvement from the previous year’s 4.9% y-o-y rise. During the latest quarter, prices of new dwellings fell slightly by 0.82% (-0.69% inflation-adjusted).
• Prices of existing dwellings surged 9.2% (7.15% inflation-adjusted) in Q2 2017 from a year earlier, higher than the 7.48% y-o-y growth in Q2 2016. Quarter-on-quarter, existing house prices increased 4.16% (4.29% inflation-adjusted).

The almost zero interest rates on bank deposits have encouraged people to invest in real estate, and also encouraged purchases of pre-construction residential property.

“Increased activity, including the summer months, increasing volumes of sales, stabilized prices and constantly increasing interest by Bulgarian buyers - these are the main trends for the year that is soon to come to its end,” said Polina Stoykova, the Executive Director of Bulgarian Properties.

From 2000 to 2008, Bulgaria had a house price boom, with residential property prices surging around 300%. The bubble burst at the end of 2008:

• In 2009, Bulgaria’s average dwelling price plummeted by 25.72% (-26.14% inflation-adjusted);
• In 2010, the average dwelling price fell by 4.96% (-9.08% inflation-adjusted);
• In 2011, the average dwelling price fell by 5.81% (-8.33% inflation-adjusted);
• In 2012, the average dwelling price fell by 1.3% (-5.33% inflation-adjusted);
• In 2013, the average dwelling price fell 1.2% (increased 0.4% when adjusted for inflation);
• In 2014, the average dwelling price increased 2.78% (3.69% inflation-adjusted);
• In 2015, the average dwelling price increased 3.98% (4.37% inflation-adjusted);
• In 2016, the average dwelling price rose by 8.11% (8.01% inflation-adjusted.

Bulgaria’s property market is projected to remain strong in the medium term. Demand for properties in the major cities continues to grow, and supply is increasingly limited by low levels of new construction.

Bulgaria’s economy is expected to expand by 3.6% this year and by another 3.2% in 2018, from growth rates of 3.4% in 2016, 3.6% in 2015, and an annual average growth of just 1.1% from 2010 to 2014, according to the International Monetary Fund (IMF).

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.

Local house price variations

All Bulgaria’s major cities saw rising house prices.

• Sofia, Bulgaria’s capital, saw an overall house price increase of 10.6% during the year to Q2 2017. Prices for new dwellings rose strongly by 13.5% while existing dwellings saw a price increase of 9.4%.
• Varna, the largest city and seaside resort on the Black Sea Coast, saw the biggest house price rise of 13.9% during the year to Q2 2017. Over the same period, prices of new dwellings surged 14.9% while existing dwelling prices rose 13.5%.
• In Plovdiv, overall house prices rose by 6.7% y-o-y in Q2 2017. Prices of existing dwellings increased by 8.1% while new dwelling prices rose by 4.1%.
• In Burgas, overall house prices increased by a modest 4% during the year to Q2 2017. Existing dwelling prices rose by 13.4% while new dwelling prices fell by 1.7%.
• In Ruse, overall house prices rose by 12.8% during the year to Q2 2017. Existing dwelling prices increased 15.2% while new dwelling prices fell slightly by 0.3%.
• In Stara Zagora, overall house prices increased 8.9% y-o-y in Q2 2017. New dwelling prices skyrocketed by 17.6% while existing dwelling prices rose by 6.1%.

Most sought-after locations in Sofia

In Sofia, Bulgaria’s capital city, the average property price stood at €1,060 per square meter (sq. m.) in Q3 2017, unchanged from the previous quarter but up by 14% a year earlier, according to Bulgarian Properties. Currently, the average purchase price of dwellings in Sofia is €93,000.

Sofia’s Southern districts are the most preferred location. In Lozenets and the city center, demand remains high despite that fact that these locations have the highest property prices in the country, ranging from €1,400 to €1,800 per sq. m. Strelbishte and Gotse Delchev are also preferred neighbourhoods with property prices between €1,100 and €1,300 per sq. m. in Q3 2017.

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 stood at €1,130 per sq. m. in Q3 2017.

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 was €1,060 per sq. m. in Q3 2017 while it was €960 per sq. m. in Studentski Grad. Manastirski Livadi, Mladost and Vrabnitsa districts are also popular with average house prices of €1,095, €990 and €800 per sq. m., respectively.

Ski resorts led sales growth

Bansko, a town located in southwestern Bulgaria and a gateway to numerous ski and snowboard slopes on Todorka Peak, registered the biggest growth in property sales in Bulgaria, with transactions surging by almost 30% in Q3 2017, according to Bulgarian Properties.

The other two big ski resorts in the country, Pamporovo and Borovets, also recorded strong increases in sales volumes of 18% and 5%, respectively.

“This shows that the ski resort property market in Bulgaria is already active all-year-round, and during the summer months there is a particularly high demand for property to buy,” said Stoykova.

“The main reasons for the increasing attractiveness of the properties in the ski resorts are the attractive prices on one hand, which are the best in Europe, and on the other hand - the improving infrastructure, the easy and fast access from the big cities, the accumulated experience in the management and maintenance of the complexes and above all – the ski resorts in Bulgaria have turned into all-year-round resorts,” Stoykova added.

Only about 40% of property buyers in Bansko are Bulgarians and the rest are foreigners. This is in contrast to Borovets and Pamporovo where almost all buyers are Bulgarians who live in Sofia and the other major cities.

Investors are looking for investments that provide capital gains and rental returns. Holiday homes in ski resorts are now considered attractive as rental income investments. Most properties are purchased for cash.

In Sofia, property sales also increased by a modest 3.75% y-o-y to 6,300 units in Q3 2017. The most purchased apartments in the capital city are located in the districts of Krastova Vada, Manastirski Livadi, Mladost 4, Studentski Grad and Vitosha.

Construction still way below peak, and falling

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 fell sharply to an average of 9,700 units from 2012 to 2014 and in 2015 completions fell sharply to 7,800 units, according to the National Statistical Institute (NSI). In 2016, dwelling completions increased by 19.7% y-o-y to 9,342 units.

In Q3 2017, newly built dwellings fell again by 15.2% to just 2,018 units from the same period last year.

There were 3,943,989 dwelling units in Bulgaria in 2016, up slightly by 2% from a year earlier. The Southwest region accounted for about 28.2% of the total housing stock, followed by the South Central region (with 18.1% share), Southeast region (15.9%), Northeast region (13%), Northwest region (12.9%) and North Central region (11.9%).

Interest rates continue to fall

Interest rates in Bulgaria continue to decline. The average mortgage interest rate for BGN-denominated loans fell to a record low of 3.87% in October 2017, from 4.62% in a year earlier, according to the Bulgarian National Bank. Likewise, the average mortgage rate for Euro-denominated loans dropped 4.08%, from 5.12% a year ago.

For BGN-denominated loans, in October 2017:

• Interest rate fixation (IRF) of up to 1 year: 3.86%, down from 4.62% a year earlier
• IRF over 1 and up to 5 years: 3.81%, down from 4.64% a year ago
• IRF over 5 and up to 10 years: 4.43%, up from 4.27% a year ago
• IRF over 10 years: 4.53%, up slightly from 4.43% a year earlier

For Euro-denominated loans, in October 2017:

• IRF of up to 1 year: 4.05%, down from 5.12% a year earlier
• IRF over 1 and up to 5 years: 4.36%, down from 4.98% a year earlier
• IRF over 5 and up to 10 years: 4.65%, up from 5.07% a year ago
• IRF over 10 years: 4.67%, down from 5.24% a year ago

Small mortgage market

Bulgaria’s mortgage market has been gradually declining in the past six years, from 11.65% of GDP in 2010 to just 9.47% of GDP in 2016. But this came after massive expansion during the boom years from just 0.38% of GDP in 2000.

This expansion may soon resume. There were BGN267.1 million (€136.6 million) new housing loans in October 2017, up 39% from the same period last year. About 91% of the new housing loans are BGN-denominated loans, with IRF of up to 1 year.

Total outstanding housing loans increased 6.4% to BGN9.33 billion (€4.77 billion) in October 2017 from the same period last year, according to the Bulgarian National Bank.

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 around 6% in August 2017, almost unchanged from a year earlier, based on recent Global Property Guide research. 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. Though new developments being built here are increasing the stock of rental apartments, we find better yields here on the very smallest apartments, with yields stretching up to 6.4%.

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.

Economic growth, budget surplus

European Commission. In Q3 2017, Bulgaria’s economic growth accelerated to 3.9% compared to a year earlier, from 3.7% in the prior quarter and 3.4% in the previous year, according to the NSI.

The budget surplus was 1.6% of GDP this year, in sharp contrast to a deficit of 2.8% of GDP in 2015 and 3.7% of GDP in 2014. It was the country’s first budget surplus since 2008. During the first nine months of 2017, the country recorded a consolidated budget surplus of BGN2.42 billion (€1.24 billion), which is equivalent to 2.4% of this year’s estimated GDP.

Consumer prices are expected to increase by about 1.1% this year, after deflations of 1.3% in 2016, 1.1% in 2015 and 1.6% in 2014, according to the IMF.

Unemployment stood at 6.7% in October 2017, down from 8% in 2016 and an average of 11% from 2012 to 2015, according to the NSI. Unemployment is expected to be 6.4% this year, according to the European Commission.

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