Real estate ugly duck or a cheap princess?

The Bulgarian real estate sector has gone through numerous transformations since 1950, which are grouped in three phases. Importantly, this country’s political and economic development had an influence on how each phase developed. To begin with, the first phase in the real estate sector in Bulgaria is associated with socialism, i.e. post World War II to 1990.

During this period, the government had a firm control over nearly every activity in the real estate industry. For example, consumers needed approval from the government to purchase a property. Moreover, the laws and regulations during this period limited the property that one could buy as a single person, as a married couple with no children and so forth. The sales and rental prices for properties were determined by the government and were fixed. Therefore, during this phase, Bulgaria had inadequate pricing and lacked a property market, leading to market imperfections such as insufficient supply, excessive demand and undervalued and very low properties.

The second phase in the revolution of the Bulgarian real estate markets occurred in the mid-1990s to early 2000s. During this period, the state relinquished the ownership rights of most properties that had been nationalized before to private owners, a factor that increased the supply of properties. However, this did not affect the rate of construction of new properties. Between 1996 and 1997, the prices per square meter rose dramatically because of the inflation that occurred during this period. Whereas this is the case, the government implemented a number of reforms that ended inflation leading to stabilization of real estate property prices. In addition, Bulgaria’s bid to join NATO (now a member since 2004) and the European Union (now a member since 2007) accelerated reforms in different sectors in this market, thus leading to an increase in demand, not only from local investors but also from external investors from North America and other European Union member states. In this case, this period saw an increase in the attractiveness of Bulgaria’s real estate markets.

The third phase which occurred between mid-2000s to present has witnessed the modernization of the Bulgarian real estate market. In the last ten years, the real estate in this country has experienced tremendous growth and appeared on the international markets for the first time, thus increasing external demand for its properties. In this regard, the market experienced a double-digit annual growth. This boom was only interrupted by the world economic crisis of 2007/08, which led to a drop in property prices. It is estimated that the property prices dropped by an average of between 30–40%. Whereas this is the case, since 2009, the real estate market in Bulgaria has experience a steady growth at an average of approximately 11.65%. Market research findings point to the fact that there is an increase in the number of investors in the real estate in Bulgaria. Most of these investors originate from Russia and the United Kingdom. Moreover, there are more reforms in the real estate sector that have helped stabilize the sector.

New era

The Bulgarian market has witnessed a steady growth since 2009 after it slowed because of the global economic crisis. Arguably, there has an increase in transactions in the real estate sector in this economy in the last few months amid the improving economy. In 2013, flats in Bulgaria had an average price of €442.12 (BGN 864.52) per square meter, which was a drop of just 1.21%. This represented the lowest drop in property prices in the last five years. On the contrary, when computed based on inflation, the actual prices of flats and other properties in this economy increased by 0.38%.

The quarterly averages of prices of properties in Bulgaria, especially for flats dropped by 0.15% between September and December 2013. When computed after factoring in the inflation rate during this period, the actual drop in prices of properties such as flats was -0.93%. This is an indication of stabilization of property prices and as such, the property market in this nation, which had witnessed a drop of close to 40% in property prices during the 2007/08 global financial crisis. Note that before the onset of the 2007/08 global financial crisis, property prices were as high as €725.17 (BGN 1,418) per square meter. Notably, between 2000 and 2008, the real estate market in Bulgaria witnessed a sharp rise in property prices, which finally stagnated in the last quarter of 2008. In 2009, the average prices of residential properties dropped by 26.31% from a year earlier while in 2010, the prices of residential properties dropped by 5.58%. A nearly similar scenario was witnessed in 2011 and 2012, which saw residential property prices fall by 6.16 and 1.4% respectively.

With respect to different cities and towns in Bulgaria, varied property prices were recorded. In this respect, the capital, Sofia, had average prices of €736.32 (BGN 1,439.79) per square meter for residential properties. In the same way, three out of Bulgaria’s 28 provinces, namely Tarnovo, Targovishte and Veliko recorded increase in house prices in 2013. On the contrary, provinces such as Sliven, Pazardzhik and Vratsa had a sharp decline in prices of houses in 2013.

Speaking from this perspective, it is vital to mention that the Bulgarian property market is on the road to complete recovery after its slowdown in 2008. This is as a result of the fact that in the last few years, most consumers in this country have enjoyed a stable income. In addition to this, there has been an upsurge in the cash savings of homebuyers, which when invested in the real estate market will boost this market. In this case, it is expected that in the next few coming months, the interest rates on savings will decline, thus forcing them to invest in real estate, which is a safe bet. This implies that as prices of properties in this sector rise, the profit margins of investors will increase considerably. In other words, Bulgaria is already positioned to become the most lucrative real estate market in Eastern Europe in the next few years.