Stable prices, increasing supply and buyer dominance - these will be some of the defining characteristics of the housing market in Bulgaria in 2020. At the same time, because of the increased supply, sellers need to be careful when pricing their home if they do not want it to stay on the market too long and thus lose value.
The good macroeconomic indicators - the growth of citizens' incomes, the low unemployment rate and the high level of employment, will continue to support the market this year, believes Dobromir Ganev, Chairman of the Board of the National Association of Real Estate (NARE). Other factors that will influence the market are the low level of mortgage interest rates and political stability, which is also a prerequisite for good development, Ganev noted in an interview with Investor.bg. The activity of investors in the housing sector, which has led to a strong growth in both building permits issued and new construction started, is also among the trends in recent years that will carry over into 2020, he adds.
According to Polina Stoykova, CEO of Bulgarian Properties, there is currently a perfect combination of low mortgage rates, income growth and falling unemployment and it will continue to be a major driver of the housing market in Bulgaria. At the same time, factors related to income, employment and internal migration will increasingly come to the fore. "Interest rates are at record lows and are expected to remain so this year. Therefore, other factors will play a leading role and are also expected to maintain their positive impact.", Stoykova believes.Prices jumped, while rent growth was not so great and this reduces the attractiveness of the properties
Low interest rates on mortgage loans are a catalyst mostly for people who want to acquire property for their own needs, not so much for investment or in search of yield, because it is already lower, says Dobromir Ganev. "Prices have jumped while rental growth has not been as great and this is reducing the attractiveness of properties, but there is still significant activity in small homes", he adds.
Strong start
The start of the year has been particularly strong for the housing market in Bulgaria, with almost no drop in activity registered during the holidays. "On the very first day, buyers returned to the market and set about implementing their plans to purchase a property. It is noteworthy that those who waited are now ready to make a decision. There is activity across the country with no exceptions. The start of the year has also been very strong for properties in seaside resorts. Even though it is the off-season, people are preparing to spend summer 2020 in their own property by the sea and quite rightly have stepped up now.", commented Polina Stoykova.
"In 2020, there will continue to be a wide variety and excellent supply of properties at prices that will not be much different from 2019, when we have seen that the increases are already minimal and we are rather talking about a stable market. This year will see a greater supply of new build properties on the secondary market in already completed buildings and at the same time there will be an excellent selection of buildings in various stages of construction", she adds.
Particularly good opportunities to buy a property will be at the sea or in the mountain resorts, where there are properties suitable for every taste and budget, notes Stoykova.
According to Dobromir Ganev, because of the low interest rates, house prices in the big cities are still growing in the range of 2%-3%. "However, consumers and homeowners need to know that each home has a very individual value and should not be looked at as a whole, especially as buyers are extremely strict in their requirements and prefer, for example, new build over older construction, especially from the period between 1990 and 2002. Owners should be careful when setting their initial offer value", advises Ganev.
The same opinion is shared by Gergana Tenekedjieva, CEO of Address Real Estate. According to her, in the case of old apartments, especially the panel ones, the sellers have achieved the best possible prices for their homes. "However, given the increase in supply, I believe the pressure on older properties will increase. I would therefore advise owners considering selling not to wait too long.", she notes. According to Tenekedjieva, the current market is favourable for a deal as prices have peaked.
Overpriced properties on the secondary market
Dobromir Ganev admits that there are overpriced properties on the market especially against the background of the growth of new construction. "In Sofia, the volume of building permits issued and new construction started in the first nine months of last year reached 2 million sq. m. There is no way this will not affect the market. The good thing is that investors, who seem to be more experienced than individuals, are more flexible in their offers and in areas with a serious competitive environment in terms of supply are willing to negotiate lower values.", Ganev notes.
According to him, at the moment it is more a case of keeping the offer prices. The problem of overvalued properties is greater in the secondary market where individuals do not have the necessary experience and knowledge to properly value their property. "This can sometimes become a problem for them, because in a not-so-growing market time matters. When owners stay on the market longer, they can lose out on the price of their property", says Ganev.
According to Gergana Tenekedjieva, individual owners still do not feel the growing competition in the supply when setting prices for their properties and this often turns out to be the reason for the slower finding of a buyer and subsequent price adjustments. "However, comments in offers are not possible in all cases and buyers should take into account current market values as well as the particularities of supply in the area they are choosing. The furnishings of the property and the type of building are also important.", she notes.
Dobromir Ganev advises people who do not have the expertise to make a fair market assessment of their property to trust consultants. But both sellers and buyers should be wary of consultancy services, especially when firms advertise a free service. "This is a marketing approach by some companies, but it also means that the likelihood of them committing to protecting the customer's interest is equal to or tending towards zero. So when buyers and sellers go to market and decide to work with brokerage firms, they would do well to choose partners that represent them, protect their interests and don't restrict them from working with other companies. The NCNI will be working more actively in this direction in 2020, providing advice to consumers.", Ganev notes.The other main recommendation to buyers is to assess their financial options in the long term, including to anticipate some rise in interest rates
Polina Stoykova advises buyers to be well informed about the current market trends and to shape their behaviour towards them. According to Dobromir Ganev, they should be especially careful with the acquisition of apartments in new buildings. "It is good to monitor the quality of the materials used and of the technology involved. The apartment is seen as one whole property, but in fact it is built from very many different technologies and materials, and it is good if buyers are involved at an earlier stage to control and demand information from investors. As a large proportion of transactions happen with mortgage lending, the other main recommendation to buyers is to consider their financial options well in the long term, including anticipating some rise in interest rates.", advises Ganev.
More properties than buyers
Demand in big cities is still concentrated mainly in new construction, and the areas are increasingly diverse and far from the centre, says Polina Stoykova. The projects are larger and involve transforming large areas and creating brand new infrastructure around them. According to Gergana Tenekedjieva, comfort and better conditions are the reason why new homes are the first choice for most buyers. "They offer better solutions in terms of room layout, exposure, floor plan, opportunities for buyers to make their own room layout. However, some of the desirable neighbourhoods are dominated by old construction - panel blocks or brick buildings. If the clients are not willing to compromise with the location or, as is often the case, have relatives who live in these particular neighbourhoods, they have to give up the requirement for housing in a new building.", she says.
Properties in old buildings are also preferred by people who insist on real square footage and do not want to pay for common areas. Usually this type of customers are interested in budget solutions for purchase, as well as the opportunity to move into the apartment immediately, notes Tenekedjieva.
She said the higher growth in building permits issued and new residential completions in the capital relative to the population growth over the past ten years will increase the number of properties on offer, which will outstrip the number of buyers. "A reference in the National Statistical Institute (NSI) shows that at the end of 2017 the housing stock in Sofia was 609 899 with a population of 1.325 million people. In 2009, these figures were 1.247 million population with 534,672 housing units. The data shows that the number of housing units over the period grew by 14.1% against a population growth of 6%. The choice for buyers is now significantly greater compared to the last two or three years and they are increasingly leading the market. This will have the strongest impact on sellers of less attractive properties in unpreferred neighbourhoods", Tenekedjieva predicts.
According to Dobromir Ganev, in some prestigious areas in big cities the prices of properties in individual projects do not correspond to the environment in which the buildings are being built - lack of paved streets and lighting, insufficient kindergartens and schools. "This puts off buyers despite the prestige of the neighbourhood. At the same time, some new areas are becoming more attractive because there is a fairer balance between prices and quality. We are talking about eastern and western areas, which are not so crowded either, so some buyers are shifting to them. In Sofia, for example, one of the biggest problems is congestion, dirty air. And all of this is now also influencing the judgement when deciding to buy a property. Neighbours are also part of the information that buyers want to get.", Ganev notes.
In recent times, the construction of gated complexes, which are suitable for young families with children because they provide a much safer environment, has increased. "Security is one of the main factors when choosing an area and property. The other important prerequisite for choosing homes in such developments is the community, which is likely to consist of people with similar social backgrounds, and this is also usually one of the important motivations of buyers.", says Ganev. However, the closed complexes have their disadvantages, mostly related to the fees, which sometimes do not correspond to the quality of services provided, he believes. "But the Ministry of Regional Development and Public Works (MRDP), in cooperation with industry organizations, including the National Association of Real Estate, is working on changes to the Condominium Property Management Act (CPMA) to enable the processes to be fairer and the law to work better for the benefit of citizens.", adds Ganev.
The trend from last year for increased demand for houses outside Sofia will continue this year. "It is normal that the upsurge in the city will have an impact on the areas around it and this will be a lasting process", says Polina Stoykova. The deals are mainly for locations within 50 km from Sofia so that working people can easily commute to the city every day. "The availability of vacant land outside the capital allows for larger-scale projects, as we are already seeing.", notes Gergana Tenekedjieva.
According to real estate experts, the increase in property transaction tax in Sofia from 2.5% to 3% will not seriously affect the market activity this year. "It may cool the passions of buyers who are reluctant to get property at any price, but the effect on transaction volumes will not be significant.", Tenekedjieva believes. "In a transaction for a property worth BGN 100 thousand, for example, the costs will increase by about BGN 500.", calculates Dobromir Ganev and notes that given the level of investment in the property, this is not an amount that will stop buyers to make a decision to buy. On the other hand, if the municipality uses the funds raised from the tax increase appropriately, the environment should improve, he adds.