Bulgaria: There is No Bubble in the Real Estate Market. For Now
There is no bubble in the real estate market in Bulgaria yet, but obviously, the number of deals and house prices will continue to rise. This was summed up by experts during a discussion on real estate in Bulgaria. The reason for this is the large savings of the population, low-interest rates on loans and the desire to buy a better property. No one has been able to predict how the pandemic will affect prices, with some market players expecting the effect to be downward, but in practice the opposite has happened.
There is no bubble, but we are moving in that direction
There is definitely no bubble in the market and if you compare the situation with that in 2008 you can see that then one of the reasons for the bubble was that the expansion went hand in hand with rising prices and high-interest rates on loans and savings, and now interest rates on loans are a provocateur for rising prices. This is explained by Gergana Bahchevanova, executive director of the real estate agency “Address”. She adds that at the moment the interest rates are almost 5 times lower than then.
Tihomir Toshev, manager of Credit Center, commented that the bubble of the 2008 crisis began to inflate five years earlier, with house prices rising by 130% between 2003 and 2008. He reminds that such unhealthy growths are those in which prices rise by more than 10% per year. He says this is not the case now, with the exception of 2014 when the annual increase was 17%.
Gergana Bahchevanova pointed out that in 2021 prices have risen by 15%, but emphasized that in the last 2-3 years the growth is “so tangible” because it is formed by the desire of people to buy fully finished homes in which they can move in immediately - completely finished new, completely renovated old. “This is an investment on the part of the seller. And this growth is increasingly provoked by this,” she explained.
Toshev called for common sense in the market, because if we follow this pace, we will invariably lead to a bubble in the real estate market, which may not lead to a collapse in prices by, for example, 40%, but there will be no deals for a long time.
Irina Kaneva, Commercial and Marketing Director of BLD, commented that many customers of the company regret that they have not made a purchase in the last 1-2 years, because during this period they missed the opportunity to buy a home 20-30% cheaper than it is now.
She pointed out that there is currently a demand that exceeds supply. “Not only is there no bubble, but the new construction has not reached the peak in property prices. The coronavirus has brought an incredible boom in the prices of raw materials and labor. For an investor is now much more expensive to put up a building,” she added.
All three commented that the market will obviously continue to rise - both in terms of prices and the number of transactions at least during the year. The forecast is that interest rates on mortgage loans will remain at last year's levels, but after 2-3 years it is expected to begin a smooth growth, which is already present in the United States, Toshev reminded. Kaneva pointed out that currently, investors in residential buildings do not need such quick deals by announcing that there is a waiting list for projects in good locations and at the moment the project receives approval for construction, the apartments in it are sold out in 2- 3 weeks.
Young people are driving the market
The last census showed that only Sofia is growing, and in the last 2-3 years a whole new group of buyers has emerged on its real estate market, which is surprising for us, Bahchevanova analyzes. These are people under 30, and even under 25, who are in their first job, but with an income well above average, and who think about the quality of life. They buy because they want to live in a better place, to have a view and space, which is also an engine for market growth. This group of buyers is also partially sponsored by the parents for such a purchase and, in addition, has access to very cheap loans at the moment to supplement the missing part of the price of the home.
She adds that yes, people cannot live in 3 properties at the same time if they invest their savings in it, but they do not see another alternative for their money. She estimates that because of this, last year a little over 20% of the transactions are already for investment purposes, and the combination of own funds and a loan is usually used for financing.
Toshev commented that he is sending back his clients who want to buy a property for the purpose of investing with a loan. “You can't invest someone else's money,” he argued.
The new is the new old
Most buyers are still wondering whether to buy an old building or a new property.
The participants in the discussion point out that the old homes are still larger in area, have built infrastructure, which includes kindergartens and schools nearby. At the same time, especially young buyers want a home that no one has lived in before, they are modern and find more common ground with neighbors in new buildings.
There is also a group that prefers panel buildings - 10-15% of buyers, commented Gergana Bahchevanova. These are people who want their children to grow up where they grew up, to go to the same school, to know that they always have a place to park, and their parents also live nearby. The old does not change, does not evolve, there is a residual odor, commented Irina Kaneva. According to her, the new construction in recent years brings “a lot of negatives” in the minds of potential buyers because it was allowed the construction of buildings and entire complexes without the associated infrastructure. “But more and more companies have started thinking about the needs of the client before designing a building and a neighborhood. In the old construction, there are spacious rooms, large area, but each material has a technological life. A young man would like his home not to be as old as his grandmother,” she said.
Toshev also reports that for most buyers there are still fears of new construction, although the previous crisis has weeded out troubled investors. The reason is that they are worried about making a “hole and blueprint” deal, especially in high-demand neighborhoods, because they are worried about whether it will be built at all, whether it will be on time, how they will be able to pay both rent and credit. “So people come mainly with the attitude to buy a house of old construction, which, however, to start living in immediately. 30% of people who came with the attitude of old have bought a new home,” he said.
Loan is repaid, rent is not
With this logic, Kaneva explained the desire of most Bulgarians to live not on rent, but in their own homes. Bahchevanova commented that the reason why people in other European countries live in rents en masse is that they often move. A similar trend is beginning to emerge in the Bulgarian market. If until 15 years ago people bought a home that will last a lifetime, now more and more people are accepting it as a temporary option for the next 5-10 years.
Tihomir Toshev reminded that he always advises his clients, when deciding to buy a home and will take a loan for it, to calculate no more than 30% of the family income to go to the monthly installments. They can allow this percentage to rise to and above 45 if the household has a secure and well above average income. He also reminds that it is important for the loan to go with life insurance. Many people are now aware of this and every 7 out of 10 loans are insured, and until years ago it was the opposite, mostly due to the increase in the monthly installment. He also gave his formula when deciding whether or not to buy a property:
- 15% of the value of the property to be available plus the cost of purchase income to be secure for at least the next few years
-payments for 3-6 months to be saved in case of difficulties
- the buyer must be sure that they need to buy a home
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