Sofia Market Report: Update 2014

Domestic demand continues to prop up the Sofia market with 1.59% increase in Sofia district sales by comparison to last year. Mortgage lending is now commonly viable again: Bulgarian passport holders can borrow a maximum loan to value of 90% but typically most applicants are granted 80%. Mortgages to foreigners are few in number but available, generally extremely expensive and thus rarely utilised.

Larger and more expensive properties continue to be the least likely to sell as buyers with higher budgets remain the least common. Many wealthy Sofians purchased with ‘new money’ during the boom years and are now heavily burdened with negative equity, thus unwilling to sell at today’s rates, accept the loss and move home. Instead almost all stay put awaiting market recovery, in most cases in total denial of the current reality. This helps explain why 80-90% of the advertised market online for Sofia is at totally unrealistic and unachievable prices, owners are simply in perpetual disbelief of their asset’s values or keep their properties advertised out of sheer hope. Average prices in 2014 have remained at 749 Euros / sqm across the city, the bulk of the moving market demands sub 60,000 Euros properties: generally 1 bedroom newly built apartments within the commuter districts. Typically studios range from 25-40,000 Euros, 1 bedroom properties from 40-60,000 Euros, up to 70-80,000 Euros only in the central areas or very best 5* complexes (less than 10% of stock). Larger 2-3 bedroom properties tend to start at 60,000 euros and upwards, those above 80-90,000 Euros seldom sell.

Foreign owners have typically purchased off plan in residential buildings in the secondary areas of Sofia. In some complexes, (such as Silver City) we have seen growth in demand from buyers and tenants alike as the Paradise Centre shopping mall has been completed and a metro station is due to open within 2-3 years. Although sale prices are not up, demand is higher so sales happen more frequently. In other complexes (such as Capital Residence) in Ovcha Kupel we have seen a constant supply of new builds continue to flood the local market, generally available for 500 Euros /sqm off-plan (6 months away from completion). This flow of options has stunted rent recovery and in many examples caused tenants to have huge bargaining power. Without upgrades in the general area or a reduction in availability, prices are less likely to recover.

With two runs on two of Bulgaria’s largest banks so far this year, cash depositors are turning to the buy-to-let market to achieve easy low risk returns from their money. Banks previously offered 11% to depositors in 2009 after the recession began, slowly dropping to the current 3.5%. Savvy property investors can find openly available market price offers that will secure them 7% gross and 6% net / year. Naturally it is more involved than just depositing funds in an account, but with the considerable upside of potential capital appreciation in value, especially as the market is bouncing along the bottom without anyone seriously believing it can get even cheaper (without a major event or crisis). This trend is contributing to the absorption of new property stock, holding of prices and the current stability, all welcome in what has been a miserable period for the property market.

Landlords who have been renting since the completion of their off-plan purchases are now face refreshment costs having been inhabited for 5 years. Unlike your own home tenant usage is often 3-4x as damaging when it comes to wear and tear, if the maximum rental is to be achieved the landlords typically encounter kitchen cabinet repairs, worktops replacement, redecoration, sofa replacement etc. The 5 year period is a psychological barrier for many investors, which tends to be tipped in favour of selling when refreshment costs are due which results in a wave of foreign owners hitting the resale market. Whilst around 10% of foreign owners in Sofia sell each year, we suspect that will be higher during 2015 as repair and refreshment costs start to apply.

Overall the outlook for Sofia is healthy and the trend is positive, but the market is moving very slowly and patience is essential, no jump in prices is on the horizon no sudden recovery predicted. Rental returns remain minimal for those who bought during the boom years (2-3%), but at today’s prices and at around 7% gross the opportunity to invest relatively small amount of cash and get relatively low risk return is certainly back. Few other capital cities can offer consistent growth in population and economy whilst still providing viable property opportunities at around 50,000 Euros.