For sellers

Sofia Owners: Should you sell property in Sofia or rent it out?

Sofia Owners: Should you sell property in Sofia or rent it out?

Although the media love to bash Bulgaria and rile up negativity in its property market, the truth is that if you have bought anywhere within the city limits of Sofia you can absolutely resell or rent; there is a market, there are transactions and you do have options open to you. This brief article considers the pros and cons of either option whilst pointing out market movements that will either help or hinder an owner’s decision.

Key market movements for vendors – how lending has changed the appeal of your property.

We are now seeing pockets of recovery in Sofia property prices driven by domestic demand due to the recent release of handful of mortgages available only to Bulgarian nationals. These products are offered by both Bulgarian and foreign banks creating a significant trend largely considered to be the beginning of the recovery for the domestic credit market. How long it takes to get back to lending to foreigners is nigh on impossible to say. There is no doubt that the first time buyer market is quickly gaining pace again since the re-release of 90% loan to value mortgages and the return of commonly achievable applicant criteria. The market was at a stage of being exclusively dominated by cash buyers, who unsurprisingly would only buy with what they had available to them and in the bank, which resulted in only low offers being made by buyers, those vendors hard pushed to sell would have no choice but to accept them. We feel that demand fuelled by new mortgages, which were unavailable 6 months ago, would now result in sales prices of 5% higher in many cases.

We previously reported that the same banks who shelved mortgages simultaneously sucked up all available cash in the marketplace by offering sky high interest rates to savers, a form of quick and short sighted security. However, the better news for the property market and owners considering resale is these ‘high street savers rates’ have been progressively lowered over recent months from 11% to a current 6%, thus the ‘quick and easy secure cash deposit with high returns’ option is no longer as attractive to those with disposable funds. Without such quick returns being so easily available, the incentive to invest into the age old expected growth of ‘bricks and mortar’ is creeping back into the philosophy of those with cash as well as the regular earning and buying public.

Price guide for resale:

So far it sounds promising, however the nominal reality of actual prices might not paint such a pleasant picture by comparison to the slight upturn from a very extreme dip that we have just started to climb out of.

Naturally every area has its price, however a general rule of thumb is that your resale value will be 20-30% down from its peak 2007 price and you will struggle to resell at all if aiming for more than 800 Euros / sqm in the vast majority of locations (of course there are exceptions). The common demand that exists and results in actual sales and transactions not just offers and enquiries, is for around 650-750 Euros / sqm in the secondary zone residential areas such as Mladost, Lyulin, Ouvcha Kupel etc. At this level a mortgage can be acquired and a sale can be concluded.  The banks want to lend only 20,000-45,000 Euros to an average employed couple, which will most likely buy that couple a good size 1-2 Bedroom apartment depending on their proportional injection of capital.


If you have paid 1600 / sqm in a more central location and were lining yourself up for a 20-30% hit only and sell for 1150 / sqm, unfortunately this upper end of the market doesn’t exist at this time and sales in this bracket seldom happen. The banks are not supporting this superfluous end of the market and as such you will find very few active buyers with cash ready to spend at these levels.

What is actually selling?

Our analysis shows that the current demand is largely focussed towards finished or BDS standard (unfinished internally) 1 bedroom apartment between 41,000-58,000 Euros. This is by far the most common request, usually from couples financially supported by their bank or their families. Any standard, regular or average new build 1 bedroom apartment in a non-central location that is advertised above 65,000 Euros simply fails to get attention, no matter of the size or aspect. The current reality is that the nominal cost of the property is more significant than the quality or the location. The bulk of demand operates under a glass ceiling of 55,000-60,000 Euros, for which there continue to be sufficient offers in the marketplace to feed the active buyers, who will continue to create and complete transactions as long as the banks keep lending at the current levels. Should we see this supply reduce or banks start to lend more freely, then the combined impact will force serious buyers into borrowing and paying more for the same properties, thus retail prices will increase. Whilst we can’t speculate on bank lending, we can see that there is no shortage of vendors feeding the Sofia resale market; as long as the supply of owners accepting of their losses continues the current state of the market will too.

Is it best to rent and wait for further recovery?

Whilst the currently achievable resale values might well be below what you originally paid, there is at least the very realistic option to rent and either profit or at least substantially reduce your ongoing monthly costs. Particularly in Sofia, it is commonly accepted that rental is now the only sustainable option whilst awaiting a breakeven point or a profitable resale buyer. It is commonly accepted that prices will again start to climb, our expectations are not by more than 3% per year for the next 5 years as an average, naturally we will be delighted if it is above and beyond this.

Key trends for all Sofia Landlords

New trends in tenants moving out of older 1960’s blocks and into new foreign owned properties has given rise to a small boom in the lettings market. Whilst thousands of newly completed units have flooded the market and pushed rates down through over supply, simultaneously many owners lumbered with properties that they ideally would want to resell quickly become ‘distressed landlords’ willing to let for low rates to get someone in to cover their bills. Combined with the overall impacts of recession (reduced salaries, higher unemployment etc), these factors have caused rental rates to fall, which in turn has enabled and encouraged higher number of tenants to consider new build properties which are now affordable and were previously unachievable to them.

In effect, we have seen a wave of properties hit the rental market for a variety of reasons, rates have come down partly due to oversupply, landlord desperation and recession factors, which in turn have allowed tens of thousands of tenants to afford new builds for the first time. Unfortunately, the wave of properties is still much larger than the wave of tenants, hence the still disappointing rental rates.

A full and detailed assessment of the Sofia rental market can be seen via this link.

Advantages of renting

The primary reason owners quickly decide not to rent is because of the necessary investment in furniture. However, as a company we offer to furnish Sofia apartments for free, then recoup costs from the rental income once tenants are placed (for details, click here). As a rule, we cover any cost associated to the apartment including heating systems, kitchens, furniture, minor repairs, lighting etc. It is our belief that you have paid for the apartment now the apartment should pay for itself. This mitigates the need for upfront cash and as a strategy has been responsible for bringing 82 new apartments to the market (at the time of writing), which would have certainly stayed empty otherwise.

The fundamental advantage of opting to rent is that it will generate a positive cashflow, which will at least contribute towards the ongoing running costs of the property / investment / mortgage etc. Whilst it is virtually unheard of for rental income in Sofia to generate profits that equate to acceptable annual Return on Investment  rates (RoI), it is always far better than the alternative of no income at all. The net income will result in an RoI of perhaps 2-4% once rented (generally higher on smaller cheaper studios which are in demand and more affordable to the masses), whereas leaving it empty will certainly cost the owner in: annual property tax, annual maintenance fees, amenities bills, insurance often etc equating to an RoI of minus 2-3%. As such, the actual ‘cash in your bank’ difference between renting or not, for a regular 1 bedroom apartment, can be as much as 3,000-4,000 Euros / annum.


The bottom line is that the market will not recover very quickly or very soon and as such an owners choice is to resell at the current values and take a hit on the price, or rent out the property and either accept a small profit each month or at least a notable reduction to their own contribution the mortgage / running costs every month. The alternative is to leave the apartment empty, which is understandable if you do not want to furnish, but makes no financial sense if you are waiting for better times to resell at a higher price and you are offered free furniture to enable you to achieve rental income. Our advice is to sell or hold out for 5years and rent it for that time to mitigate your loss.