Property Values in Sofia Halt as Buyer Frenzy Fades.

Growth stalls as Sofia’s property market falters and prices freeze. Upsurge in off-plan sales, overpricing of existing stock and buyers trend towards larger family dwellings.

Since the collapse of a major bank in 2015, Sofia’s property market has benefited from a resurgence of bricks and mortar cash investors accompanied by mortgage backed millennial buyers. The wave gained serious momentum from mid 2017 but petered out in the final quarter of 2018. Prices for Q1 2019 are now comparatively static as buyers take a ‘wait and see’ position.   

The average price in the capital is now 1,080 EUR, no change since Q4 2018.

This price hold can be in part attributed to a shift in the type of properties being purchased; with a reduction in viable finished stock greater volumes of buyers have decide upon the acquisition of off plan purchases, which are less expensive per sqm in return for a future completion. In addition, as values have risen buyers have been priced out of typically preferred areas and have turned towards less expensive peripheral alternatives, which has helped to maintain the average per sqm rate.

The average value for a private home is now 90,960 in Q1 2019, a reduction of 590 Euros since Q4 2018.

According to the national Registry Agency there were 5,641 property transactions in Q1 2019, a negligible but slight reduction from Q1 2018. This figure does not consider contracts between private individuals and property developers for off-plan purchases, which the registry only accounts for upon completion of the build and transfer of the title.

Issued Building Licenses for the city of Sofia increased by 26% so far in 2019 by comparison to 2018, a clear indicator for both a wave of inbound supply and the short term future for the sector.

Family homes have become the major trend change for 2019. Spurred on by higher earnings and greater disposable income, buyers with children are now able to more often afford a bedroom per child. Average size of sold properties in Sofia has increased to 89sqm, in part because of greater earning capacity but also because the increase supply of larger 3 bedroom properties which were previously almost unheard of.

Banks continue to lend, 90% mortgages are now commonplace. New Estate’s experience is of systematic lending to borrowers at up to seven times their gross annual income, unprecedented for the Sofia market. Banks continue to lend against only properties within the city limits, those finished with Act 16 (houses or apartments) or off-plan contractual purchases (apartments only) that have reached Act 15.

Buying a plot and building one’s own home remains a cash only practise, no bank will lend against the acquisition of a plot before it is regulated, has building license and most typically both water and electricity connections. This in part explains the currently disproportionately high value of detached houses and lack of sufficient market stock. New Estate expects the detached housing sector to be the next area to see correction, aided by over the horizon developer stock that is likely to equalise values and address the hyperinflation of detached dwellings.

New Estate has long predicted a market correction, we believe that from the end of 2018 this has been underway. Whilst no crash was expected a plateauing of values has been due and will remain for the coming year at least. Prices are likely to sustain at current levels with the most active areas seeing 3-4% / year increases. Central prices that climbed excessively in 2017-2018 to 2-3x the average are likely to be the areas of greatest decline and most notable adjustment.