Sofia prices climb as recovery continues

Following the collapse of two of Bulgaria’s largest banks last summer, 2015 started with a burst of activity as the state paid thousands of depositors their savings account balance up to 100,000 Euros. Supported by a total loss of faith in banks, hysteria ensued and like a shot of adrenaline for the market used cars and properties were suddenly in demand again as liquidity rushed through the system. Interest rates for savers have this year fallen dramatically to a historical low now not more than 1.5%, a far cry from 2010’s 11% standard rate. Without this high return cash deposit option most have returned to the traditional safe haven of Sofia buy-to-let property comfortably enjoying a low risk 6-7% annual return.

The Bulgarian National Institute of Statistics is expected to report a 5% price rise in Sofia over the course of 2015, certainly our experience of current pricing trends supports this and more. To take example: in ‘Capital Residence’ a 77sqm 1 bedroom apartment sold October 2014 after 3 months of marketing for 43,000 Euros. This week an identical 75sqm apartment sold after just 1 week of marketing for 50,000 Euros having had several other offers at 47-48,000 Euros.

So is it sustainable?

Few expected the burst to continue for long, even the optimists didn’t expected it to gain pace and pull prices steadily upwards for nine months. No one can be sure if the cash in the market is still from pay-outs or if the market has genuinely recovered and there isn’t a sharp tumble over the horizon. However, banks are now lending again as this month sees the first Bulgarian mortgages under 5% interest and with the lending rates are below rental yields property investments has suddenly have become viable again.

Does it put Bulgaria back on the global investor’s hit list?

Probably not, but it does provide respite for 2004-2008 investors who have held out and stayed in the market for seven years since the credit crisis. For those who bought in Pounds the effective rise is somewhat diminished as the strong Pound (1.45 against the Euro, August 2015) threatens to wipe out any true gains, but for those who bought in Euros the news is only good.

Rental rates have risen is some areas, but certainly there has not been a generic rise across the market as a whole as yet. Typically the opening of metro stations or new shopping centres have triggered increases in some particular areas, but with sale prices up across the city it is likely that rental prices will head upward too within 12-18 months.