For sellers

Sofia rental values drop as excess stock dilutes supply

11 November 19

Rental prices in Sofia increased steadily in 2018 by 9%, peaked in early 2019 and have since showed signs of decline.



Landlords of Sofia properties have experienced a healthy rise in their rental income over the past 18 months, New Estate successfully increased rent upon tenancy renewal across 90% of its managed portfolio. However, as the buyer’s market has stalled in 2019 and value growth has halted, rental values have ceased and in some areas declined. Rapid growth will always be followed by market correction and 2019 so far appears to be a correction phase.


What has changed?


Market stock:

Off-plan developments that were granted building permission upon initial market recovery in 2015 have now completed and are habitable. This flood of new builds has supplied the market with excessive choice for buyers, who are financed by affordable and achievable 90% LTV mortgages at unprecedented interest rates as low as 2.5%. Furthermore, Bulgarian banks are lending against the valuation amount, not the actual purchase price, as such should a buyer have access to under priced assets or is buying at a yesteryear price and a mortgage of today, it is absolutely possible to achieve 100%+ lending.


The average professional salary is able to afford more than the average property, hence droves of sub 35 yrs old tenants are becoming owners thus reducing the overall rental demand. The combined borrowing power of couples is a direct multiplication of their borrowing capacity as individuals, as such a couple on good salaries owning an average sub 100,000 Euro apartment can typically afford an additional investment property, a common bricks and mortar investment choice since the collapse of two major banks in 2015. The growing culture of property investment beyond one’s own home through borrowing has only bolstered the availability of new rental units. Whilst acquisition of buy to let property remains affordable to many this trend only likely to grow rather than slow in 2020.




Great news for land bankers and developers, not so much for existing landlords. Covering mortgage repayments is the main priority for thousands of such first time landlords, as such it is common to see whole buildings come online with 20+ similar rental offers, all well decorated and furnished to the tastes of millennials. Extrapolate for a dozen similar buildings in any one neighbourhood and the tsunami of competing offers quickly becomes apparent and why the ‘race to rent’ has stalled further increases in rental rates and even pulled them downward in some areas.

Gone are the days when only 50+ year old cash owning inheritors are the vast majority of Bulgarian landlords, who traditionally displayed aged décor from their early post-communist era and largely remain disconnected from current interior tastes and tenant demand. These new buyers are finishing to modern standards and international tastes, the bar is higher as interior quality has becomes more important to a younger audience, particularly as they have many more options and have possess greater spending power to afford their choices.




Peer to peer platforms such as Airbnb and have had a significant impact. Lured by the potential to achieve a month of rent in just a week, many landlords sought the services of property managers to conduct cleaning and key exchange services in order to take bookings for higher paying night by night customers. Tax efficient and seemingly far more profitable, thousands of Sofia owners removed their property from the resident market, jazzed them up with glitzy Ikea enhancements, then awaiting a windfall.


Whilst the early movers prospered, the volume of late comers has overwhelmed the nightly peer to peer market, particularly in areas away from the very centre. For properties that rent for 500 Euros / month and achieve 50 Euros / night, the net income is actually much the same with the greater risk of damage and vast heating or cooling bills tipping the balance heavily in favour of a single full time residential contract. With many coming to the same conclusion a plethora of fashionably finished properties has come back to the residential market, now available with cups and duvets included. These returning owners are adding to the stock and provide fierce competition for those less well furnished.


Population trends:

Sofia continues to grow rapidly as new young tenants migrate to the city from rural settlements resulting in an average growth rate of 1% / year. Current official population figures put the total at 1.3 million, but this accounts only for those registered, some estimate the actual number of people who remain registered elsewhere in the country but living in Sofia at almost 2 million.


This migration flow is steadily propping up the rental market beyond any supply issues, it must be monitored carefully for future signs of market destabilisation.  Whilst Bulgaria has the fastest shrinking population in the world at -0.7% / year, Sofia landlords can sleep easy knowing that the capital bucks the trend and remains a secure and liquid investment choice.