"Buyer above the Sea of Houses": What is happening on the housing market in Bulgaria?

"Wanderer above a Sea of ​​Fog" by the German Romantic period artist, Caspar David Friedrich, served as sort of an inspiration to kickstart a forum about the housing market in Bulgaria that took place on Thursday in Sofia.

The painting’s title was a creative way for Yasen Georgiev, executive director of the Economic Policy Institute, to begin his analysis of the macroeconomic situation in Bulgaria and the European Union during the event organized by Manager magazine. He made an analogy between the famous artwork and the real estate market in Bulgaria, as both are kind of eerie, seeing how local buyers enter a thick fog when having to decide whether, where and what kind of home to acquire.

According to Georgiev, the biggest risk from the point of view of the economy is a potential recession, which could happen under unfavorable conditions on a global scale. He summarized that all this is also related to concerns about inflation, which in turn is a leading driver of the housing market.

Piecemeal town planning

But what is actually happening in the Bulgarian housing market, and when will we see the end of "piecemeal construction"? The participants tried to give answers to these questions in the discussion panel.

They described the housing market here as calm with no expectations of storms or shocks. However, the business reps pointed out “piecemeal town planning” as the main issue saying that it was high time to take measures to end this practice.

Everything we wish for (in terms of sustainable growth) goes through stable governance. Urban development plans followed piecemeal design for many years. This type of urban planning has become a normal practice," said Eng. Asen Chavdarov, a member of the Board of Directors of the National Association of Construction Entrepreneurs (NASP).

According to him, this practice freed the state from its duty to build streets and infrastructure and burdened the developers with this task instead.

Even in areas with good infrastructure, if the municipalities and the state do not maintain it properly, it will cause buyers to opt out of other areas where private developers do this maintenance. According to Ralitsa Tsenova, executive director of Home2U real estate agency, the poor public maintenance of the infrastructure affects property prices in specific districts.

In the coming years, the construction industry will continue to develop well," believes Adrian Yuriev , executive director of Azur Homes AD.

All panel participants, in fact, united around the opinion that the Bulgarian housing market will continue to develop well and that it is resistant to almost any shock. And housing prices will continue to rise due to a variety of factors.

As usual, the expert discussion also turned to the topic of the life expectancy and the future of the prefabricated multi-family residential buildings – an omnipresent inheritance from the Communist era.

According to Eng. Chavdarov, no politician can solve this problem, since there is no purposeful policy.

Ralitsa Tsenova stated that the secondary housing market cannot meet the requirements of modern buyers. According to her, these buyers are looking for a sense of community, and not just an apartment.

We’ve noticed a trend towards more and more housing projects built on larger terrains. Buyers are looking for peace and quiet rather than noisy and dusty places," she says.

It is this trend that is beginning to change the buyers' preference for the type of neighborhoods, as well as for large-scale projects, which cannot be built in the central parts of the city due to lack of space. Thus, developers are starting to look to the outskirts, where industrial zones are traditionally located, or to rural areas near the big cities.

According to Evgeni Kanev, it is the private developer sector that has transformed Sofia and other large cities.

The potential is huge and depending on what kind of governance we will have, we will see where the property market will develop," he said.

Representatives from the industry repeatedly confirmed that there were good local conditions for housing development.

Restrictions on mortgage loans

Mortgages are safest when there is uncertainty in the economy. For this reason, the BNB kept quiet until recently, despite the big boom in prices. In practice, the reason why there are such low interest rates is because of the low financial culture - Bulgarians invest either in real estate or in deposits," commented Evgeni Kanev, Economics PhD and managing partner of Maconis, a mergers and acquisitions consulting company.

The restrictions introduced by the Bulgarian National Bank to tighten housing credit lending came into force on October 1. They aim to slow down the accelerated rate of mortgage lending, which in August of this year reached an unprecedented 25.5%, the highest rate since 2000.

As per these new restrictions, commercial banks cannot lend amounts exceeding 85% of the market value of the property in question. The maximum repayment term for mortgage loans is limited to 30 years, and the monthly installment on these loans cannot exceed 50% of the borrower's monthly income.

Translated by Tzvetozar Vincent Iolov