Trends and forecasts for the luxury real estate market

Trends and forecasts for the real estate market

The real estate market in Sofia in 2024 remains stable and growing. Compared to 2023, according to the data of the Registry Agency, we register a 12.8% growth of transactions, which in no way corresponds to the expectations of cooling of the market. Within this analysis, we will go in depth to trace the reasons for what is happening and make reference to sustainability factors and the medium-term development of the market.

The highest prices are in the areas where there is traditionally high interest - the central and southern districts. Interest in new construction remains high, despite the price levels reached, with the most active market in Mladost, Krustova Vada, Manastirski Livadi, Boyana and Dragalevtsi.

Speaking about the luxury real estate segment in Sofia in 2024 we observe dynamics. There is a sustained interest in prestigious locations such as Doctors' Garden, Lozenets District and Boyana District. Due to the increased interest and limited supply, prices in these locations continue to rise and there are even cases of refusal to sell at the offer price and even raising the price when there is real interest in the property. Against the backdrop of continued high interest in the average price levels of EUR 400-600 thousand at the end of the year, we are seeing an outflow of new secondary market properties in the central and southern regions. Enquiries in the high price segment above EUR 800 thousand decreased.

Overall, in the luxury price segment, according to Unique Estates, in 2024 there is a slight increase in the number of concluded transactions, and a moderate increase in prices. The highest price of a registered transaction for an apartment in Sofia is worth 1.4 million Euro for 319 sqm, which makes 4390 Euro per sqm. For houses, the highest price paid in Sofia (Boyana District) was EUR 2.7 million. The Doctor's Garden also holds the prize for the property sold in 2024 for the highest price per sq m – EUR 8592 Euro/sq m - the property is the cultural monument "The House with the Strawberries".

An interesting feature of the transactions made in the largest real estate agency in the high price class, Unique Estates, is that in 26.7% of the transactions made in 2024 there is no difference in the offer and the closing price. This is a return to 2021 and 2022 levels and is one indicator of a stable market. When we talk about the presence of price commentary, the percentage of deviation from the offer and sale price varies widely and depends on various factors - the type of property, the desire to close the deal quickly, proper advice from brokers in determining the offer price. Since the beginning of the year in Unique Estates transactions, the average reduction of the offer price to the actual transaction price is 5.7%. It is interesting to note that in 14% of completed transactions we have seen an increase from the original asking price. These are properties that were listed over a year ago and now appear to be able to be realized at a higher price. The average increase is 9.1%

The price movement by neighborhood is interesting. According to Unique Estates data, we observe different changes depending on the characteristics of the areas/neighborhoods, the dynamics of construction in them and consumer interest. In the table below, three of the areas with the most registered transactions in 2024 in Unique Estates are shown.

Quarterly	2022	2023	2024	% change 2024 vs. 2023
Centre	3078	3533	3733	+5.7%
Doctor's Garden	4217	4688	4826	+2.9%
Krustova Vada	2094	2129	2511	+17.9%

These are curious facts about the market, but more importantly, what are the reasons for this reality, and the most important question is "in what direction will the market develop?".

The reasons

The short answer for the market reality lies in the demand for properties in the luxury segment in Sofia. After the crisis in 2009-2010, the property market became highly fragmented and stratified into different price classes. Customers with requirements ready to pay a higher price appeared, which in turn began to develop the supply of similar properties - both new (new construction) and existing ones. Despite the supply of properties for more discerning clients, demand has traditionally been higher. In practice, the supply of luxury properties in Sofia cannot satisfy the demand and there is no reason for this trend to change in the short and medium term.

Considering the topic in depth, it is necessary to look for the reasons for the unceasing demand for luxury properties in several main directions:

Economic:

The overall well-being of the nation improved, which in turn led to faster increases in incomes in the highest income decile - i.e., higher-income earners began to increase their incomes and overall well-being faster. This process has been particularly evident in certain sectors (technology, certain manufacturing and services aimed at external markets) and has been forced by inflation over the last 3 years. Thus, the rich people in Bulgaria have become richer, and this has provoked their interest in various products, including property - investment or to meet specific housing needs.

Banking policy:

over the last 10 years access to credit has been extremely easy, the general banking environment and interest rates have led to a major boost in the overall real estate market. Despite rising interest rates in the inflationary years since Covid 19 across the European Union, the US, Canada and the UK, interest rates on home/mortgage loans have not changed significantly in Bulgaria. This has led to unabated interest and an increase in total lending of 16-18% year on year over the last 3 years. According to BNB data, the total volume of housing loans as of June 2024 amounts to BGN 24.8 billion, and the forecast for the rest of the year is that the growths of recent years will be maintained. Despite the restrictions imposed by the BNB on commercial banks for housing loans, the expectation is to contain (slow down) growth rather than to have a reduction in volumes.

Geographic:

Sofia as the city in the country concentrating the largest number of jobs and the largest concentration of business in the country, as well as the fact that it is the capital of an EU country determines the concentration of strong property interest. Unfortunately, centralization in the country is a persistent process and Sofia as the largest city continues to be a strong draw both as a place to live and as a location for investment property. This has an overall impact on the property market and invariably leaves its imprints on the luxury property market.

Migration:

In the last 4 years, for the first time in 30 years, we have seen positive mechanical growth - the number of inhabitants settling in the country is greater than the number of people leaving the country. This process was catalyzed at the height of Covid 19, continued in the aftermath of the war in Ukraine, and is projected to continue at a moderate pace. This migration trend generates individuals with available resources (good purchasing power) and a desire to permanently settle in the country. Of course, Sofia remains one of the attractive destinations. The migratory wave and the generally active movement of our compatriots settled abroad also creates prerequisites for investment intentions aimed at various properties, including those in the high price range.

Investment intentions:

Real estate continues to be a desirable investment in Bulgaria. It is no coincidence that we are one of the leading European countries in terms of property ownership. BluePoint research from September 2024 shows that 65% of Bulgarians would invest in property if given the opportunity, compared to the second place in terms of interest with 24% in securities investments. The interest in owning real estate is unceasing, and the liquidity provided by properties in the high price range determines their attractiveness as an investment solution.

Consumer preference:

consumer preference in luxury real estate focuses on modern and comfortable homes that offer not only prestige but also a high quality of life. The main features that dominate the preferences of buyers in this segment are spacious homes, the use of high-quality materials and modern (smart) technologies, security and convenience (gated communities), developed transport and social infrastructure (shops, green areas, schools and kindergartens). The high importance of the location and the possibility of a panoramic view and/or easy access to parks and green areas are maintained. In general, buyers of luxury properties in Sofia are looking for homes that offer a high quality of life, including comfort, sustainability and tranquility.

Rents:

The property market is directly linked to the rental market and the increasing interest in rental properties directly influences investment intentions for purchase. In this regard, rents in Sofia have grown significantly in recent years, a trend driven by several key factors: economic growth, increased interest in the city from young professionals moving to the capital, and demand for properties in certain well-located neighborhoods. The type of demand for homes that are sought to be rented is also changing. In the high price class - so-called luxury properties the interest is definitely in more spacious housing, amenities accompanying daily use including security and of course convenient location with established infrastructure. In this regard, Unique Estates reports a growing interest in renting properties in the higher price range.

Contextual:

Bulgaria's forthcoming entry into the Eurozone and the possibility that an investment in property could be an easy opportunity to transform available funds, especially if the origin of these funds is not entirely clear. This theme corresponds to the level of the informal economy in the country, which is not the subject of this analysis. But in a sentence - there is spare cash in the country that needs to be "illuminated" and the purchase and sale of real estate is one of the solutions to this. This process is being catalyzed by the country's imminent entry into the Eurozone and is having a stimulating effect on the property market and in particular on properties in the high price bracket.

The real estate market in Bulgaria is incredibly connected with the trends in the entire European Union, and Sofia as a European capital follows what is happening in the largest European cities. The markets are connected, and the possibility of free movement of people and capital in the European Union makes the topic of property subject to extensive trends in the medium and long term. In this respect, at the end of this analysis I will also take the liberty of making a very brief summary of what is happening in the EU property market with an overview of the main trends.

According to Eurostat, property prices in the first quarter of 2024 on average for the whole EU increased by 1.5% year-on-year compared to 2023, and in the second quarter the year-on-year increase was 2.9%. There is a general trend in prices, but we observe differences across countries. Six countries in the EU recorded an annual price decrease, while twenty of the Member States recorded an increase. Luxembourg (8.3%), Finland (4.8%) and France (4.6%) recorded the most significant price decreases, while the sharpest increases were observed in Poland (17.7%), Bulgaria (15.1%), Lithuania (10.4%) and Croatia (10%). Despite the challenges that the EU property market is going through, mainly due to the high levels of interest rates on loans, we can talk about an overall slightly upward price trend for the EU. The containment of inflation and the expectation of lower interest rates in the EU countries is a prerequisite for both sustained demand for property. A curious trend observed in Europe is the interest in environmentally certified properties. This is related to European directives and standards for sustainability, green mortgages - better conditions for buying environmentally certified properties as well as consumer attitudes mainly in Western European countries.

There are various factors that influence the real estate market both in Bulgaria and in the EU, but the ones commented on have a great weight and their regular monitoring can navigate us as to the direction of the market and possible price changes. At this stage, the widely commented forecast of market stagnation and a price bubble is not happening. There is also no change in price levels, and we can rather talk about a slowdown in the growth rate.