Analysis of the real estate market in Bulgaria for the first quarter of 2017
New Participants on the Luxury Real Estate Market
In its analysis of the real estate market in Bulgaria for the first quarter of 2017, the consulting company for real estates of highest class Unique Estates outlines several stable and interesting facts and trends:
- Foreign investors are looking for whole residential buildings to make short-term rentals
- After the return of luxury home buyers on the market, new deals exceeding EUR 1 million are expected in the upcoming months
- The Millennium generation is entering the luxury real estate market
The economic recovery, the improving lending conditions and the turning of Sofia into a more recognizable tourist destination are the key factors that influenced the luxury property market in the first quarter of 2017.
By the end of 2016, the gross domestic product rose by 3.4%, a rate above the average in the EU, incomes are increasing steadily and unemployment has fallen by 7.6% with significantly lower levels in Sofia. Meanwhile, interest rates on mortgage loans continue to fall, reaching 4.2% for mortgage loans in levs in February, according to BNB data.
The activity of banks and their striving to improve lending conditions are beneficial to the luxury property market as they create a positive mood among customers and give them the peace of mind that their purchasing decisions are at the right moment. At the same time, the concentration of business with potential for rapid growth in the capital is a good foundation for the development of the luxury property market.
The Market in Q1
Traditionally, the beginning of the year reports lower development than the rest of the year, and Q1 2017 was no exception as queries and number of deals. Compared to the beginning of 2016, there was a slight decrease in survey inquiries, but the number of sales closed over the period grew.
In Q1, demand for luxury properties remained primarily for residential purposes, but investment purchases were gaining momentum. Unique Estates data shows that these were about 40% of luxury property deals. Similar was the picture in the mass price segment, but at a different ratio.
In the absence of good investment alternatives, residential properties, and in particular the luxury class, are observed by many buyers as a good opportunity for them to protect their savings. The continuing smooth price increase also ensures that the moment is suitable for purchase and the limited supply, especially in the new construction segment, is an incentive for quick decisions when a suitable offer is available.
These effects are reinforced by the better recognition of Sofia as a destination for weekend and city tourism due to the growth of low-cost flights. Tourists using low-cost airlines are often Airbnb-type booking customers, and this extends investment opportunities in the housing market.
In this regard, Unique Estates has already identified a new group of buyers looking for an investment in whole residential buildings or a group of apartments to run and lease on a hotel basis. Typically, these are foreigners who know this model and see the possibility of its application on the Bulgarian market. The expected return on such investments is 5 - 6%. Demand is in the central areas, which are well-backed and secured with infrastructure.
“This type of accommodation is very popular in Europe, while our market is still underdeveloped. For this reason, the supply of similar properties is limited, but we see potential and good profitability,” commented Vesela Ilieva, Managing Partner at Unique Estates.
The specificity of such buildings is that they mainly include one-bedroom apartments and a limited number of larger homes. As there are no buildings with similar layout on the market, the option is the reconstruction of properties under construction. Negotiations with investors in similar projects are already in progress and the closure of similar deals is expected in the coming quarters.
Prices, demand, supply
Despite the strong entrepreneurial interest in luxury construction, supply remains weak. Most projects are still under construction, and some - even at the stage of buying a plot. A stronger supply of new luxury construction is expected in the end of the year, which will have a repercussion on the market in 2018.
In Q1 2017, prices in the luxury segment remained stable with expectations for annual growth of around 5%. Most deals are made at a bid price or at a maximum of 5% discount. Single sales are higher than the price demanded by the seller, and this is only observed in cases of highly demanded properties that rarely go out on the market.
The aforementioned increased demand for investment properties is characteristic of a growing market, as is currently the case for Sofia. Unlike in 2015, when house and apartment deals were almost equal, nowadays apartment purchases have a clear predominance. Buyers with a budget of up to EUR 200,000 mainly look for new construction. With the restoration of the market, the interest in buying abroad is coming back, as there are already deals with luxury properties in Halkidiki, Greece.
On the part of vendors, there is some withdrawal from the market due to the expectation that after 6 months they will be able to sell their property at a higher price. For this reason some owners temporarily stop their homes from selling, but this is not a working approach.
“An old apartment cannot cost more after 6 months or a year, when supply is expected to grow and many modern and functional solutions come out on the market. In the conditions of increased competition then, these properties may even cost less than at the moment,” Vesela Ilieva commented. Her advice for these sellers is to use the good moment on the market and to sell their properties now instead of waiting for a possible price increase.
Market by regions
l Doctor's Monument
Traditionally strong demand, the most elite region of Sofia. Old, large apartments for repair with high ceilings are being sought, in buildings with history. No significant price changes during Q1.
l City Center
It covers the central part between the boulevards Alexander Dondukov, Largo, Hristo Botev, National Palace of Culture and Evlogi Georgiev in the north. The area is dominated by old construction and the deals are mainly with such apartments. Properties for renovation are demanded for investment purposes. In the recent months, the interest in Vitosha Blvd as a place for living has returned. The expectations are after the planned repair on Graf Ignatiev Str buyers to rediscover this part.
l Southern Areas
They cover the neighborhoods along Bulgaria Blvd and South Park. The demand is for new residential and investment projects, as most of the deals are being made at construction level. The market still has a serious shortage of new luxury construction and the prices of these properties are rising steadily. Buyers most often have a budget of over EUR 200,000.
l Elite Districts
This category covers prestigious neighborhoods with a more central location such as Lozenets, Ivan Vazov, Iztok, Izgrev, Yavorov. New homes or old brick apartments in well-maintained buildings are being sought. Again - for living or investment purposes, because in these parts of Sofia there is a well-developed rental market.
l Vitosha skirts
The strongest tradition in this area is the house market. Modern houses are demanded - with contemporary architecture and interior design, bright colors and a bathroom to each bedroom, but there is almost no supply. The average demand is in the range of EUR 400-600,000, and the high is between EUR 800,000 and EUR 1.5 million. Since 2016, the market for high-end houses has grown, and in the second quarter transactions in the segment over EUR 1 million are expected.
Trend 30+ vs 60+
Fast-growing industries such as technology and finance have led to the emergence of a new generation of buyers in the luxury property market. In these spheres, people who make their first million over their 30+ years and flow into high-end consumer goods and services are no longer uncommon. The trend for clients to become younger is observed globally and the Bulgarian market is no exception. But it also changes the profile of the demanded properties. If the generation of wealthy people insists on classic houses with a library, study, large living room and dining room, now the requirements are different. New buyers want a modern home - a loft, a penthouse with a large terrace for parties or a house with contemporary architecture, lift, gym, indoor pool. They insist on smart technologies that allow them to manage their home remotely and to turn on the heating, lighting or security system with one click. They live a dynamic way of life and want their home to match it.
Unlike most luxury-related industries, however, the property market is more inertial and more slowly adapts to changes in buyers' taste. Thus, the demand for modern and high-tech housing meets the supply of classic houses and apartments, whose owners are the first generation of wealthy people - those 60+ years old.
“Generally solvent buyers are changing over time and many people with opportunities are already young. They do not like the properties of vendors who are the first generation of wealthy people. This is a global collision - between the available properties that belong to the previous generation and the demand of new wealthy people,” Vesela Ilieva commented.