High Prices Impede Deals with Luxury Properties
In its analysis of the real estate market in Bulgaria for the second quarter of 2018, the consulting company for properties of highest class Unique Estates outlines some trends:
There has been a decrease in the activity on the luxury real estate market in the first half of 2018, despite the continuing economic development and the growing income and use of credits. The reason lies in the quick rise in prices, which discourages buyers and tenants. In comparison with previous years, property requests have increased in number, but now it is more difficult to reach a deal.
The high selling prices lead to declining interest in investment and speculative deals in the luxury segment, but the demand for properties for housing needs remains strong. A revival in the market of plots for construction of single-family houses is observed in the neighborhoods of the Vitosha Collar.
Supply and demand
Although property requests mark 30% increase in comparison with last year, the activity on the luxury real estate market remains low. Clients show interest both in sales and rentals, but it is hard to reach a deal due to high asked prices, note Unique Estates’ consultants.
In their opinion, prices of luxury properties have reached peak levels in the last couple of months and would require some adjustments in cases in which they are unacceptably high.
This trend is particularly evident when it comes to investment or speculative deals, which have undergone a boom in Sofia. The rise of disposable income and the lack of profitable alternatives have turned properties into good investments in recent years, and many buyers have taken advantage of the opportunity.
“As a result of the increased demand for investment properties, there have been cases of re-selling one property between three and four times within two years, each time at a higher price. Consequently, in some segments, a price bubble has been inflicted, which has had negative effects on the rental market, as after a series of deals, landlords are now looking for a higher price in order to ensure their financial investment would pay off”, comments Svetoslava Georgieva, Chief Operations Officer at Unique Estates.
Due to high prices, in the first half of 2018 there was a lower activity in the most liquid segment of the luxury real estate market where prices tend to vary between EUR 150,000 and 300,000. In this price range fall mostly apartments, which are located outside the central regions of Sofia and smaller properties in the city center.
Statistics show that in recent months the asked price of similar properties often reaches EUR 2,300 – 3,000 per sq. m, while deals are normally made at significantly lower price levels. Such costs are definitely not welcomed by buyers, and would need adjustments, comment Unique Estates’ experts.
According to the consultants, prices in Sofia are not acceptable given the quality of maintenance and the general condition of the properties.
“Even properties for renovation in the city center are now available at EUR 2,000 per sq. m, while a year earlier they were sold for no more than EUR 1,500. The new asked price is not feasible given the additional investment the client needs to make in order to use the estate”, comments Svetoslava Georgieva. In her opinion, as a result of the rise in prices, the niche for investment in old properties for repair is now disappearing.
In the first half of the year, a slight increase in sales in the higher segment of luxury properties (over EUR 500,000) was noted. The growth results mainly from the rise in house deals compared to the first half of 2017. However, the lack of quality supply of properties remains a problem, which makes finding buyers and sellers hard.
Unique Estates’ analysis for the first half of 2018 show 15% increase in property prices compared to the same period in 2017. The highest rise is observed in the area of the Doctor's Monument and the central parts of Sofia, where the average level of sales is steady, and falls in the price range of EUR 2,000 – 2,400 per sq. m in recent months.
Тhe above-mentioned parts of Sofia also comprise the most active market for investments, as many old apartments with new owners, which have undergone complete renovation, have returned to the market for rentals or re-sales.
The landscape of the rental market is more diverse, as the increased supply of properties has led to a decrease in prices in some neighborhoods. This decline is also a result of the growth of investment purchases in recent years, which has caused a higher property supply than demand.
However, the rental market also suffers from overpriced offers. Unique Estates advises owners to ask for realistic prices in order for the properties not to stay unnecessarily long on the market. The agency defines the upper limit for renting luxury one-bedroom and two-bedroom apartments correspondingly at EUR 600 – 650 and EUR 1,200. At the same time, there is a lack of properties with 3 or 4 bedrooms on the market, despite the demand for such.
In recent years, the segment of short-term rentals has played a key role in the development of the market in Sofia. The flourish of the short-term property deals is owed mainly to the growth of the Airbnb service, the low-cost flights and the demand for luxury apartments during the Bulgarian Presidency of the Council of the EU. However, the influence of those factors is already decreasing, and a lot of owners have returned to long-term rentals instead of short-term ones.
In the opinion of Unique Estates' consultants, the capacity of the market in Sofia for short-term rentals is limited, although that type of deals brings bigger profits. However, it also causes wear and tear of the estate, which leads to more expenses.
The interest in purchasing houses in the neighbourhoods of Vitosha Mountain is steadily high, but the limited supply prompts buyers to look for alternatives. This has led to an increase in deals with small parcels, which are suitable for the construction of single-family houses.
Normally, buyers’ interest is aimed at regularly shaped yard plots with an area between 700 sq. m and 1000 sq. m in the price range of EUR 100,000 – 150,000. Plots, which enable the construction of a house with an total floor area of 350-400 sq. m, are most in-demand. Clients show interest in properties in the neighborhoods along the Southern arc of Sofia ring road, the old part of Boyana around Belovodski road, Dragalevtsi and Simeonovo.
Typically, clients with experience and several property deals behind their back focus on purchases of this kind. Those estates are sold most often by owners or heirs of old houses who redirect their money to another type of properties. Plots in this region of Sofia are deficient in quantity, and when the plot is offered at a reasonable price, a deal is reached quickly. According to Unique Estates, if the construction plan is good, a new house could be built in the period of a year or a year and a half.