Rising prices and transaction volume of luxury residential properties in 2021

Two out of three sales in Sofia are made without any discount, according to Unique Estates’ data

The luxury property company is reporting an increased demand for and transactions with penthouses in 2021

Overview

Sofia’s market of luxury properties had an exceptional year, both in terms of demand and prices. The analysis done by the luxury property company Unique Estates shows a 15% growth in the prices of high-end apartments and over 70% more sales in 2021 compared to 2020. Active demand continues, for both newly constructed properties in the fast-growing southern areas and high-end residential properties in old but well maintained buildings in the central parts of the city. Buyers looking for more space are continuing to gravitate toward houses in Sofia's outskirts, and many clients have chosen that option as an alternative to a penthouse in newly constructed buildings.

Key Indicators

GDP growth (Q3 2021) 4.6%
Unemployment (Q3 2021) 4.6%
Annual inflation (December 2021) 7.8%
Number of residential properties started in Sofia (3 quarters 2021/2020) 21%
Annual increase in residential property prices in Sofia (Q3 2021) 8.7%
Interest rates on 10-year housing loans in BGN (average value for 2021) 2.7%
Interest rates on 10-year housing loans in EUR (average value for 2021) 3.3%

Demand and Supply

The market of luxury houses and apartments in Sofia experienced a substantial upsurge in transaction volume in 2021 compared to the previous year, for example apartment sales increased by more than 70%. There was a rise in client enquiries as well, by more than 55%. This is an indication that a higher percentage of clients have decided to make a purchase this year.

The increased demand for luxury properties correlates with last year’s generally favourable conditions in the residential market, driven by the unprecedentedly low interest rate levels, the rising inflation and the good opportunities to invest one's savings. Based on the increased interest in buying within a relatively limited market supply, consultants describe the situation in 2021 as a classic ‘seller’s market’.

‘Throughout last year we witnessed an active demand for high-end residential properties, accompanied by a higher price tolerance by buyers and a reduced pressure for discounts from asking prices. This activity is continuing to this day, while supply is still lagging behind,’ Svetoslava Georgieva, Chief Operating Officer of Unique Estates, summarised the situation.

According to her, the market imbalance is partially offset by the already started new residential projects, while the owners of existing residential properties rarely enter the market.

In 2021 new construction partially offsets the imbalance between supply and demand in Sofia.

Statistical data shows that last year 21% more new residential properties were started compared to 2020. This leads to a high concentration of interest and transactions in districts with active construction, such as Krastova Vada and Manastirski Livadi. In areas traditionally preferred by buyers, like Lozenets, Iztok, Izgrev and the central part of Sofia, the market remains active as well. Demand also remains high in the Doktorski Pametnik area, which retains the highest average prices compared to other areas.

‘More and more often buyers in the highest market segment choose new construction projects, partly because it is in short supply in good locations. Many clients prefer it to residential properties in old residential buildings in Sofia's top areas. Nevertheless, some of the highest prices per square metre continue to be registered in the Doktorski Pametnik area — historically the most expensive area,’ Svetoslava Georgieva commented.

According to Unique Estates’ data, there is also a relatively high interest in purchases for investment purposes. Around 28% of transactions last year were of this type, and investment transactions were mainly directed to new construction projects. Another reason for purchase is replacing the current home with one that is larger, more functional or in a better location, resulting from the increased social status of buyers. In the higher segment the purchase of a property is very often not the first one.

The house market is also oriented to new construction projects, and according to Unique Estates’ data about 20% of houses sold in 2021 were in construction. The locations preferred by buyers now include Pancharevo and Bankya, in addition to the Vitosha Collar areas. Overall, the area above the Sofia Ring Mall and the Simeonovo district also rank among the most desirable places for the purchase of high-end houses.

In this segment of the luxury property market demand still struggles to meet supply. Many buyers are looking for new houses with a modern architecture and ‘smart’ systems, but in many cases the supply is of houses with classic architecture, which are obsolete. There is growth potential in transactions with houses in gated complexes in prestigious suburban areas.

The Year of the Penthouse

In parallel with the demand for houses with a large yard in suburban properties during the pandemic in 2021 there was a growing interest in penthouses — apartments on the last floor occupying the entire slab, with a large terrace and a panoramic view. Such properties often border on or even exceed the budget for the purchase of a house, and their prices can exceed 1 million euros.

Buyers ask for at least three bedrooms, but the demand often comes from families looking for four or more bedrooms. Another criterion is the presence of at least three parking spaces. Requirements to the height of the premises in penthouses are for a minimum of 3 metres. The living room must be at least 70 sq. m., and the internal distribution must include a walk-in wardrobe and a bathroom to at least two of the bedrooms.

‘Not all clients looking for large surface areas and lots of bedrooms prefer houses. They often choose exactly penthouses due to factors such as the gated environment, the enclosed parking spaces, the community of neighbours, the easier maintenance and the overall practicality,’ Svetoslava Georgieva summarised.

Unique Estates’ data shows that the highest price for a penthouse in 2021 was for a 1.38 million euro property in a gated complex in the Lozenets district. The residential property has a surface area of 450 sq.m., it is equipped with a heat pump, has floor heating and four parking spaces.

Price Dynamics

The active residential property market at the end of 2020 continued throughout next year, which resulted in a considerable price increase. An additional impetus was given by the increased cost of labour and construction material prices in the second half of the year, which led to an increase in the prices of the new construction projects.

Unique Estates’ data shows that the average price of a luxury apartment in Sofia reached slightly over 2,000 euros/sq.m., compared to about 1,700 euros/sq.m. one year earlier. Transactions are made significantly above these levels for properties in the city centre, as well as in the Doktorski Pametnik area. In both zones the price increase in 2021 has surpassed the average increase for Sofia, and the average levels in the Doktorski Pametnik area exceed 3,000 euros/sq.m.

Source: Unique Estates

Nevertheless, the highest prices in 2021 were achieved in the area of the streets Saborna, Moskovska and Veliko Tarnovo, with the location being the deciding factor, regardless of the condition of the property. In this part of the city a completed and luxuriously furnished apartment can reach a sale price of 5,000 euros/sq.m.

That is exactly why the most expensive transaction in Unique Estates’ portfolio for 2021 was signed here — for a luxurious apartment priced at 4 650 euros/sq.m. The other most expensive properties were realised at the Shishman and San Stefano streets, where these price levels are reached as well, but for fully completed and luxuriously furnished apartments.

Compared to the previous two years, 2021 saw a decrease in the sale of luxury properties at a discount. If in 2019 and 2020 there was a discount from the asking price in three out of four transactions, last year that happened only in 30% of transactions. More than half of the discounts were within 5% of the price levels asked by the sellers.

Average Discount from the Asking Price

	Apartment	House
2019	-7%	-11%
2020	-10%	-12%
2021	-6%	-7%

With regard to the rental prices of luxury residential properties, there was a recovery of the market, and average levels in 2021 returned to or even exceeded those of 2019. The apartment market in 2020 declined to a certain extent, with the average rent dropping to 7.4 euros/sq.m., whereas in 2021 the level already was 8.4 euros/sq.m. The temporary market decline during the most challenging year of the pandemic is explained by the suspension of travel and the transfer of many luxury residential properties from Airbnb and the platforms for short-term accommodation to the segment of longer-term rents. That increased supply lead to a pressure on price levels, but the market overcame it quickly.

On the house market there was an increase in rental prices, and they remained the highest in Sofia's centre and the districts of the Vitosha Collar. Supply is not sufficient and there is a trend for the purchase of houses for investment purposes, intended to be let out, especially in newly constructed gated complexes.