site.btaLow Deposit Rate Triggers Increased Demand for Investment-intended Real Estate

ESD 12:47:00 10-09-2014
LG1246ES.105
105 ECONOMY-REAL ESTATE-INCREASED DEMAND

Low Deposit Rate Triggers
Increased Demand for Investment-intended
Real Estate - Expert


Sofia, September 10 (BTA) - The demand for real estate for the
purpose of investment is increasing because of the low interest
rate on bank deposits and concerns about the situation involving
Corporate Commercial Bank (Corpbank), which was placed under
special supervision in late June, credit consultant Tihomir
Toshev, who chairs the Association of Credit Consultants,
commented for BTA.

There was an active start of the year and an active summer on
the mortgage market, Toshev said. After the passage of the
revisions to the Consumer Credit Act in the middle of the year
it is already clear that the price of credits has not dropped,
in spite of the administrative removal of some fees, he thinks.

The credit absorption fee and the annual credit servicing fee
were revoked with the revisions to the law. However, the price
of a service cannot be changed with legislation so that the ban
on these fees in Bulgaria did not lead to a reduction of credit
price Ц these fees simply changed their name or were included in
the interest in part of the banksТ offers, Toshev pointed out.
Because of the specific features of the law, this is valid for
sums up to 75,000 euro and the fee for mortgage pre-payment
above this amount remains, the expert explained. The pre-payment
fee for all other credits - be they under new or old contracts
- has been waived, he noted.

The revisions to the Consumer Credit Act were made with the idea
to make it easier for borrowers at the choice of credit, but
that is currently not precisely the case because there is quite
a variety of mortgage products and the choice of the best
proposal is even harder than before, Toshev said.

The revisions of the law also introduced the so-called limited
liability mortgages at which, in case a client is unable to
service his debt, he is liable only up to the amount of the
guarantee and the mortgaged property will be sold by the bank,
thus covering the clientТs debt to it, the expert explained.

As a whole, the annual percentage rate on mortgages remains
unchanged after the revisions to the law, and as to the interest
rates on mortgages, these are currently between 6.25 and 7 per
cent in euro and in leva, the Chairman of the association summed
up.

In turn, fixed-interest credits have almost disappeared from the
market because the fee for mortgage pre-payment was revoked,
Toshev noted.

At the moment, the most frequently found fixed interest refers
only to the first year and is close to the amount of the
interest paid after that. The difference between the
fixed-period interest and that for the rest of the period varies
between 0.25 and 0.75 per cent. Other products offer fixed
interest for longer periods, but at levels close to market ones,
of about 6.25 per cent. The expert does not think there is
particular interest in these products because it is expected
that interest should go slightly down in the future to approach
average European levels.

According to information of the credit consultants, there has
been a noticeable pick-up on the estate market, with an
increasing number of estate purchase deals, Toshev says. This
still doesn't make it a "seller's market" as buyers are still
fewer and there are many offers for housing sales. This ratio,
though, is beginning to change, and next year will probably see
a more tangible increase of real estate prices, he forecasts.
The reasons for this phenomenon include the fact that the most
wanted properties (two-room apartments with good locations in
large cities) have been sold out, as well as the serious decline
of interests on deposits.

A large number of people are worried about the situation around
Corpbank. They are withdrawing money from the banks and are
buying property because they have decided that property is a
more secure investment which could bring them larger profit now
than if they leave their money in a bank, Toshev says. Besides
the fact that a rented good property with a good location could
bring its owner a sizeable income, a rise of property prices is
expected in the long term so that an investment in housing will
increase its value, he thinks.

Thus on the housing market there again are purchases with the
aim of investment, something which had disappeared in recent
years. The pick-up in housing demand, particularly for
newly-built properties, is also due to the fact that after the
construction boom the housing currently under construction is
much less. A shortage of offering of properties in
newly-constructed buildings is beginning to be felt and that is
why real estate agent statistics show rising prices of new
construction in some parts of the country, Toshev explains.

Two-room apartments in large cities with a good location, high
quality construction and good communication are in the highest
demand. ZH/BR
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