site.btaUpcoming Eurozone Membership Makes Bulgaria Ever More Attractive for Capital Transfer through Property Deals - Expert

With the expected eurozone accession of Bulgaria approaching, business with residential property is becoming ever more attractive for players from the country and abroad alike, Assoc Prof Dragomir Stefanov from the Real Estate Property Department at Sofia's University of National and World Economy said in a BTA interview. At present, Bulgaria is attractive for transfer of national and international capital through property deals because of the low interest rates on mortgage loans, the accelerated construction of new residential buildings, the high supply and demand as well as the good return on such investment (up to 7-10% a year). The recession in some countries in Western Europe, including Germany, the Netherlands, and Denmark, makes ever more companies partner with Bulgarian ones to direct capitals for the purchase of residential buildings under construction here.

Asked if there is a housing bubble in Bulgaria, he commented he would not use that term for the prices of real estate in Bulgaria. The prices are growing in four cities (Sofia, Plovdiv, Varna, and Burgas), which is has been the trend for 10 years now. Before that, for nearly five years in a row, there was a drop in prices. Therefore, the experts talking about a housing bubble are actually looking only at the last 4 to 5 years, during which the price growth was in the double digits each year. From 2018 to 2023, the property prices went up by 60 to 70%, Stefanov noted, adding that the incomes of those four cities' residents - one of the main indicators when analysing the real estate market - increased much more. That means that the dwellings in Bulgaria are becoming ever more affordable. 

According to Stefanov, there are several reasons for property prices going up: the rising prices of buildings materials and wages in the construction sector; rising demand because of people's increasing incomes; and the record-low interest rates on mortgage loans (between 2.5 and 3%) in Bulgaria, which are among the lowest in the world and are the result of, among other things, the more than BGN 120 billion in bank deposits of natural and legal persons here.

Since the start of 2024, one of the reasons for players' interest in buying on the Bulgarian real estate market is the population's fear of the eurozone entry importing the higher interest rates on mortgage loans. Another reason for the high demand is the knowledge that Bulgarians have between BGN 75 and 80 billion in the bank and nearly the same amount of savings in cash at home.  As the euro changeover draws near, the cash in BGN will have to come into use as soon as possible, the expert noted. That is because, among other reasons, the exchange of over BGN 5,000 into EUR will require proof of that money's origin. According to Stefanov, that fact is the main motivation for a certain group of Bulgarians to invest in real estate: to legitimise hidden incomes for which taxes have not been paid.

Real estate's appreciation increases the inflation rate, thus becoming somewhat of an obstacle to Bulgaria's eurozone entry, the expert told BTA. However, that will not make sellers and buyers on the market stop building and purchasing dwellings. On the contrary, the more there is talk of joining the eurozone, the more sellers want to build and buyers, to purchase dwellings over concerns about expected increase of housing prices in the years after the euro's adoption in Bulgaria. 

What increases inflation is not so much the real estate market but the political instability in Bulgaria, the expert argued. The lack of a stable government with a long-term vision and the constant elections held here make the political players constantly try to win the population's favour, and that is done by raising incomes. The constant increase of the minimum wage and pensions further generates inflation.

Asked whether now is the right time to buy a home, Stefanov told BTA that the answer depends on the buyer. "If you are ready to buy a home, do it," he said, adding that the lending terms are good at the moment. He warned, however, that having high incomes does not automatically mean one will be able to service one's loan; being able to save money is crucial. His advice to buyers is to buy a home if they can cover at least 25% of the cost with their own money and expect to be able to pay their loan back in the next 15 to 25 years.