site.btaGrowth in Housing Prices Expected to Slow Further This Year - Interview

The Bulgarian real estate market will likely have a good year in 2024, with moderate prospects for a reversal of the 10% fall in the number of transactions reported in 2023. The growth in real estate prices is expected to slow further this year, but the growth rate is unlikely to fall below 5%. The predictions were made by National Real Estate Association President Dobromir Ganev in an interview with BTA.

According to Ganev, smaller dwellings will remain in the focus of buyers' interest. He recalled that the share of smaller dwellings in the number of transactions increased in 2023. He said it is possible that those 10% of potential buyers who have deferred their purchases over the last year and a half may come back to the market.

These expectations are supported by positive news about the national economy and favourable forecasts by the Bulgarian National Bank, the Ministry of Finance, the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development. Some of those buyers who return to the market will perhaps be driven by a desire to satisfy their need for housing, either newbuilt or used. The number of buyers will be influenced by the banks' policies, including the pace of growth of mortgage loan rates, Ganev said.

The expected comeback of reassured buyers in 2024 will probably involve younger people, people with not-so-steady incomes who were reluctant to buy housing while prices were on the rise, and individuals who were afraid (unfoundedly) of losing their jobs. According to the expert, the next step for buyers in this segment would be to shift their interest from two-bedroom dwellings (which would cost between EUR 150,000 and EUR 200,000 in an average quarter in Sofia) to smaller housing units, which would lower the risk and could serve as a stepping stone to investing in a larger home after the household increases with the addition of new members.

This pattern has been observed in developed countries for years, Ganev said. There, first-time buyers usually start by satisfying more modest housing needs. At a later point they buy a larger dwelling. By the time of their retirement, they go back to acquiring smaller units. A similar trend is already discernible in Bulgaria, but statistical data is not enough to estimate the shares of the three groups of buyers.

Market changes can also be expected as a result of an upturn of European economies, the expert said. The European Central Bank has forecast that loan rates in the continent will go down, beginning in the second half of 2024, which will lead to economic stability and will contribute directly to revitalizing the real estate market.

Real estate transactions

In 2023 the Bulgarian real estate market saw 215,500 transactions, down by 13% compared with 2022 but more than in earlier years (from 2008 onward). This means that, if viewed in a wider context, 2023 can be described as a strong year for the real estate market. In Sofia there were 32,000 transactions in 2023 (down by 6% year on year), in Plovdiv 15,800 (down by 10%), Varna 14,120 (down by 13%), and Burgas 7,200 (also down by 13%).

Prices

Despite the lower number of transactions, housing prices continue to grow due to smaller volumes of ongoing construction projects and shrinking supply of used dwellings, which makes it harder for people to find their preferred home quickly enough. However, there is no reason to speak of a market bubble, Ganev said. Bubbles have been reported periodically since 2012. Bulgaria is not among the European countries where real estate prices grow most rapidly, or where housing is least affordable. In fact, Bulgaria offers the second most affordable housing in the European Union after Romania, the expert said, citing data from the Organisation for Economic Co-operation and Development. Similarly, rental incomes in Bulgaria are neither among the highest in Europe nor among the lowest. In terms of growth, the Bulgarian rental market is in the middle of a table of 40 European countries. The share of real estate market participants in Bulgaria has maintained a steady level of around 3% over the years, which is close to the average European level.

Ganev drew attention to the fact that the real estate market is also influenced by consumer income growth. According to him, Bulgaria has one of Europe's highest rates of gross wage growth. In France and Germany, pay rates have increased by about 17% in 10 years, whereas in Bulgaria the same increase occurred in 2023 alone, and a 50% rise was reported in just three years. Our nation is getting wealthier, savings are growing, and it makes sense that people put their money into property purchases, the expert commented.

Overpriced or underpriced?

Various estimates show that housing in Bulgaria is not overpriced, and according to international sources, the country is among the top five for housing affordability in Eastern Europe. Zooming in, affordability is highest in Plovdiv, followed by Burgas, Varna and Sofia. Plovdiv is among the top 20 in Europe in this respect, and Sofia, Varna and Burgas are among the top 30.

Green mortgages

Green mortgages, which are loans offered at a discount rate if used to buy property of high energy efficiency, will become ever more popular in this country, Ganev believes. He expects that the European Green Deal and everything related to decarbonization will certainly impact the real estate market. The European requirements that new residential buildings should release zero emissions by 2030, and should have, or be connected to, green energy sources, will be among the reasons for a possible increase in construction costs.

Noting that more and more banks in Europe encourage the construction of office and retail buildings of high energy efficiency, Ganev predicted that this trend will also be carried over into Bulgaria as banks in the country begin to offer more favourable lending conditions. This is so because reduced energy costs in such buildings lead to lower bank lending risks. Loan rates should therefore become lower, too, he said.