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Recently there has been a lot of speculation about the effect Bulgaria's EU accession will have on the real estate market. The main question being asked is: will prices go up or down?

Issue 4, January 2007

Property prices are unlikely to change dramatically with Bulgaria's accession 

Issue 4, January 2007

by Stanislava Ciurinskiene

Judging by certain indicators, the price of real estate in Bulgaria may not increase as dramatically or quickly after January 2007 as some hoped or feared, but will continue gradually to march upwards. The reasons for this market dynamic are both economic and psychological.

The Bulgarian real estate market has its own strange logic. Prices do not depend as much on supply and demand as on property owners. Psychologically, Bulgaria's accession to the EU has had two effects. One is that property owners will have woken up on 1 January 2007 and decided to add a few more euros per square metre onto the price of their land or apartment just because they are now EU citizens. The other is that many owners, especially of agricultural land and new buildings, will hold off selling until prices rise to meet their expectations. Consequently, this will mean a decrease in supply, while demand will remain constant at first and then increase. The second market phenomenon will turn these psychological factors into economic ones.

From an economic point of view, there are a few very serious factors which indicate that real estate prices will continue to grow. First of all, there is a fact that real estate analysts have been persistently ignoring, which is that in 2007 Bulgaria is joining the EU Natura 2000 programme. Natura 2000 is a nature preservation programme that protects a network of selected sites in accordance with EU requirements. At the moment it looks as though about 22 percent of Bulgarian territory will be included in the Natura 2000 network.

Building will be banned in many of the protected regions. Most of the selected Natura 2000 sites are located on the Black Sea coast and in the mountains, which means that the rapid construction in these areas will have to stop. There will also be far fewer plots available for building purposes in sea and mountain resorts, and these, therefore, will become more expensive.

Secondly, the Bulgarian banking system is currently struggling to meet foreigners' mortgage loan needs. After January, however,  foreign banks and mortgage brokers will gradually enter the Bulgarian credit market. As a result, competition among banks will increase, interest rates will drop and the application procedures will become less complicated. This will enable both foreigners and Bulgarians who cannot afford to purchase real estate in Bulgaria without a bank loan, to invest more easily.

Thirdly, more and more foreign companies and organisations will open branches in the new Bulgarian market. Even now there is a shortage of class A offices that meet foreign companies' requirements for good office space. A large number of construction companies have already been attempting to fill this gap, but the problem is that it is almost impossible to find vacant plots of land suitable for administrative buildings in the larger Bulgarian cities. Companies which want to build class A offices in Sofia, Varna, Burgas, Plovdiv and other principal cities have no other choice but to pay from 300 to 3,000 euros for a square metre of land. This, in turn, will result in a dramatic jump in office prices.

Those who expect the proverbial real estate bubble to burst are certainly going to be disappointed. However, there will be some changes to the Bulgarian property market. It is very likely that the price of old buildings built under Communism, as well as low quality buildings, will decrease. The biggest increase in prices will be seen in office buildings, which are likely to go up by about 35 percent.

Nobody should expect real estate prices to double overnight with Bulgaria's accession to the EU. According to some experts, there will be a slight decrease of investment return from holiday homes. It is expected that it will be about six percent, whereas in 2006 it was 7.5- eight percent. Still, prognoses are that in 2007 growth in real estate prices will decrease by no more than 25 percent and this will remain so over the following year. The serious increase in property prices is expected to begin in 2008, with the more intense development of the Bulgarian economy.

Did you Know?

• From January 2007 tax valuation for properties increases by 20 percent. As a result, notary fees will increase too.
• A property in Bulgaria which is being sold for 50,000 euros would normally have a tax valuation of 5,000 euros. The practice in Bulgaria is that it is up to the buyer and/or the seller, respectively, which valuation figures to use. Therefore, you can pay notary fees either based on the 50,000 euros agreed market price or on the 5,000 euros tax office valuation. In view of Bulgaria's EU accession, it is advisable that you pay the notary fee based on the market price of your property because control over real estate deals will become stricter.
• In most new EU member states real estate prices doubled during the first two years of membership. The same is expected to happen in Bulgaria.
• Currently 80 percent of foreign businesses investing in the Bulgarian real estate market invest in Sofia. It is expected that in the next few years this will change as investors redirect their capital to other principal cities such as Veliko Tarnovo, Stara Zagora and Blagoevgrad.

Read 5765 times Last modified on Wednesday, 21 July 2010 16:08

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