Wednesday, August 29, 2007

House prices in Bulgaria “set to rocket”

From the BBJ today:

House prices in Bulgaria “set to rocket”

House prices in Bulgaria have risen by 27% in the past 12 months and are set to rocket further, according to the latest issue of Quest Bulgaria magazine.

The September issue of the leading independent English language magazine for people living or buying in Bulgaria, says the latest forecast shows price increases of 20% this year. A steady stream of investors has made sure the Bulgarian property market is maintaining it's dynamic position. The country's National Statistics authority says that prices rose 15% in the first six months of 2007 with a 27% increase in the past year. And Address Real Estate, the country’s largest agency, forecast a further increase of 10-15% for the rest of the year.

The cheapest homes, said Chris Goodall, managing director of Quest Bulgaria, are in the region around Sofia where prices are £152 ($306) per square meter - well behind the national average of £347 ($700) per square meter. “This makes the area round Sofia a good bet for investment,” said Goodall. "Demand is moving away from the beach toward both urban and rural properties and is being driven by four factors: the level of foreign investment; the emerging Bulgarian middle classes who want modern apartments; increasing local affluence; and the supply of capital from mortgages. “Those buying property in the countryside are buying attractive village homes. Most of them are foreigners, in general early retirees and families who want to own property and enjoy the low cost of living, along with affluent Bulgarians from Sofia and other cities who are looking for weekend or holiday homes in the best rural areas.” One of the biggest factors affecting affordability is the availability of mortgages and home loans. The Credit Centre, a loans consultancy, says that home loans this year are up by 25% with June mortgage lending outpacing even the historically high December loans.

Bulgaria’s soaring property prices, says Quest Bulgaria, follow the pattern of what has traditionally occurred in other countries following EU accession. But despite this, they remain up to 40% lower than Poland, the Czech Republic and Slovakia.

So where are the hot spots?
Quest Bulgaria says that Sofia is still good - but be wary were you buy in the city; the countryside, in and near the prettiest villages; spa towns for the tourism potential; and Varna, the most western European city in Bulgaria. It warns that Bansko is going down in value with too much development and parts of the coastal belt where there is also over development. But, says Goodall, the top tip for home buyers is to invest in a period property in protected areas such as museum towns and villages. (


Nick @ Propertastic! said...

Hugh, I have been very impressed with your economic commentary.

I have referred to your comments on the potential for economic meltdown in the Baltics several times before.

Be wary though of publishing press releases from companies who have an agenda in promoting one territory over another.

Saying that though, I agree with most of what was written here in terms of their being potential in Sofia and some of the lesser-exploted countryside areas, whereas Bansko and the Coast have already been terribly oversold.

You can read my current thoughts on the Bulgarian market at:

One thing I didn't understand in the piece was the very low prices that they quoted per square metre, I can only assume that they are referring to land prices and not proeprty prices as these are currently in the region of EUR1000-1500 in Sofia.

Edward Hugh said...

Hi Nick,

Thanks for the comment.

Basically, as I say in the sidebar, this isn't really a blog. I don't make comments on the material I post. It's a notebook really, where I put things I may like to refer to later, and I make the notebook public since maybe someone else might find the same information or opinion interesting for the same reason I did.

"Be wary though of publishing press releases from companies who have an agenda in promoting one territory over another."

I agree absolutely. Indeed the BBJ seems to make a habit of this kind of thing, and the Portfolio Hungary site is really a sort of cover for some sort of FinInvest programme rather than a source of real data analysis it seems to me.

This must have been great for them when the data was looking nice, but now it has a rather uglier face they don't know where to hide.

The same could be said about the statistical offices across Eastern Europe (and much of the rest of the currently developing world). They have been sold the idea of transparency as a way of attracting inward FDI, and this is wonderful when things go well (and fantastic for analysts like me), but less wonderful for them when they don't.

Bulgaria will be a perfect example. It seems to me that the government have no idea whatsoever even of how many of their citizens are actually living inside the country. (I did some research at one point into Bulgarian migrants in Spain).

What I have noted though, from here in Spain, is that a lot of people who got out of Spanish property one year or so ago - the bigger interests, those who saw the slowdown coming - seem to have bought land etc in either Romania or Bulgaria. The Spanish connection here seems to be very strong, which I suppose in the Bulgarian case is hardly surprising since Simeon spent so many years in Madrid.

If you look at the demographic dynamics of these two countries,however, then at the very least it should be clear that the evolution of their property markets is likely to be far from "normal", whatever normal may mean these days.

"whereas Bansko and the Coast have already been terribly oversold."

All of this boils down to what is happening on Wall Street and in New York at this very moment. If the liquidity squeeze is followed by a credit crunch (and since banks everywhere seem to be running for cover and changing their lending criteria, really I don't see this not happening) then the whole of Eastern Europe will have a big correction, due to the volume of funding looking for risk which has gone in.

The big picture underlying macro economic reason why things can't continue as they are is simply that these countries lack the longer term labour supply to fuel growth at the present rates.

So on propery, watch out all over the place.

My guess is that the markets in Turkey and Morocco still look pretty interesting, assuming people don't want to go further afield. But then in these cases a lot of people seem to forget about business and think about religion. Which at the end of the day is one of the reasons why economic behavior is certainly non-rational.

"I’ll give you a hint – remember that everyone was talking about the huge money to be made in dotcom techs in early 2000 just before the market crashed and burned?"

I would say that this is the point. In some ways Eastern Europe has become the new internet boom.

Also be careful about the currency peg. If the pegs break in the Baltic, and then market participants want to test the Lev I don't see the peg holding. It will depend on the general climate of course.

Basically, if things do turn nasty, my guess is that the real issues will start in Poland and Romania, due largely to their size, and early indicators of all the important aspects of the "Baltic disease" are already evident there. Just look at the wage inflation for one.