House Prices in Bulgaria Soar Again

In informal conversations about the market, many develop the hypothesis of large grey capital inflows being invested in the housing sector to be legalized before the adoption of the euro in the country. The fact that Bulgaria has been on the verge of joining the eurozone several times but entry has been postponed has created an opportunity not only to clean up accumulated unofficial incomes but also to continuously invest money of similar origin.

In a radio interview, real estate expert Krasimir Petrov highlights credit expansion as the main reason for what he calls a bubble - the current "threefold and even fourfold inflation of property prices." He emphasizes that the levels do not correspond to Bulgarian incomes and rents, and savings do not always back these purchases. He expresses concern that credit is growing much faster than the economy, which is a risky development. "Over the past five years, the Bulgarian economy has grown by 2-4%, while mortgage loans have increased by 10-25%, and in the last year, even up to 25%. When we inject 25% growth in credit and housing construction grows by 1-2%, a 20% credit growth inevitably inflates housing prices," says Petrov.

Surge in new construction

The current price peak is marked by new construction. Since the third quarter of 2023, the rise in the prices of new homes nationwide has consistently outpaced that of old ones - something previously recorded only in individual quarters. In January-March, the price increase of new construction nationwide reached an unprecedented 19.3%. In contrast, old construction also saw a rise - 14.1%, but looking back over three consecutive quarters - between March and December 2022, NSI recorded even higher rates in this segment, reaching up to 17.4%.

The main explanation for the significant increase in new construction traditionally is that supply fails to meet existing demand. This is an old mantra, with one variation being that they also differ in quality. Indeed, in the first quarter of 2024, NSI reported a drop of 15% year-on-year in the number of homes put into operation. For the entire country, newly built homes numbered 3,475 compared to 4,427 a year earlier during the same period.

There is also a decrease in supply in the areas of the three largest Bulgarian cities. In Sofia city, the decline is nearly 62%, to just 548 homes. In the Varna region, the decrease is 41.4% to 394 homes, and in Plovdiv - almost 10% to 357 homes.

It is known that after the start of the war in Ukraine (from the second quarter of 2022 onwards), due to shortages and disrupted supply chains during the pandemic, prices of construction materials began to rise, and developers reported an overall increase of nearly 35%. Later, prices stabilized at the new levels, but the sector continued to talk about similar increases in construction costs, this time citing labor cost increases due to a shortage of workers. It is also true that new construction is becoming more luxurious and increasingly entering areas without public infrastructure, which also affects the price. Thus, according to sector information, luxury segment prices in Sofia are offered at 10,000 euro per square meter.

Transactions increasing

Soaring prices do not stop property transactions. NSI reports an 8.7% increase in the number of housing purchase sales in the country during the first quarter of this year. Again, the growth is more significant for purchases of newly built homes (17.9%), while deals on the secondary market (i.e. purchases of old homes) increased by 5.3%.

For comparison, Registry Agency data shows a 1.5% annual decline for the period, marking the seventh consecutive quarter with a decrease in real estate transactions in the country. However, the Registry Agency records both sales of buildings and land transactions. NSI statistics are more relevant when it comes to housing - they only report data for this type of property but the figures are published with a delay.

This week, the Registry Agency also released statistics for transactions in the second quarter (housing and land). The total number of transactions remained at the same level as in the comparable period of 2023, which means that even according to their data, the decline has stopped. However, the picture by city is quite contradictory. In Sofia, there is an increase of 11.9%, and in Burgas - a surrge of 43%. In Varna, the transaction increase is minimal - 4.25%, while in Plovdiv, Ruse, and Stara Zagora, there are slight declines - respectively 2%, 0.5%, and 3.35%.

Growing markets in Sofia, Burgas and Varna

Since the beginning of 2022, NSI has been providing information on housing sales indicators in the six largest cities in the country. Based on them, during the first quarter of the year, the housing market in Sofia predictably appears to be in the best shape, increasing in value by nearly 60%. This happens with almost 25% more transactions. The housing price index shows an 18.2% increase.

The new construction segment in Sofia has literally doubled in value. Its growth rate is 99%, with a 36% increase in the number of transactions. This happens against the backdrop of a decrease in the average size of newly completed homes in Sofia - to 96.4 square meters in the first quarter from 116.3 square meters a year earlier. In old construction, the market's value growth is 36% with a 17% increase in the number of transactions. Housing price indices show a 25.3% increase for new and 13.3% for old construction in Sofia.

The second-highest value growth (55.3%) is in the Burgas market. This coastal city also has the largest number of new homes having received Act 16 during the period. It seems that to a greater extent, the growth is due to the increase in transactions rather than the rise in prices. In Burgas, purchase sales increased by 28.5% in the first quarter - the most significant increase among the six largest cities in the country. Housing price indices show an average growth of 12.3%, which is slightly faster for old construction (12.7%) compared to new construction (11.1%). The new construction market in Burgas grows by 93.5% in value with 36.4% more transactions in the segment.

The housing market in Varna (42.6%) grows slightly above the market average. The city records the highest price increase (23.5%) among the six largest cities. The driving force here is new construction, despite the volume decline in the first quarter. Transactions possibly involve homes completed earlier. The new construction segment grows by 81% in value, accompanied by 31% more transactions compared to the same period the previous year. Indices show a 35.3% price increase for newly built homes.

The housing market in Plovdiv appears "tired of euphoria." In the first quarter, it grows in value by 33% with 20% more transactions. NSI records in Plovdiv the smallest price increase among large cities, of 7.7%. Uniquely, unlike other cities, new construction in Plovdiv appreciates more slowly (4.2%) than old construction (10.7%). Transactions with newly built homes increase by 32%, and the new construction market swells in value by 42.3%.