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Bulgarian Property Prices: Bottoming Out?

Latest analysis by experts and reported official data are revealing that property price falls in Bulgaria which started early this year are significantly slowing, potentially pointing to a bottoming out of the market by the end of the year. Is the recent slow down of price falls significant or is it a case of the old adage, "one swallow does not a summer make"? Prices in Sofia fell by some 6.88% in February, whereas there was a drop of only 3.84% in August. Rents showed the same trend, with May rents falling 2.8% over the previous month, yet in August the fall was only 0.6% compared with July.

The Black Sea coast has experienced property price falls this year, ranging from 15 to 30% and new apartments selling for 300 euros sq.m. Even Varna has seen a fall of 30% on property prices in what is a popular coastal city.

The trend started at the end of last year and has deepened throughout 2009 - until now.

The number of real estate transactions this year has also significantly decreased. The real estate branch of Raiffeisen Bank reported that during the first half of 2009, compared with the same period the previous year, the number of purchases has declined by 42% over the whole country. Sofia was particularly hard hit with a fall of 58% in the number of sales. Volumes have therefore fallen back to 2005 levels.

However, despite these dramatic falls, figures are indicating that building is now in growth. Construction plummeted in the first quarter of the year but has gained ground in the second half, with the NSI reporting an increase of 24% during this time.

Mortgages. Some of the Bulgarian banks have now started offering mortgage loans which is having a slight but positive impact on the real estate market.

Valetin Suikov, from the International Real Estate Federation of Bulgaria, believes that the market has reached the lowest point possible and that prices are unlikely to  go downwards further.

However, there are a number of reasons to believe that the market will still decline for the remainder of the year. Whilst interest rates may come down a little in Bulgaria, they are, in European terms, likely to remain high with stringent lending conditions imposed on potential purchasers the banks will lend to. Amongst local Bulgarians and Bulgarian businesses there is a distinct lack of confidence in the present economy, which will take time to mend.

Although property price falls are definitely slowing down, we are far from an increase in prices, no matter how small. The market shows no indications of picking up when you look at the 42% drop in property transactions. High interest rates with Bulgarian banks and rising unemployment have done nothing to make property more affordable to local buyers. It is likely that the second half of the year will see prices decline further, albeit only a little.

The property buyer still has the upper hand.

It is interesting to note that property prices continue to fall faster than rents, therefore providing the 'buy to let' investor with a better return. Additionally, potential buyers who are currently renting are staying put, meaning good long term tenants for landlords. This could be a good time for rental investors to purchase.

If you are in the position of considering selling, now may be an opportune moment to look at placing the property on the market. If prices continue to decline, it may be better to sell sooner rather than later. Price negotiation will remain but with the falls slowing, negotiating will become much harder. Purchasers will eventually find that unrealistic low offers will no longer work, particularly as those properties on the market at the moment have often already been reduced in price.

Buyers with cash are definitely 'king' in the marketplace, or those with loans approved and ready to be drawn down. These property purchasers can pick up a bargain, potentially with great long term rewards.

International and local buyers need to return to the ring if the Bulgarian property market is to recover and prices to start gaining ground.