The Residential Market in Sofia in Q1 of 2019 - Increased Activity and Unchanged Prices

It seems that 2019 will bring the long-awaited market equilibrium through a balance between supply and demand while maintaining stable property prices. This will satisfy the unmet demand from previous years and will give more confidence to the market participants.

"The first months of the year surprised us with an increased activity. The property market seems to have switched to a higher speed with the start of 2019 and is definitely on the rise with increasing sales volumes and very strong dynamics," says Polina Stoykova MRICS, Managing Director and Head of Research of BULGARIAN PROPERTIES.

"As per our expectations, the property prices growth in Sofia have subsided and we are entering a period of stable levels with only slight fluctuations - a plateau in which we will remain in the next 1-2 years," she added.

The main highlights of the first three months of the year are:
- Total dominance of the new construction which accounts for 90% of the purchased dwellings according to BULGARIAN PROPERTIES;
- Strong interest in purchases in the early stages of the construction. The reasons for this are the lower asking prices as well as the bigger choice of available apartments. This process is further stimulated by developers offering flexible payment schemes with a low down payment and balance payment secured by a bank credit at the completion of the building;
- Expansion of buyers' search perimeter and a higher interest to more peripheral neighborhoods with an increased supply at lower prices.

Average Prices and Annual Change

BULGARIAN PROPERTIES data shows that 2019 starts with an average house price in Sofia of 1,080 Euro/sq.m. compared to 1,085 Euro/sq.m. in the last quarter of 2018. This is a slight retreat against the 2018 values, but it should be interpreted as a retention of levels as it is mainly due to a change in the characteristics of the purchased properties, the large share of new construction and the redirection of interest to areas with lower prices.



The average total purchase price of the dwellings in Sofia is 90,960 Euro, compared to 91,550 Euro on average for 2018.

Price rises peaked at the end of 2017 and early 2018, and in the Spring of 2018 we saw that buyers stepped back and took a wait-and-see position. This led to a dampening of the price rise and the year ended with a growth below expectations - barely 4% on an annual basis.

Buyers gradually returned to the market interested by the new wave of new-build projects that emerged from the Summer of 2018.

Affordability

The price affordability index in Sofia at the end of 2018 reached its best value since the end of 2015. It measures the ratio of the cost of housing per sq.m. to the average monthly salary in the capital, showing how many monthly wages are needed for the purchase of 1 sq.m. of residential area.



In the last quarter of 2018 the ratio is at 1.34, which is lower than the 1.45 - 1.47 level earlier during the year. This means that at the end of 2018 properties in Sofia became more affordable, and this is due both to the slowing of the price growth and the continuing income increase.

This ratio is also far below the peak value in 2008, when 3.5 monthly salaries were required for the purchase of 1 sq.m. residential area in Sofia.

New Build Properties

New building permits issued in Sofia increased by 26% in 2018 on an annual basis and this is the only market indicator that managed to reach the pre-crisis levels of 2007-2008.



It was specifically the increased supply of new construction that brought balance to the market and calmed down prices as it managed to meet the increased demand. In the beginning of 2019, we can say that new buildings in Sofia are enjoying a very strong interest, which will even surpass those of previous years.

According to BULGARIAN PROPERTIES data, new build properties already accounts for 90% of the deals. The company specializes in sales of new-build properties, but in previous periods it accounted for 60-70% of the deals, and now reaches 90%, which is indicating its total dominance in the customers’ preferences.

Sales Volumes

According to the Registry Agency, in the first quarter of 2019 in Sofia there were 5,641 real estate sales compared to 5,631 for the same period in 2018, which is only 10 transactions difference on an annual basis.
However, these figures do not include purchased new-build dwellings, which will be recorded as sales upon completion of the construction process.



As we have seen above, our observations show a significant increase in the sales share of new construction. On the basis of these observations we can conclude the sales volume data recorded by the Registry Agency underestimates what is actually happening on the market, and this again proves the trend of a significant sales increase of new construction and the total dominance it has in the buyers’ demand.

Preferred Neighborhoods and Property Prices

The neighborhoods that buyers are targeting this year are much more diverse due to the increased supply and better prices.

The observations of BULGARIAN PROPERTIES indicate that Vitosha neighbourhood remains the top favorite for buyers. This is largely due to the particularly strong interest in our exclusive Modera Residence complex, located in this neighborhood.

Immediately after this is the surprise of the quarter - Banishora neighbourhood, which has a very central location and with the launch of intriguing projects has quickly grabbed the attention of the buyers. An example is the Park View Residence complex, which has become the best-selling complex in the last 2 months.

Apartments were also actively traded in Liulin 2 quarter, where the only building with Act 16 – Permission to Use is on the market and prices vary between 650 and 700 Euro/sq.m.

The other popular districts in Sofia are Krastova Vada, Manastirski Livadi, Mladost 4.

The average prices in the most popular neighborhoods in the first quarter of 2019 are:
• Vitosha - 980 Euro/sq.m.
• Banishora - 905 Euro/sq.m.
• Krastova Vada - 1,200 Euro/sq.m.
• Manastirski Livadi - 1,085 Euro/sq.m.
• Mladost 4 - 1,050 Euro/sq.m.
• Lyulin 2 - 665 Euro/sq.m.

Karpuzitsa is among the regions that should also be noted in the first quarter. There is a good supply of completed or almost finished new construction at average prices of about 940 Euro/sq.m, which is attractive for a southern region of Sofia and this attracts interest.

Another attractive neighborhood is Suhata Reka – until recently an underestimated central area of Sofia. We see that with the launch of new projects on the market in this neighbourhood, there is interest in buying at prices around 900 Euro/sq.m.

Parameters of the Purchased Dwellings

Exactly half of the purchased apartments are 1-bedroom apartments and 42% are 2-bedroom apartments. Unlike in previous quarters, in early 2019 we have seen a significant increase in the share of purchased 2-bedroom apartments at the expense of a reduction in the 1-bedroom properties purchases, which previously reached 65% of the total volume of transactions.

We attribute this to the activity of families looking for a new home for private use. They are motivated by the available supply, as well as by the possibilities of buying with a mortgage in new residential developments.

The average area of the purchased dwellings is 89 sq.m. - a growth of about 10 sq.m. compared to the last months of 2018 which is due to the increased share of the purchased 2-bedroom apartments.

This year we also see an increased interest in gated complexes with private parks, greenery, playgrounds and recreation areas for the residents. Great attention is paid to the quality of life, not only when purchasing homes for own use, but also for investment as they promise better rent levels and greater sustainability of the investment.

It is also worth to note that buyers tend to compromise and buy housing on the ground or first floor, especially when these homes are in buildings or complexes with controlled access, as these homes are in most cases at lower prices.

2019 Perspectives

The minor mood at the end of 2018 and the expectations for a decline in market activity quickly retreated to a very positive beginning of 2019.

The year started with a strong interest from buyers. The dynamics of the market during the otherwise traditionally slower winter months was very high. It is to be noted that buyers are more prepared to make purchase decisions. Some of them have been monitoring the market over the last 2-3 years and are now ready to buy their new home.

Our expectations of price retention at the already achieved levels are justified. Currently, we have a wide variety and excellent supply of all types of properties, as well as prices that remained practically unchanged in the last year.

At the same time, mortgage interest rates increases have been postponed, and analyzes have shown that, even if there is such an increase, it will be in the range of 10-20 Euro per month. Buyers have calmed down, and banks continue to expand their lending activities providing additional impulse to the current demand.

With such a macro framework of the market our expectations are that 2019 will continue with the same trend to the very end - unchanging prices, available supply, excellent financing opportunities, and a sense of maturity and stability of the property market.

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