Real Estate Prices in Sofia in 2023
Are Real Estate Prices Dropping in Sofia in 2023?
The short answer is no but there has been a change in buyer sentiment.
The war in Ukraine caused a large increase in inflation in 2022 throughout the world. Bulgaria had one of the highest inflation rates in the industrialised world giving a year-on-year average of only 10%. Despite this high inflation, economic activity continued to expand in 2022, supported by a strong growth in exports and by wage increases compensated for increased consumer prices.
Indications are that inflation is set to decrease gradually over the next few years and ,with a tight labour market, wages are expected to continue to grow strongly to sustain retail consumption. Inflation will be directly impacted by the size of these wage increases. More information can be found here:
Effect on Real Estate Prices in Sofia in 2023
Since Bulgaria has pegged its currency to the Euro, the methodology for the Base Interest Rate (BIR) is based on the level of interbank money market.
The Bulgaria interest rate was set, by the Bulgarian National Bank (BGN) at 1.82 % pa in Feb 2023, compared with 1.42 % pa in the previous Jan 2023. More information can be found here:
Towards the end of 2022, the banks started to reduce the amount of the mortgage amount available in order to reduce the risk of default. This move increased the number of real estate transactions that failed to complete due to the inability to completely fund the cost of the property. This led to a stagnation in real estate prices in Sofia.
In addition, the increases in the Base Interest Rate started to feed through to the monthly interest rate payable on mortgages and, despite the high level of wage raises, the amount of disposable income started to decline for mortgage holders in Sofia.
These two events caused a slowdown in the number of viewings in the Sofia property market in the months preceding and following Christmas in 2022. This caused a price drop in some of the more expensive properties in Sofia but, generally, property prices maintained their levels during this period while people waited to see what will happen to inflation and interest rates.
In February 2023, Bulgaria deferred its entry into the Eurozone the as inflation criterion will not be able to be met. It is hoped that borrowing costs will be lower when Bulgaria is ready to join the Eurozone.
Real Estate prices in Sofia in 2023
Real GDP is expected to increase by 1.4% in 2023 and by 2.5% in 2024.
Inflation in the EU decreased in January reaching 10% year-on-year while inflation in Bulgaria decreased in January to 14.1% from 14.3% at the end of 2022.
The decrease in the cost of energy and levelling off inflation has resulted in an increase in confidence in the real estate market in Sofia and in February 2023 the number of viewings started to increase to the numbers of mid-2022.
The increase in viewings has led to an increase in offers at or close to the asking price on most properties so it appears that Sofia will avoid a collapse in property prices in 2023.
Sofia Real Estate Construction in 2023
Residential construction activity in Sofia is now showing signs of slowdown, mainly due to the rising prices of building materials which are partially caused by supply chain issues. In the first half of 2022, residential completions fell by 6% to just over 8,000 units as compared to the same period during the previous year. The cost of construction materials for residential properties is up 15.4% year on year, according to data from the ABS.
Even taking note of the slowdown, the supply of mid-plus and high-end residential market saw a 4% growth, leading to the number of residential units completed in first half of 2022 to just over 13,000.
The highest sales volume was recorded for 3-bedroom apartments, followed by 2- bedroom apartments and houses.
Another reason for the slowdown has been labour shortages, as well as a changing economic environment. The shortage of labour and equipment has led to a backlog of projects, with companies having to delay builds or put them on ice, as well as deterring many developers from commencing construction projects.
This comes at a time when there is increased demand for rental accommodation. Unlike house prices which are influenced by interest rates and are slowing as a result, rents are going up and will continue to increase with international borders open and migration growing.
Property Market in Sofia in Early 2023
In 2023, real estate prices have continued to increase but the rate of increase is slowing down and it is likely that this decline in growth will continue throughout the year compared to the very high growth experienced in the second half of 2022. Currently, prices are up by about 10% compared to the same time last year when there was a year-on-year increase of over 20%. These property prices rises must be adjusted for inflation, which has reached a level of 18% – this rate is far higher than the average EU rates.
There has been an increased supply of properties in Sofia in 2023 which is partially addressing the supply/demand gap faced in recent years.
There has been an increase in newly granted mortgages by around 15% in 2023 compared to late 2022 according to data supplied by the Bulgarian National Bank.
There has not yet been a substantial increase on the interest rates, unlike the rest of the EU, in 2023 which has led to an increased confidence to invest.
Number of Real Estate Transactions in 2023
Data from the Registry Agency shows that the number of real estate transactions in Sofia decreased by 12.2% in the first quarter. This is the third consecutive quarter in which the Registry Agency has reported a decline in transaction volumes in Sofia. However, the pace of decline has slowed down from 15-17% in the second half of 2022.
The number of real estate sales transactions recorded in the first quarter of 2023 was 6,381 transactions compared to 7,268 in 2022 and 6 ,683 in 2021.
