Abstract
The global recession hit home in the Central and Eastern Europe property
markets in the first quarter of
this year. Market turnover, according to
CB Richard Ellis (CBRE) data, fell 57% between the last
quarter of 2008
and Q109, from EUR616mn to EUR268mn.
It should be noted that corruption in
Bulgaria is a major concern, and has led to the European Union
withholding
subsidies. It is also likely to generate more social unrest than usual,
exacerbated by the fact
that Bulgaria is now officially in recession,
having experienced a decline in GDP during the first and the
second
quarter of this year.
The residential property market enjoyed a
spectacular boom in 2005, 2006 and 2007, as anticipation of
the country
entering the European Union in the final year of that sequence led to a buying
frenzy. In those
three years, house prices grew by 37%, 16% and 27%
respectively. Recent declines could be interpreted
more as a normalisation
than any real crisis. According to the Bulgaria National Statistical
Institute, the
average price of a dwelling in the last three months of
2008 was BGN1,359 per m2, down 4.1% on the
previous quarter.
The
normalisation argument will not be any comfort to the 5% of property agencies
in the country that
shut down in January (according to ERA Real Estate
(http://www.era.com/), and the fact that ERA says
a market recovery is not
expected in the next two years offers little cause for optimism.
According
to King Sturge, the industrial property market is hampered by relatively high
prices of
between EUR48 per m2 and EUR66 per m2. The company expects
development to come almost to a halt.
Bulgaria was one of the few real
estate markets to see rent rises in the first quarter of this year –
with
office rents in Sofia rising 9% year on year to US$27.60 per m2,
putting it in the median price range,
according to CBRE.
The key
issues to watch out for that would signal an upturn in Bulgaria’s real
estate sector, as mentioned
in our previous report, are:
-
Stabilisation of the financial system, given that lending has been growing too
rapidly.
- Whether the fall in the loan-to-deposit ratio has an adverse
effect on the absolute level of lending,
which needs to rise from a low
level.
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