Bulgarian, Romanian Real Estate Sobers Up

Though no one is yet predicting a crash in the property market, there has been a distinct sales slowdown in recent months.

After years of spectacular growth, real estate markets in Bulgaria and Romania are gradually slowing down with supply catching up with demand for the first time in years.

The number of buyers in both countries has dwindled since early 2005, though new homes are still rapidly being built. This has led to a slowdown in last year’s record rate of house price inflation and speculation of a buyers’ market.

Though foreign interest remains buoyant, analysts attribute the more sluggish performance to a decrease in the number of domestic buyers.

Under the Socialist regime, large families were forced to share small apartments with only those classed as in urgent need of accommodation having any chance of acquiring larger properties.

When they were finally freed of such restrictions after the fall of communism, Bulgarians and Romanians took to the property market with gusto. Many bought homes for their family members, the trend accelerating in the last two years with the ready availability of mortgages for ordinary people. But demand from domestic buyers has now largely been satisfied, leading to a slowdown.

This means prices have peaked, particularly in some of the posher quarters of Sofia and Bucharest. But Strakhil Ivanov, general manager of the Yavlena real estate agency, one of the largest in Bulgaria, isn't predicting a crash in the housing market any time soon.

"There could hardly be a collapse because supply is diminishing along with demand," he said, predicting a 15 per cent rise in Bulgarian house prices in the coming months.

That compares to record highs reached in 2004 where data from Bulgarian real estate agencies showed price hikes of up to 35 per cent, rising to 50 per cent in the best areas of Sofia.

In Romania, growth was equally spectacular last year with prices increasing by an average of 40 per cent in Bucharest, according to Ionut Bordei, a manager in the sales department at the Eurisko agency.

Only Bulgaria’s ubiquitous Socialist-era concrete buildings, built in the Seventies and Eighties and in need of upgrading and repair, have seen their prices drop, with analysts blaming an oversupply of newly-built flats for their declining popularity.

Fuelling the Bulgarian property market was the increased accessibility of mortgages, which until recently were unavailable. Bulgarian think tank Industry Watch said mortgage lending grew faster than any other type of credit in the country last year, with the number of loans issued increasing by 150 per cent over the previous year.

“Two years ago there were in fact no mortgage loans in Bulgaria,” said Valentin Suykov, manager of the Bulgarian branch of the International Federation for Real Estate.

Foreigners looking for Eastern European bargains also contributed to price rises. Though cheap for those from the West, at 900 euro per square metre for new houses in Sofia and towns along the Black Sea coast like Varna and Burgas, it was distinctly pricey for Bulgarians on an average wage of 150 euro per month.

The most expensive accommodation costs 1,500 euro per square metre with nothing available at the lower end for less than 500 euro.

Analysts predict the property markets in Romania and Bulgaria, next on the list for EU accession, will follow the pattern of other Eastern European countries that recently joined the union and gradually stabilise.

"We should keep in mind the experience of countries like Poland, the Czech Republic, or Hungary which survived the ‘shock’ of sobriety after the forecasts for price boom did not come true after they became EU member states," said Simeon Mitev, executive manager of Bulgaria's SHANS-96 estate agency.

Emilian Lilov is an IWPR/BIRN contributor.