Bulgaria‘s Housing Market Poised for Correction After Rapid Growth
SOFIA, Bulgaria -โ A cooling of Bulgaria’s rapidlyโ expanding property โคmarket isโข anticipated, according to Lachezar Bogdanov of the Institute for Market Economics (IME).The forecast comes โas data from โขthe Bulgarian National Bankโ (BNB)โฃ reveals a surge โคin housing lending, with โขmortgages increasing by nearly one-third in the โpast year, including BGN 2 billion in loans issued over the last two months. Bulgaria currentlyโ exhibits the fastest rate โof property price recognition within the European Union.
The current boom is fueled, in part, by investor expectations โขof continued price increases,โค coupled with historically low โinterest rates.โ However, Bogdanovโ warns that this growth is unsustainable. “People buy for investmentโฃ purposes, expecting to win after one, two or three years of raising the price of the property,” he explained to Bulgarian Nationalโ Radio (BNR).”Everyone has stared at the current interest โขrate of 2.4-2.5% and makes sure everything at these interest rates. But afterโ 3, 5 or 10 years the interest will be โof a different amount, it dose not โenter the account.”โ
This rapid expansion carries significant risks, not only โfor banks and borrowers but alsoโข for the broader construction sector and overall economic growth. Bogdanov anticipatesโข a market correction, stating, “When something expands too โmuch, the market ‘corrects’โค it – it โคshrinks it to rational levels. but this process isโข associatedโฃ with pain and suffering.”โฃ Theโ potential โคfor rising โinterest rates โfurther exacerbates these concerns, asโ currentโค lowโ ratesโ are unlikely to beโค maintainedโ long-term.
The prospect of Bulgaria โadopting the Euro is also seen as aโ potential โdriver of โคfurther price increases, adding additional pressure to theโ property market. Though, Bogdanov’s analysis โsuggests thatโข this upward trend โคis ultimately temporary, and a period of โmarket stabilizationโฃ – or decline – is inevitable.