Bulgaria‘s Housing Market Poised for Correction After Rapid Growth
SOFIA, Bulgaria - A cooling of Bulgaria’s rapidly expanding property market is anticipated, according to Lachezar Bogdanov of the Institute for Market Economics (IME).The forecast comes as data from the Bulgarian National Bank (BNB) reveals a surge in housing lending, with mortgages increasing by nearly one-third in the past year, including BGN 2 billion in loans issued over the last two months. Bulgaria currently exhibits the fastest rate of property price recognition within the European Union.
The current boom is fueled, in part, by investor expectations of continued price increases, coupled with historically low interest rates. However, Bogdanov warns that this growth is unsustainable. “People buy for investment purposes, expecting to win after one, two or three years of raising the price of the property,” he explained to Bulgarian National Radio (BNR).”Everyone has stared at the current interest rate of 2.4-2.5% and makes sure everything at these interest rates. But after 3, 5 or 10 years the interest will be of a different amount, it dose not enter the account.”
This rapid expansion carries significant risks, not only for banks and borrowers but also for the broader construction sector and overall economic growth. Bogdanov anticipates a market correction, stating, “When something expands too much, the market ‘corrects’ it – it shrinks it to rational levels. but this process is associated with pain and suffering.” The potential for rising interest rates further exacerbates these concerns, as current low rates are unlikely to be maintained long-term.
The prospect of Bulgaria adopting the Euro is also seen as a potential driver of further price increases, adding additional pressure to the property market. Though, Bogdanov’s analysis suggests that this upward trend is ultimately temporary, and a period of market stabilization – or decline – is inevitable.