Is there a real estate bubble?

“There is talk of a bubble, but in fact I still don’t see this phenomenon. It is possible that it will grow in a few years, but not at this stage.” – Yordan Yordanov, Managing Director of “Nov Dom 1”.

In the real estate sector, there is constant talk about the recently presented report by UniCredit Bulbank. It focuses on the so-called “bubble” phenomenon in property prices. Only 6% of the neighborhoods in Sofia offer affordable housing for purchase, and around 35% of the city’s neighborhoods experience a price bubble. These are some of the conclusions from the published report by economists from UniCredit Bulbank on the affordability of housing in the country.

The report is prepared for the third consecutive year, publishing assessments of the affordability of housing in Bulgaria. The assessment is composed by calculating the ratios between housing prices and household incomes. It is also mentioned that when the ratio of housing prices to household incomes is above 6:1, they are considered “seriously unaffordable”. This means that housing, which requires more than 6 years of gross annual salaries (before taxes) of a household to purchase, is considered unaffordable.

We reached out to Yordan Yordanov, owner and managing director of the real estate company “Nov Dom 1” with offices in the capital and Varna. The expert, on his part, disagrees with the claims presented in the report and describes them as a method of enticing financing. Yordanov also comments on all current issues regarding real estate in Bulgaria.

Bulgaria has the lowest level of housing affordability in Europe, according to the report by UniCredit Bulbank

After careful reading and analysis of the publication, Yordanov states that he disagrees with the economists’ opinion. The report does not specify which income of the population the analysis is based on. It can be assumed that, given that UniCredit is an extremely serious bank, the analysis may be based solely on official data, which means it is based on official incomes. We all know that a large part of the incomes in Bulgaria are informal, and this is a public secret. If the analysis is based on this data, it has no value because it does not reflect the real situation. Housing prices in Europe are much higher and less accessible than in Bulgaria. Spain and Italy are exceptions, but property rights are not protected there as they are in Bulgaria. This makes properties an undesirable investment instrument. It struck me that the examples they present in terms of price-income ratio are related to cities in Australia and Canada, not Europe, which is strange. On the other hand, UniCredit currently offers some of the best loan conditions. They even finance up to 95% of the property valuation and offer an interest rate below 2.2%, which makes access to cheap money and easy home purchase extremely attractive, the specialist further comments.

Regarding the question of whether there is a housing bubble only in Sofia, he responds as follows:

“From the information in the publication, it is clear that there is talk of a bubble, but in fact I still do not observe this phenomenon. It is possible that it will grow in a few years, but not at this stage. Why are prices in Sofia the highest? It’s very simple, because the incomes there are the highest.”

The main factor that influences housing prices is the population’s incomes and, of course, inflation, which generates fear of money devaluation. In Bulgaria, we rely on real estate as a primary investment tool, and rightfully so. The other investment instruments are not as familiar and attractive to a large part of society. Additionally, thanks to our tax system, real estate provides exceptional opportunities for rapid capital growth and significant profits, stated Yordanov.

The mismatch between supply and demand can be easily corrected.

There is a lot of money, there is demand, there is less money, there is less demand. Some would say, “Let’s raise interest rates and limit demand.” The effect would be minimal. In Western Europe, interest rates were permanently low. Today, around 6% is a shock and horror for Western Europeans. People there are stressed and scared. It is unheard of for them and probably looks apocalyptic. Besides, they are taught to follow, not to think. They know that there is someone to take care of their prosperity. In Bulgaria, until 10 years ago, interest rates were around 6%, the real estate bubble in 2008 was at interest rates of 6-7%. Increasing interest rates would not stress us as much as Western Europeans, it would not stress us at all. Let’s make a comparison: imagine that you took out a loan years ago at 6% interest. What is your interest rate today? Probably below 3%. And tomorrow they raise it to 4 or 5%. Nothing to worry about, especially if inflation falls. Then it would turn out that you are actually in an extremely successful position. Let’s see what happens to a Western European who took out a loan at, for example, 2% interest, and today it is 6%. What goes through his head? A 300% increase – isn’t that a disaster? Besides, housing in Bulgaria is much more affordable than in Western Europe, and that’s why the statistics show that in Bulgaria, credit transactions are below 30% from 2016 to 2022. This year there is probably growth because at these interest levels, a person must be a weak financial strategist to use available resources instead of credit. If I have to summarize my opinion, at these income levels and the available financial resources in banks – around 110 billion savings, we would hardly observe a market crash. However, entering the Eurozone is also expected, which should lead to a jump in property prices, and we are taught to think, concludes Yordanov.

Regarding whether people’s incomes need to increase in order for there to be a change in property prices, the CEO of “New Home 1” says that an increase in incomes will lead to even greater interest in the real estate market. Higher incomes lead to interest in larger and more comfortable homes.Over 85% of people live in their own homes, while only 15% rent.

In response to the percentage ratio, Yordanov comments that we are not only well provided in terms of housing, but we also do not have a rent expense that reduces our income. Rent prices do not experience such a high jump and I assume we will not see such in the future. The specialist does not expect an increase in prices at this stage. Thanks to our excellent tax system, low interest rates from banks, and good legislation. Today, Bulgaria is the perfect country for real estate investment for short-term, secure, and high-yield investments leading to rapid capital growth. At the beginning of 2024, there will be a retention of the current levels in the market.

Подобни статии


Get special offers on new properties in your email

* Required field