We will remember 2022 as an extremely dynamic and challenging year for the real estate market in the country. If you're looking to buy or sell real estate in 2023, we'd like to provide you with a quick breakdown of pricing trends to make searching for the right property and closing a deal easy without the need for a real estate agent (broker).
The balance on a global scale
In order to be well-informed about the regional real estate market situation and make good plans for buying/selling in 2023, we first need to be aware of global trends.
Over the last few years, especially since the pandemic, we have seen a steady rise in property prices in most of the developed world. The quarantine and closure of thousands of offices around the world has made us think about the space in which we reside and reorder our housing priorities. Many have resorted to seeking secluded properties in which to spend their quarantine days and in which to work, which has increased the value of larger homes and houses in and around major cities. Residential property globally appreciated by around 30-40% over the period from the beginning of 2020 to the beginning of 2022. In certain regions, the growth of housing prices even reached 50% (Great Britain, Germany, Australia). In addition to the increased demand, the historically low interest rates on mortgage loans had a major impact.
On the other hand, demand for offices and commercial property has fallen due to the realisation by some companies that work can be done remotely and the bankruptcy of others.
According to market forecasts by global economists, financiers and brokers, in 2023 we will see the opposite trend - that is to say, a decline in property prices. The big question is, "By how much?"
In some markets, we are already seeing depreciation of more than 10%. The last few years of relentless price growth was mainly driven by the Central Banks. They have done everything in their power to stimulate consumption and have driven down mortgage rates to record levels, which has led to less creditworthy consumers taking out loans. We are now seeing the reverse trend, which is leading to a contraction in the market and, consequently, to cheaper housing. But unlike the stock markets, where changes are reflected almost instantaneously, in the real estate market the impact of rising mortgage rates will take between 12 and 24 months to lead to a noticeable decline. This means that the depreciation we will see in 2023 is likely to be significant but could be as high as 10-18%. Only in buoyant markets such as China, India and Dubai a growth is expected.
On the other hand, due to the drop in demand, the builders themselves will start implementing their projects more slowly.
This mix of processes will lead to a gradual decrease in real estate prices in our country as well. However, high demand, especially in big cities, will be a major obstacle for these declines to be measured in double-digit percentages.
The Bulgarian real estate market
According to a number of experts, a significant decrease in real estate prices is expected in our country, which will be more noticeable in the second half of 2023. The main reason for the expected slight decline is the already mentioned demand in the big cities, which remains serious, and on the other hand, the Bulgarian banking system is "congested with money" and interest rates will start to rise very slowly.
Housing prices are unlikely to see a large reduction in 2023, but this gap is expected to fit within a range of between 5 and 15% compared to now. Key factors include a reduction in interest in properties that are still under construction (greenfield properties). We are talking about block of flats that are yet to be built and entrepreneurs have already calculated the increased prices of building materials, which are also likely to suffer a decline.
Another category of housing that is expected to experience a fall in prices is that of overpriced housing. In the case of Bulgaria, we are talking about 15% of the total volume of transactions. We are all aware that this type of property is not worth as much as it is advertised for, and the high volume has a significant impact on the overall real estate market. In 2023, a significant decrease in demand for property is expected, which will inevitably lead to at least a partial normalisation of prices for overvalued properties.
Inflation
What does inflation mean for real estate values? In 2022, we expect an average growth in property prices of around 10-12%. Inflation, however, is around 17-18%, which actually means that properties have become cheaper by around 6-8%. This is happening for the first time since 2013. The downward trend is there, which means it is likely to continue into 2023.
The average amount of a three-room apartment in Sofia, for example, reached 170-180,000 euros, which is a kind of record and a reflection of about 45 percent price growth for the period from spring 2021 to spring 2022.
The economic situation does not dictate a bursting of a "bubble" in terms of prices, as growth is primarily dictated by demand, offer and low interest rates on mortgage loans, but in all probability in 2023 we will witness a normalization of residential property prices in Bulgaria.
If you have decided to invest in real estate in a big city in the first half of 2023, the most optimal purchase will be to get a small apartment near the subway, a park or a business area in a new residential area.
Photo by Tima Miroshnichenko