Euro optimism keeps on feeding up the
market

The European Commission did not save its criticism to the new EU member Bulgaria but as it seems the market is not influenced by them at least judging by the continuing price rise in all market segments.

In the first quarter of the year house prices were up by more than 9% and agents gave indications that the growth has kept on in the second quarter too. Even under the condition it concerns old buildings only and that a part of it is a result of the bigger tax valuations since the beginning of the year these rates are the fastest since the second half of 2005.

The last investment transactions with income generating commercial buildings were made at initial yield levels from 7.5% and 8%, 2 to 3 percentage points lower than two years ago.

The yield, which is the annual percentage return, expressed as the ratio of annual net income to the acquisition price of a property shrank mainly under the pressure of the growing prices. They are pushed up by the strong competition among the investors for the few quality assets.

By all appearances the increases of the real estate values keep on notwithstanding the doubts in Brussels that the state has the capacity to fight problems like organized crime and corruption.

The European Union is considered to be the main reason for the growing prices. "For us this is the immediate and direct effect from the EU accession in 2007", says the economic analyst Latchezar Bogdanov (interview with him at pages 53-54).

This does not come as a surprise as the eight central- and eastern-European countries that joined the European Union in 2004 went through the same process. Although house price growth there was irregular and somewhere with adjustments the overall trend is positive. With the investment assets prices went very close to the western-European levels and Prague, Warsaw and Budapest now can be compared to Madrid or Athens.

Spain is another country that profited from the EU membership and where investment in infrastructure in combination with its popularity as a tourist destination made construction and real estate sectors some of the most important sectors of economy. Prices went up for decades stimulated by the demand from foreign investors and end users.

These would be the arguments of the optimists. Pessimists, however, would say that in certain segments in the Central European countries there was a downward trend in the house prices immediately after the EU accession as some properties has even lost up to 20 percent of their value. Also that Sofia will never be Brussels, Vienna or even Budapest and that there are no reasons to strive for their levels. And the EU effect has already been spent.

Like the EU membership real estate investment is an action with long-term results. And on the long run prices grow everywhere as a part of the general process of EU countries convergence in social, political and mostly economic aspects.

Anyway experts and analysts put forward something else. The value of a real estate is not a function of the international situation. The most important factors include the purchasing power of the Bulgarians, credit accessibility and the possible external demand.

"For the serious market development these last years the main factors were the mortgage credits market development, the existence and growth of the welfare and personal savings, the expectations for price boom after the EU accession and their real growth in the new member countries, investment in Bulgarian property from foreign investors and Bulgarians living and working abroad", comments Katya Tsenova, Executive Director of Address Real Estate (her opinion at page 66).

Furthermore the EU accession decreased investment risks and this reflected on the prices of the capital the economy attracts for investment in real estate among other things.

"Bulgaria has already a more European character and the general feeling is that the European Commission monitors the country and would signal for negative trend events which gives safety and stability for investors", says Svetla Kostadinova, economist at the Institute for Market Economy (page 59).

Besides that Bulgaria remains one of the cheapest countries in Europe which means that the inflation pressure is not expected to subside in the coming years.