Contrary to widespread fears, real estate is maintaining its momentum in Sofia as demand continues to outpace supply
Weird eclecticism and vulgar pizzazz are traits of Sofia's architecture – thanks to a legacy of multiculturalism, political transition and poor planning. Nor is it the tidiest city in Europe. Fluttering blue-and-gold EU flags do little to sway the dingy impression made on first-time visitors. What newcomers fail to spot, however, is that Sofia is probably the most promising property market – not only in Bulgaria but in southeast Europe as a whole.
Sofia is the country's largest business hub – most multinational companies are choosing to set up shop there. The capital is seeing steady population growth as skilled workers migrate from provincial cities. More than 100,000 Bulgarians move to Sofia every year. By 2010 the number of Sofianites is expected to exceed two million. Most of them will be looking for places to live and office space for their businesses.
Sofia is one of the few Bulgarian cities where the growing demand for residential properties still outpaces supply. In some districts it is almost impossible to find an available apartment, while other neighbourhoods suffer from visible signs of overdevelopment. In the last five years, overall prices for residential properties jumped by 300 percent. Average prices are expected to continue rising by about 25 percent annually. However, in some districts they will go up by 40 percent, while in others growth will not exceed 15 percent. The key to profitable investment is knowing where to purchase, how much to pay today and how much your property will be worth tomorrow.
You don't need a crystal ball to see that the city's heart or "top centre" will be the hottest spot for many years to come. It not only brings together all the important administrative and entertainment spots and boasts excellent infrastructure, but is also immune to overdevelopment due to a complete lack of building space. But, foreign buyers beware! Real estate agents often present properties as top centre, when they are in fact part of the "broader centre". So what's the difference? Up to 1,000 euros per sq m. The true top centre includes the areas along or near Vitosha, Patriarch Evtimiy and Graf Ignatiev Boulevards, as well as some parts of the Levski, Stamboliyski, Hristo Botev, and Maria Louisa Boulevards and the Doctors' Garden. Top centre properties will set the record for annual price growth – if there are any available for sale.
Proximity to the top centre is not necessarily a prerequisite for high price growth. Fast access to it, however, is. Districts that combine nearby parks, communicability (in Bulgarian realtors' parlance, a location that allows fast and easy access to other locations), good infrastructure and lack of possibilities for overdevelopment are and will remain very expensive. Examples of such neighbourhoods include Lozenets, Iztok, Strelbishte, Geo Milev and Hladilnika.
The broader centre includes diverse districts. The Medical Academy, Oborishte, Ivan Vazov and Yavorov are considered prestigious and consequently are more expensive. The more modest Zone B5 and Serdika are up to 30 percent cheaper. In the future, segmentation of this area will continue since lack of building space does not leave much potential for development. Hence, expectations for price growth in the prestigious parts of the broader centre are higher.
Infrastructure is key to price growth and district development –Mladost and Students' Town being examples par excellence. Just a few years ago, these regions were two gigantic concrete suburbs, among the least desirable and cheapest residential spots. Now the southeastern district of Mladost has turned into a city within a city, complete with a metro line opening in 2012. The district hosts the largest business park in Sofia, dozens of malls, supermarkets, clinics, schools, entertainment spots and all the necessary services.
Located on Sofia's southernmost edge, Students' Town has turned from the bleak wasteland of Soviet-era dorms that it was a decade ago into a throbbing business and nightlife district. Here, as well as in Mladost, important infrastructure and business projects are expected to maintain high price growth.
Over the next ten years buyers are unlikely to change their attitudes towards what are now the least desirable regions of Sofia. Such areas are located on the periphery of the city and suffer from infrastructure problems as a rule. Some of them also resemble concrete ghettos that leave much to be desired in terms of safety. Such districts include Levski (it commands prices of 800-1,200 euros per sq m), Malashevtsi (800-1,300), Obelya (700-1,150), Nadezhda (850-1,100), Filipovtsi (600-700) and Orlandovtsi (700-1,000), among others. Forecasts predict no more than 10 percent annual price growth in the next three years.
Two new projects – Manastirski Livadi and Vitosha, presumably designed for Bulgaria's emerging middle class – recently came under harsh criticism for bad infrastructure and overdevelopment. Saturation of the market in these two districts will slow down price growth in the coming years. The expensive suburbs – Bistritsa, Simeonovo, Dragalevtsi and Boyana – look poised to retain their prestige and elite status, despite their problematic infrastructure.
Last year, experts predicted that average price growth for residential properties would slow down to no more than 15 percent in 2008. Instead, the property market is more active than ever – prices jumped by 15 percent from January to May alone. This year, experts are again forecasting slower growth in 2009.
Our advice, however, is not to put off your investment until next year if you plan to buy residential properties in Sofia. The money that you would spend on an apartment will now only cover two-thirds of the price of your ideal property in 2009.
*Communicability - a word used by Bulgarian real estate brokers to describe a district that allows fast and easy access to other districts