How much does a square meter in Bulgaria worth?
Real estate hysteria in Bulgaria makes us wonder what their real price is. Everyone knows that this is the transaction price – when buyer and seller reach agreement and expect benefits from the deal.
What are available sources of such information in Bulgaria?
REMI Index – it is maintained by the National Property Association in Bulgaria (voluntary association of real estate brokers). The major problem with this index is that the data is supplied on voluntary basis, the index is released quarterly and it is too general (no details on type, age, infrastructure, properties of the real estate). Despite this, the REMI index is still one of the good initiatives.
Real estates Internet sites – several sites supply information on real estate prices but this is the asking price that can be misleading and cannot be used for in-depth analysis. This however can be the closest to market price that is available for the public at the moment.
National Statistics Institute (NSI) – the prices quoted by this institute are much below the market. The main reason is that the notaries (major suppliers of data for NSI) possess underreported data on real estate transactions because participants avoid paying taxes.
Real estate brokers – they possess all the information about property prices but are unwilling to provide it because it is considered as main competitive advantage.
Who are the main users?
Buyers/Sellers – they will benefit from this information the most because in this case they will be able to avoid speculations. Making such information publicly available will accelerate and facilitate market transactions.
Banks, insurance companies, pension companies, etc. – at the moment they hire licensed appraisers to determine the RE market price. These appraisers in turn rely on RE brokers. In all cases the database that is compiled within one company is limited and does not represent the market as a whole.
Real estate appraisers themselves – they use different methods to determine the property price and whatever they choose they always consult with real estate agencies (usually they have contract for exchange of information for a price).
Analyzers and journalists – they monitor and analyze the market and try to forecast future developments. Therefore, they need reliable and up-to-date information.
Local and foreign investors – they rely on such data so to assess future result of their investments. Since 2002, the Bulgarian real estate market is experiencing huge interest from abroad and availability of historic information is crucial for predicting future developments.
Why then there is no such index in Bulgaria?
The main reason is that participants in real estate market do not trust each other and hide information on parameters of the deals. Many of the active brokers are not properly licensed and operate semi-legally and therefore will use this information “for free”(without having obligation to provide such data).
Another reason is the current property market situation – “the dominance of the seller”. Buyers do have expectations for continuing rising of prices in future and are ready to pay almost any price without bargaining. Among the winners from current situation are brokers and construction companies. Since they are among the main suppliers of this information and as long as they do not reach an agreement on conditions, the index cannot become real. Bearing in mind the size and features of RE market, an effective mechanism that will alarm market participants for upcoming negative development should be put in place.
What can be done?
We present two options below.
1. Real estate market participants join forces, supply data, organize and produce real estate index. This can be done if most brokers commit themselves to supply regularly data. Certain methodology should be prepared so the authenticity, security and reliability of information be guaranteed for all suppliers; each participant can receive information only of he has provided such before; the model can allow for preparing of inquiries by different parameters – size, type of construction, year, etc. for each property. The maintenance of such index can be secured with introducing of fees for receiving data and selling of aggregate market analysis.
Since most of real estate agencies are not willing to cooperate and join hands to make such index (at least at the moment) there is another option that is not the best solution but can accelerate the process and facilitate establishment of property market indicator.
2. Banks and non-banking financial institutions are one of the most important participants and users of such index. The accumulated funds within them that are strongly correlated with real estate market development are a good reason to get involved in RE index establishment (or any sub-real estate index).
Mortgage financing in Bulgaria is growing rapidly – interest rates are falling, borrowers requirements are eased, maturity is increasing and all this makes creation of similar index of vital importance for future developments in mortgage market.
A good idea is to create one single “internal” database [1] by all banks and/or non-bank financial institutions (or at least most of them) for all properties that have been mortgaged, insured, securitized or acquired as investment. Thus, a good database will be accumulated and creation and maintenance of real estate index can be facilitated in the future.
Why is this easier to come true?
First, banks are easier to be organized – they proved that by participating in the first private credit bureau establishment that will start operation very soon. The information that should be delivered is easy to be extracted from bank’s databases.
Second, banks have the technical equipment for maintaining, supplying and organizing such information. Financial institutions can easy assign one person to perform administration functions in respect to such database. Most brokers are very small companies that often do operate semi-legally and do not have elementary equipment.
Third, financial institutions often decide on such issues more easily than other companies – they can assess objectively the benefits of such system.
Forth, financial risk is greater in a market where reliable information does not exist.
Finally, “intelligence” of property prices by banks requires constant monitoring, funds and a certain degree of uncertainty.
Of course, creation of one single index with RE agencies and brokers is always the best solution.
[1] The Polish Banking Association is the initiator, organiser and administrator of similar database (Transaction cost database). The database is expected to be active soon.
