Economic Policy Review ISSN 1313 - 0544

Money on the Bulgarian Property Market (2000 – 2005)

Author: Svetla Kostadinova / 29.01.2007
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Information about the money invested in the Bulgarian property market is very difficult to consolidate and assess. Nevertheless, we think that it is worth trying to estimate the flows in the market since it concentrates huge interest and funds.


Money on the market

The Institute for Market Economics tried to make estimations for the period 2000 – 2005 of total investments in real estate in the country.

Local investments in real estate

According to data from the central bank and IME assumptions, the total funds invested in property and financed by bank credits and savings are more than 8 billion euro for 2000 – 2005.







Banks’ loans share in real estate transactions







Housing mortgage loans volume (mln. BGN)






1 020

Total funds invested in property (mln. BGN)

2 100

3 650

1 560

1 930

4 000

2 550

Total funds invested in property financed by both bank loans and savings 2000 – 2005 (mln. BGN)

15 790

Source: Authors’ calculations based on data from Bulgarian National Bank, IME surveys of housing credit (2004) and IME survey on property market (2005, 2006). Exchange rate 1 Euro=1.95583 BGN

Net foreign investments in real estate

It is very hard to estimate the FDI in real estate since not all of it is registered (the data available is from notaries that should declare every deal with a foreigner involved; however, part of the declarations understate the transaction price). Therefore, we assume that reported data is underestimated by 30% and, bearing this in mind, we figure that the FDI in real estate in Bulgaria for 2000 – 2005 is approximately 437 million euro. We should note that about 70% of this investment has been made in the last two years that mark the incredibly high growth of the real estate market.

Source: Authors’ calculations based on BNB data; Exchange rate 1 Euro=1.95583 BGN


Real estate investment funds

It is worth trying to estimate the value of investment made by REITs in Bulgaria.

First, we tried to estimate the amount of capital raised abroad for investment in property in Bulgaria. The information is very dispersed and hard to compile. We have looked at the Alternative Investment Market in London to reach some assessment since a large proportion of foreign investment in the country comes from UK. The data shows that more than 870 million euro has been raised for investment in property in Bulgaria. We cannot assess what proportion has already been invested, but the figure tells a lot.

On the other hand, since the adoption of the Special Purpose Investment Companies Law in 2003, twenty such companies have been registered. The total amount of registered capital is more than 60 million euro, and several companies have already been raising their capital for some time. The profile of their investments consists of commercial properties, vacation apartments and agricultural land.

In conclusion, the overall amount of funds invested in property in Bulgaria for the last 5 years is supposed to be of more than 9.4 billion euro.


Brief review of the mortgage market in Bulgaria


Primary mortgage market

Mortgage lending was effectively resumed in 2000 and has grown at an accelerating pace ever since. Funding of mortgage loans is based largely on deposits. Although mortgage bonds are being issued, they are not used as a primary funding source by banks, although this is changing and mortgage bond issuances are competing more and more with funding from deposits.

Banks provide mortgage loans for new housing, existing housing, rehabilitation, and for business proposes. Mortgage loans are primarily denominated in the local currency and Euros. Terms, which were previously 5 to 10 years, have recently been extended to up to 25 years. The loans have variable rates, with rates updated at the bank’s convenience. LTVs generally range from 60 to 80 percent although effective LTVs may be lower.

Mortgage interest rates for loans in local currency have fallen from 16 percent in 2001 to 9 percent by May 2006. (As a point of comparison, ten-year Government bonds yielded about 3.3 percent in 2005 and 6.7 percent in 2001).

Overall, mortgage loans are performing fairly well and overdue loans represent 7.4 percent (0.3% in 2002). The increase in non-performing loans is basically a result of the credit expansion in past 3 years.

Due to competition, banks are becoming less conservative in underwriting mortgage loans. Third-party guarantees were once typically required, but in recent years the use of this security has declined.


Secondary mortgage market

Better market conditions and growing competition in the primary mortgage market have led to improved terms for borrowers and a renaissance in mortgage lending. Funding of mortgages is still achieved largely through deposits. The Mortgage Bonds Act (2000) helped banks finance their operations. It was the first in the region and is very flexible since it does not require special mortgage banks. The first issue was in 2003 and until the end of 2005, there were more than 20 issues with more than 167 million euro raised, of which 22 million have already been redeemed. The interest rate is falling, reaching 5.25% on average at the moment in comparison to 7.75% in 2001. The average maturity is 3 to 5 years.

The Special Purpose Investment Companies Law (2003) allows for securitization of tangible fixed assets and receivables, including future receivables, which are transferable assets. The companies do not pay profit tax and therefore are very attractive to both large and small investors.

The reform of the Central bank credit register in 2004 that required all banks to report new or renegotiated loans has increased market transparency and allowed for subprime borrowers to have better access to bank credit.


Players in the mortgage market

There are no specialized mortgage banks in Bulgaria. All commercial banks have mortgage credits in their portfolios but ten of them control 75% of the market. The credit expansion since 2003 has led to several major developments: (1) a reduction of interest rate spread; (2) an increase in credits’ volume, but with a more moderate pace in 2006, and (3) the entry of new non-financial intermediaries that facilitate the process such as credit intermediaries, mortgage brokers, etc.