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Is there a luxury housing market in Bulgaria
submited on 06.12.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 06.12.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
Considering frequent announcements in the electronic databases, offering “luxury” housing, the aforesaid question seems rather a rhetorical one. However, the majority of flats, advertised as luxury, are in fact common. In other words, the luxury housing segment in Bulgaria is still in its initial stage of development.
Interpretation of the luxury property topic requires making some additional clarifications. There is not a universal definition of luxury property, as “luxury standards’’ differ in various countries. Among possible luxury “criteria” fall location, quality of construction, provided additional services and others. In Bulgaria luxury housing is concentrated in biggest cities (Sofia and Varna mainly) and some resorts.
One possible approach toward market segmentation is according to the property type – apartment, house or housing estate in compounds. Compound developments are a new housing format to Bulgaria, providing a certain package of services, available solely to residents through the so called controlled access. Main accent is put upon additional services, rather than the features of the flat itself. Dominating two and three-room apartments in these complexes are more of an indicator for common product, as luxury (and more spacious) apartments have a relatively small share. Contradictory to block of flats’ compounds the focus with houses’ compounds is put upon quality and amenities of the house itself. Most housing properties in compounds are sold more expensive than individual housing with similar characteristics. However, high concentration of compounds in several regions increases supply there significantly and could exert a given pressure on prices, having in mind also the still relatively low liquidity on the Bulgarian housing market.
Urban houses with high asked prices are located in the centre, or in some suburban urban areas. House prices in the central part are usually considerably higher due to limited supply. Indirect effect on asked prices has also the project’s opportunity cost – the expensive land, the possibility of building an office or commercial building.
Most expensive apartments are located either in old luxury buildings, or in new “boutique” buildings in the central parts of the city. It is interesting that average asked prices decline with increasing the estate size, which confirms the thesis that demand for apartments with premium location is concentrated in the segment of small and medium size flats, bearing also higher return if used for rental purposes.
The emerging luxury housing market in Bulgaria is different from the one of common housing not only with respect to structure of supply, but also regarding demand factors. While financing the purchase of a common housing property is carried out predominantly via housing credit, dependence between credit dynamics and luxury housing demand is weaker. In other words, luxury housing demand would not probably be considerably influenced by potential housing credit contraction on a national level. Meanwhile, luxury housing prices depend to a larger extent on changes in the so called external demand, which is generated by income, created outside the local economy. The emigrants’ money inflow (comprised of emigrants’ income and current transfers) and mostly foreign investments in real estate will be main factors, determining local luxury housing market’s dynamics in the future. That is why maintaining relatively high return on investment in real estate under reasonable to investors risk levels (at least relative to alternative to Bulgaria destinations) will be one of the conditions for dynamic development of the luxury housing segment in the country.
Interpretation of the luxury property topic requires making some additional clarifications. There is not a universal definition of luxury property, as “luxury standards’’ differ in various countries. Among possible luxury “criteria” fall location, quality of construction, provided additional services and others. In Bulgaria luxury housing is concentrated in biggest cities (Sofia and Varna mainly) and some resorts.
One possible approach toward market segmentation is according to the property type – apartment, house or housing estate in compounds. Compound developments are a new housing format to Bulgaria, providing a certain package of services, available solely to residents through the so called controlled access. Main accent is put upon additional services, rather than the features of the flat itself. Dominating two and three-room apartments in these complexes are more of an indicator for common product, as luxury (and more spacious) apartments have a relatively small share. Contradictory to block of flats’ compounds the focus with houses’ compounds is put upon quality and amenities of the house itself. Most housing properties in compounds are sold more expensive than individual housing with similar characteristics. However, high concentration of compounds in several regions increases supply there significantly and could exert a given pressure on prices, having in mind also the still relatively low liquidity on the Bulgarian housing market.
Urban houses with high asked prices are located in the centre, or in some suburban urban areas. House prices in the central part are usually considerably higher due to limited supply. Indirect effect on asked prices has also the project’s opportunity cost – the expensive land, the possibility of building an office or commercial building.
Most expensive apartments are located either in old luxury buildings, or in new “boutique” buildings in the central parts of the city. It is interesting that average asked prices decline with increasing the estate size, which confirms the thesis that demand for apartments with premium location is concentrated in the segment of small and medium size flats, bearing also higher return if used for rental purposes.
The emerging luxury housing market in Bulgaria is different from the one of common housing not only with respect to structure of supply, but also regarding demand factors. While financing the purchase of a common housing property is carried out predominantly via housing credit, dependence between credit dynamics and luxury housing demand is weaker. In other words, luxury housing demand would not probably be considerably influenced by potential housing credit contraction on a national level. Meanwhile, luxury housing prices depend to a larger extent on changes in the so called external demand, which is generated by income, created outside the local economy. The emigrants’ money inflow (comprised of emigrants’ income and current transfers) and mostly foreign investments in real estate will be main factors, determining local luxury housing market’s dynamics in the future. That is why maintaining relatively high return on investment in real estate under reasonable to investors risk levels (at least relative to alternative to Bulgaria destinations) will be one of the conditions for dynamic development of the luxury housing segment in the country.
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