- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
Growth of housing prices slowed down
submited on 04.08.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 04.08.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
We have recently witnessed various forecasts made by analysts and market participants for new records on the housing market in 2007. According to released by NSI data however, growth of housing prices in regional cities in Q2 of 2007 was more moderate (5.4% compared to 9.3% in Q1). The relatively high price growth in the beginning of the year was attributable to strongly positive expectations, following immediately the formal accession of the country to the EU. In this sense, the slight price growth slowdown reflected mostly a certain correction of initially formed high expectations. Notwithstanding, annual growth remained stable, and the trend toward growth of residential housing prices referred to all regional cities.
In Q2 of 2007 the average price per sq.m. for the country reached BGN 1041, or 5.4% growth compared to BGN 988.2 in Q1 of 2007. Price growth in Sofia and Russe continued to be considerable in Q2 as well (8.9% and 10.9% respectively with the country average being 5.4%). Contrary to these developments, prices in the other major cities accounted for a relatively weak change. In Varna, for example, a 3.9% growth was registered, which represents a considerable drop compared to price levels registered there in Q1 of 2007 (16%). After in Q1 growth of average prices in Stara Zagora was insignificant, in Q2 of 2007 prices there registered increase around the country average, and as a result the city kept its 5th place among regional cities, followed immediately by Plovdiv (BGN 1103 per sq.m.). At the same time prices in Russe had significant growth, thus allowing Russe to keep its 4th place among the most attractive cities, but still lagging considerably behind Burgas. As expected, Varna continued to be the most expensive city, followed by the capital.
As a whole no negative growth was recorded in regional cities, and in 3 cities it is even double-digit (compared to 10 cities in Q1 of 2007). In 15 of the overviewed cities there was a price growth higher than the country average. Highest price growth compared to previous quarter had cities such as Vidin, Pleven, Russe, Haskovo, followed by the capital. Among cities with weakest price change registered there was not any of the 6 most highly assessed cities.
Housing market in smaller cities remained underdeveloped, with low liquidity, which led to considerable fluctuations in the short term, in nominal prices, as well as in growth rates. That is why record rates as the one registered in Vidin (23% compared to Q1 of 2007) must be interpreted with caution.
The information about the average housing prices in regional cities was released after it was announced that a record nominal growth of GDP (15.5%) was reached in the year to March. In Q1 optimistic expectations dominated not only the housing market, but among the business as well, as for this period investments continued to increase relatively fast (21.6% in real terms).
On the other hand, the average nominal growth of money supply varied between 23-27% from the beginning of the year. Hitherto, no statistically significant relation between broad money growth and CPI is notable, which implies that the free financial resource is allocated predominantly to real estate and investment projects market. Meanwhile, a large part of housing purchases continue to be financed through mortgage credit, as housing credit continued to grow at 75% rates to June 2007. This was supported also by interest rates dynamics, as for the period November 2006 – June 2007 interest rates varied in a close range – between 8.4-8.5%.
Several factors will have increasing impact on the Bulgarian housing market. On one hand, interest rate hikes in the Euro area, driven by the restrictive policy of ECB, will increase the price of financing on the European interbank market, thus accelerating the process of rising interest on housing credit in Bulgaria. Meanwhile, the spread of interest rates on housing credit over the base interest rate drecreased – from ?? 4.89% in March to 4.56% in June, which implies that the base interest rate in Bulgaria is rising relatively faster than housing interest rates.
After in the end of 2006 BNB removed credit restrictions, at the moment it is again turning into a factor, having impact on mortgage credit. The decision of BNB to raise required minimal reserves from 8% to 12% from the beginning of September will most probably restrict the credit expansion. The strength of the effect depends certainly to a great extent on commercial banks’ reaction and their ability to find alternatives to already set restrictions. The impact of credit restrictions is also determined by the elasticity of mortgage credit demand, i.e. what part of potential credit receivers will stop applying for credit under new higher market interest rates. New credit restrictions will affect mainly credit receivers with relatively lower income. The restriction of credit expansion will have weaker impact on credit receivers with higher income, who will find new interest rates non-binding. As a whole, however, external and internal factors in monetary policy will continue to put pressure on the rates, at which housing prices are growing.
In Q2 of 2007 the average price per sq.m. for the country reached BGN 1041, or 5.4% growth compared to BGN 988.2 in Q1 of 2007. Price growth in Sofia and Russe continued to be considerable in Q2 as well (8.9% and 10.9% respectively with the country average being 5.4%). Contrary to these developments, prices in the other major cities accounted for a relatively weak change. In Varna, for example, a 3.9% growth was registered, which represents a considerable drop compared to price levels registered there in Q1 of 2007 (16%). After in Q1 growth of average prices in Stara Zagora was insignificant, in Q2 of 2007 prices there registered increase around the country average, and as a result the city kept its 5th place among regional cities, followed immediately by Plovdiv (BGN 1103 per sq.m.). At the same time prices in Russe had significant growth, thus allowing Russe to keep its 4th place among the most attractive cities, but still lagging considerably behind Burgas. As expected, Varna continued to be the most expensive city, followed by the capital.
As a whole no negative growth was recorded in regional cities, and in 3 cities it is even double-digit (compared to 10 cities in Q1 of 2007). In 15 of the overviewed cities there was a price growth higher than the country average. Highest price growth compared to previous quarter had cities such as Vidin, Pleven, Russe, Haskovo, followed by the capital. Among cities with weakest price change registered there was not any of the 6 most highly assessed cities.
Housing market in smaller cities remained underdeveloped, with low liquidity, which led to considerable fluctuations in the short term, in nominal prices, as well as in growth rates. That is why record rates as the one registered in Vidin (23% compared to Q1 of 2007) must be interpreted with caution.
The information about the average housing prices in regional cities was released after it was announced that a record nominal growth of GDP (15.5%) was reached in the year to March. In Q1 optimistic expectations dominated not only the housing market, but among the business as well, as for this period investments continued to increase relatively fast (21.6% in real terms).
On the other hand, the average nominal growth of money supply varied between 23-27% from the beginning of the year. Hitherto, no statistically significant relation between broad money growth and CPI is notable, which implies that the free financial resource is allocated predominantly to real estate and investment projects market. Meanwhile, a large part of housing purchases continue to be financed through mortgage credit, as housing credit continued to grow at 75% rates to June 2007. This was supported also by interest rates dynamics, as for the period November 2006 – June 2007 interest rates varied in a close range – between 8.4-8.5%.
Several factors will have increasing impact on the Bulgarian housing market. On one hand, interest rate hikes in the Euro area, driven by the restrictive policy of ECB, will increase the price of financing on the European interbank market, thus accelerating the process of rising interest on housing credit in Bulgaria. Meanwhile, the spread of interest rates on housing credit over the base interest rate drecreased – from ?? 4.89% in March to 4.56% in June, which implies that the base interest rate in Bulgaria is rising relatively faster than housing interest rates.
After in the end of 2006 BNB removed credit restrictions, at the moment it is again turning into a factor, having impact on mortgage credit. The decision of BNB to raise required minimal reserves from 8% to 12% from the beginning of September will most probably restrict the credit expansion. The strength of the effect depends certainly to a great extent on commercial banks’ reaction and their ability to find alternatives to already set restrictions. The impact of credit restrictions is also determined by the elasticity of mortgage credit demand, i.e. what part of potential credit receivers will stop applying for credit under new higher market interest rates. New credit restrictions will affect mainly credit receivers with relatively lower income. The restriction of credit expansion will have weaker impact on credit receivers with higher income, who will find new interest rates non-binding. As a whole, however, external and internal factors in monetary policy will continue to put pressure on the rates, at which housing prices are growing.
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