IWATCH Housing Market July 2008

Date Added: Sep 3, 2008

Author: Manager Real Estates Directory

Category: Europe real estates: Real Estates in Bulgaria

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Housing credit dynamics – recent data
Household credit growth slightly accelerated – to 48.9% in June. Thus, household
indebtedness to the banking system reached BGN 16.3 billion (some EUR 8.3 billion) in
the mid-2008.
Growth of consumer credit slightly decelerated again, although remaining relatively
high (47.3% annually) despite the steady trend for interest rates on consumer credit to
pick up.
The pace of housing credit kept on gradually declining in June as well – down to 53.3%.
Expectations of mortgage credit dynamics are being confirmed. Part of the explanation
of the gradual moderation of the credit expansion in the mortgage segment is the
upward interest rate dynamics, as well as the more substantial volume of credit,
granted in the first half of 2007.
Housing credit in arrears continued to increase in absolute terms, reaching BGN 148
million (some EUR 76 milllion) as of June. Its share in the total volume of housing credit
varied in a narrow range (2.1%-2.2%) in the last year, as it is declining in June
compared to May. Expectations are that with the increasing age of loans the share of
bad credit will begin to slowly grow. Banks’ promotional campaigns, including initial
period of lighter credit servicing terms, also make impact. In the medium term the
quality of the credit portfolio will be determined by the growing dependence on global
monetary trends. The record high inflation of consumer prices in the Euro area will
continue to put pressure upon the the ECB for further monetary policy tightening.
As an attempt to counteract BNB credit restrictions Bulgarian banks continued to
borrow financial resource from the interbank market and therefore banks’ net foreign
liabilities grew to BGN 9.2 billion (some EUR 4.7 billion) as of June. Thus, Bulgarian
banks tend to become more and more dependent on developments on the interbank
market in the Euro area, where the 12-month EURIBOR reached 5.36% in June. The
Bulgarian interbank market reacted more tangibly to the global financial turmoil. After
the first visible effects of the world crisis in August 2007 the cost of interbank financing
here surged faster than the Euro area. In line with the more expensive access to
financing on the domestic and foreign interbank markets, interest rates on levadenominated
housing remained relatively high in June – 8.81%, although not changing
compared to May. Meanwhile the annual percentage rate of charge on housing credit,
including apart from interest payments all fees and commissions at the expense of the
borrower, increased to 9.72%. The movement of interest rates on consumer credit is
upward, reaching 10.80% (being 10.77% a month earlier).

Housing prices in regional cities
Growth of average housing prices decelerated again – down to 5.9% (as
compared to Q4), reaching BGN 1376 per sq. m. in nominal terms. Growth on
annual basis (relative to Q2 2007) is 32.2%.
Housing in Sofia and Varna continue to be most expensive. Ruse kept its
position as the third most expensive city in the country, immediately followed
by Burgas. Prices in Plovdiv and Stara Zagora grew at rates above the country
average, wheareas Varna accounted for a slower nominal growth (1.8% relative
to the previous quarter).
Prices in Sofia increased at 6.9% against Q1 2008. Interpretation of the recent
data for Sofia and the other regional cities requires taking into account the
specifics of the methodology applied. The survey includes existing standard
apartments, excluding houses with yards, luxury apartments and maisonettes.
In Q2 only housing in Targovishte accounted for a nominal decline. The low
liquidity of the housing market in smaller regional cities partially explains the
strong price volatility – quarters with very high and very low growth rate
coming immediately one after the other.
On annual basis (i.e. relative to Q2 2007) housing price growth is most rapid in
Ruse (48%). Apartment prices in Sofia increased at 40% annually, which is faster
than the country average.

Business climate
The business climate indicator is formed on the basis of surveys among companies,
conducted by the NSI. As a whole, the economic state in the country in July remained
favorable, although the composite business climate indicator declined relative to the
previous month.
The estimations of the current production activity in industry are more moderate.
Managers’ opionions for the current state of retail sales are more pessimistic.
Managers in the service sector do not have inflationary expectations.
Market conditions in the construction sector remain favorable, as the business climate
indicator reported growth. The shortage of labor force was again pointed out as a
factor impeding business development, as well as rising prices of construction
materials. Expectations of the following 6 months are optimistic.

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