Sobering up of the high-end segment of the property market

The luxury property company Unique Estates has published its market analysis for 2019.

The key trends are:

  • An increase in the number of deals concluded at relatively stable prices
  • An increase in the number of properties purchased compared to 2018
  • The opportunities for investment in the luxury property segment are attractive to an increasing number of buyers

Overview

After a euphoric property market in 2018, the current year has been a sobering experience for sellers while causing buyers to seriously reconsider price levels in the luxury segment of the market. At the beginning of the year, Unique Estates registered a slowdown and overpriced properties spending longer time on the market as well as the first indications of a price drop against the background of higher supply of new properties. In the following months, having undergone downward adjustment, the luxury segment registered became more dynamic in terms of both sales and rentals.

The number of sales completed after price adjustment also increased. Where in 2018 discounts up to 5% were prevalent on the market, in the following year buyers have been able to negotiate discounts of up to 12% of the original asking price.

Key macro indicators

GDP Growth, (Q3, 2019)3.7%
Unemployment (Q3, 2019)3.7%
Inflation (October, 2019)0.8%
Annual change in the construction of buildings (September 2019)12.4%
Annual increase in the prices of residential units in Sofia (2018)8.8%
Interest rate on mortgage loans (in EUR)3.73%
Interest rates on mortgage loans (in BGN)3.12%
Supply and demand

The drop in prices became evident as early as the first half of 2019 but slowed down in the autumn. Most high-end properties that saw downward adjustment were in old buildings that do not satisfy the high buyer expectations. The prices of luxury properties in new or recently renovated buildings have remained stable.

Offers have been considerably more realistic and more closely matched to market values. The latest trend should not be interpreted as a drop but rather as downward adjustment to the current state of the market. We have noticed a significant number of overvalued properties that were put on the market as far back as 2018, which has naturally led to longer sale times. However, owners are already feeling squeezed by robust competition, which has caused them to rethink their price strategies in order to speed up sales,’ Vesela Ilieva, Managing Partner of Unique Estates explains.

Unique Estates has also seen greater dynamics on the market coupled with and a significant increase in sales by approximately 30% as compared to the previous year. And increasing number of sales are agreed after downward price adjustment. Discounts have also been growing in incidence and size —during negotiations some buyers have been able to negotiate discounts of up to 12% of the original asking price.

“My tip for owners is to take advantage of the current situation and sell their properties because the market is very dynamic and realistically valued properties find buyers very quickly. It should also be said that many properties are currently emerging on the market, which will further increase competition and squeeze prices even further’, Vesela Ilieva adds.

She believes that buyers are currently taking more time looking for properties that fit their requirements. On average, a buyer needs five extra viewings to commit to a sale. Clients are also spoiled by greater choice.

According to the latest data published by Luxury Portfolio International the high dynamics in the luxury property segment has also persisted as a trend on global markets. In the next few years, we expect a boom in the high-end property segment in Asia. The current hotspots are Monaco, Paris, London, New York, the French Riviera, Hollywood, Los Angeles and Singapore.

‘In times of economic turbulence and geopolitical pressure in key markets, the luxury segment has remained an island of stability. High-end properties are considered a safe asset and continue to attract strong interest from buyers,’ Chris Dietz, Vice President Global Operations of Luxury Portfolio International, says.

 

Client profile

A trend of younger buyers entering the luxury properties segment has been gaining momentum both in Bulgaria and globally. The share of millennials, i.e. the generation born in the 1980s and 1990s, has been growing. At global level, millennials make up approximately 37% of all buyers in the high-end residential property segment and their share is expected to continue to increase at a steady pace in the years to come.

‘Very soon millennials will be the driving force in the luxury segment. We should bear in mind that functionality and comfort top the list of their requirements for the homes they buy. They are also keenly interested in the technological potential of properties, such as integrated management systems for electricity, heating, lighting, remote security and property access’, Chris Dietz explains.

The share of millennial buyers in Bulgaria is smaller. This category of buyer is typically interested in properties to be used for living by the owner—high-ceilinged apartments with spacious rooms, including fully furnished new houses with contemporary design situated in the high-end residential property areas of Sofia situated in the foothills of Mount Vitosha (Boyana, Dragalevtsi, the Film Centre). The typical budget of this type of buyer is in the range of EUR 450,000 to EUR 800,000.

 

Types of property deals

Traditionally, most properties are sold and bought in the centre of Sofia, specifically in the area around the Doctors’ Garden and in high-end residential areas like Lozenets. Buyers are also attracted by brand new residential buildings in the southern areas such as Krastova Vada and Manastirski Livadi, where luxury gated communities, offering a high quality of construction and an excellent living environment have been built. The sales prices for finished and fully furnished apartments are around, in some cases exceeding, EUR 2,000 per square meter while the average prices of high-end properties remain in the range of 1 400 to EUR 1,500 EUR per square meter.

Regardless of location, the prices in certain exclusive complexes significantly exceed average prices in the respective area. Secret Gardens in Lozenets is a case in point. The gated community has a contemporary aristocratic touch combined with an innovative design and apt use of the latest available technologies. A distinctive feature of the buildings is that ground floor apartments have their own gardens, creating a feeling of living in a house.

‘The opportunities to invest in the luxury segment of the property market have been attracting a growing number of clients who take advantage of the highly dynamic market, seeking properties that they can subsequently let. We have seen a marked increase in this type of sales in recent months’, Vesela Ilieva adds.

 

Lending

Unlike the mass property segment where transactions with mortgage loans have a high share of total transactions, in the luxury segment they make up approximately 10% to 15% of the total. However, the latest available data indicates an increasing interest in bank loans on account of historically low interest rates.

Mortgage purchases are a preferred option in the purchase of houses in the suburbs of Sofia and luxury town apartments in the price segment of 350 000 EUR and above. Approximately a third of the property price is usually covered by a mortgage loan. This is a distinctive feature of the luxury segment, which clearly sets it apart from its mass counterpart, where 100 % of then price is often covered by a combination of mortgage and consumer loans.

 

Property rental market

Having registered an annual increase of nearly 10 % compared to 2018, the luxury property rental market has also been highly dynamic. In keeping with the universal trend, properties in the lowest and the highest market segments attract the greatest interest. Demand is significantly lower for properties let in the mid-price range of 500 EUR to 1 000 EUR. At the same time, there is significant supply in this price range—undoubtedly a factor that continues to drive this trend, causing owners to reconsider their options and choose long-term over short-term lets, Unique Estates note.

There is a very strong demand for rental properties and houses situated within such complexes in Sofia. Unique Estates note that some clients seek specific properties in development complexes with an excellent reputation, such as Residential Park Sofia and Sofia Land Residence.

Some owners offer put their properties on the market, primarily seeking tenants but are also willing to consider sale options at the right price.

The expectations of Unique Estates for 2020 is for prices to remain stable at their current levels, with the market remaining reasonably dynamic and registering moderate growth. Sellers and buyers will have relatively identical expectations, which will reflect on the times buyers take to commit to a purchase. The company also expects that contemporary apartments with a strong emphasis on functionality and clean lines will continue to attract the greatest number of buyers.