The purchase and rental prices of real estate in Sofia have increased significantly in the last ten years. The main reasons are five, namely, (i) the low mortgage interest rate, (ii) the low interest rate on deposits, (iii) the growing population of Sofia, (iv) the rise in the salaries in Sofia, and (v) the relatively low number of new buildings. Each of these five factors will be examined in more detail below.
Low mortgage interest rate
In 2008, the average mortgage interest rate was 9,68%. It decreased to 6,75% in 2015 and reached 3,81% in 2018. The low mortgage interest rate provided many people with the purchasing power necessary for buying a property. This, in turn, increased the demand for properties in Sofia.
Low interest rates on deposits
The average interest rate on deposits has also decreased significantly in the last ten years. It was 5,44% in 2008, whereas in 2018 it was 0,18%. In comparison, a rented property in Sofia has an annual return on investment of about 5%. The low interest rate of deposits incentivizes many people to invest in real estate as the return on the investments in real estate became much higher than the return on the investments in bank deposits.
The growing population of Sofia
Although there has been a steady decrease of the population of Bulgaria in the last 10 years, the population of Sofia raised significantly within the same period. In 2008, the population of Sofia was 1 229 324 people, whereas in 2018 the population amounted to 1 338 864 people. This means that, within the aforementioned period, Sofia welcomed 109 540 new residents. The steady influx of new residents increased the demand for property ownership and rental properties.
The rise in the salaries in Sofia
In 2008, the average salary in Sofia was BGN 754 (about EUR 385). In 2012, the average salary exceeded BGN 1000 (about EUR 500) and, in 2018, it reached BGN 1492 (about EUR 762). This means that the average salary in Sofia has increased with almost 100% in the last 10 years. The increased salaries have logically led to a significant increase of the property prices in Sofia.
The relatively low number of new buildings
In 2008, the local authorities issued permissions for constructing 1149 residential buildings in Sofia. In 2012, permissions were issued in relation to only 360 residential buildings. Permissions for 827 new buildings were issued in 2017. As a result of the relatively low number of new buildings, the demand for real estate in Sofia, during the examined period, remained high.