BULGARIAN PROPERTIES' Analysis of the Property Market 3Q 2010: Stabilization

I. GENERAL MARKET TRENDS

Two months before the end of 2010 we can summarize that this year is turning out to be а zero point for the Bulgarian property market as there has been no significant change in the number of deals, in the prices of sold properties or in the listed properties compared to 2009.

Of course, this year is very important for the market – the reaching of a balance and stability is an important moment, especially after the years of property boom followed by a significant decrease of property prices in 2009. From this point of view 2010 was like a breath of fresh air for the players on the market who had time to get used to the new market realities, to think, to make decisions and to develop action strategies.

After the contradictory signals the real estate market gave in the second quarter of the year the number of deals returned to the balance levels from the second half of 2009. However, the number of deals did not manage to return to the levels from March and April 2010 which according to BULGARIAN PROPERTIES data were record months since the beginning of the crisis.

Different trends are observed in the various market segments – from retention and increase in prices and number of deals to decrease. There are still no convincing and clear trends showing the beginning of a recovery, which once again shows that the market’s coming out of the crisis will most probably be a long process.

The main trends in the third quarter of 2010 can be summarized as follows:

• An increase in sales in Sofia compared to the summer of 2009. Average prices based on actual concluded deals are 840 EUR/sq.m. The price decrease compared to the second quarter of 2010 is 3.5%.

• Increase in the number of sales in the regional cities like Bourgas, Plovdiv, Veliko Tarnovo, etc. These markets were stagnated since the beginning of the crisis and sales were made mainly in the capital Sofia.

• Increase in the number of sales of beach holiday homes by 20% compared to the summer of 2009. There is no change in the prices and the preferences of the buyers compared to last year and to the previous quarters of 2010.

• Regarding rural properties there is a decrease in the number of realized deals by 13% since July compared to the same period in 2009. Prices of rural properties have dropped by 20% compared to the second quarter of the year when they had registered an increase.

II. CHARACTERISTICS OF THE PROPERTY MARKET IN THE DIFFERENT SEGMENTS

1. City properties

1.1. Sales levels of residential properties in Sofia

The average price of apartments sold in Sofia in the 3Q 2010 is 840 EUR/sq.m., or 30 EUR/sq.m. less compared to the average sale price in the second quarter of the year. This shows that the drop in the price of Sofia apartments has slowed down and based on actual concluded deals in the 3Q compared to the 2Q that drop is 3.5%. This means that in the last few months the change in the price of Sofia apartments is minimal.

Compared to the third quarter of 2009 the decrease is 11% (the average price for the 3Q of 2009 was 945 Euro). The drop in the prices which we registered in the second quarter compared to the first quarter of 2010 was 16%.

We registered the lowest price of an apartment we sold in Sofia in August 2010 – 740 EUR/sq.m., when demand was mainly focused on cheaper properties. In September there was also an increase in the demand for luxury real estate in Sofia, which resulted in an increase in the average price of sold Sofia apartments to 997 EUR/sq.m.

We registered a bigger drop in the average price of apartments in Sofia sold during that period. The average price of the apartments sold in the third quarter of 2010 is 70,750 Euro, which is 18% lower compared to the average price in the second quarter of 2010 (86,000 Euro).

It is still the case that a deal is concluded only after a discount is made, as discounts vary between 5 and 10%.

The number of deals in Sofia increased by 10% in the third quarter compared to the second quarter of the year. The market was more active during the summer of 2010 compared to the summer slowdown which we have been witnessing in previous years.

1.2. Rental levels of residential properties in Sofia

The average rental price of apartments in Sofia in the third quarter is about 520 Euro per month, which is an 8% increase compared to the previous quarter (480 Euro per month). This is mostly due to an increase in the interest on the part of the clients and the concluding of rental deals in the higher price segment. At present the interest is mostly focused on the lowest and the highest price segment, namely between 200 and 400 Euro per month and between 700 and 900 Euro per month.

Meanwhile, the rental market in Sofia is also registering an increase in the number of deals compared to the previous quarters. According to data from luxury real estate company LUXIMOTI there is an increase in the demand of properties on the part of company managers.

1.3 Sales of residential properties in the other big cities

In the last few months we are also witnessing an increase in the number of sales in the regional cities like Bourgas, Plovdiv, Veliko Tarnovo, etc. These markets were at a standstill since the beginning of the crisis as sales were made mainly in the capital Sofia. Apartments in these cities are sold between 25,000 and 40,000 Euro with an average price of 500-600 EUR/sq.m. An exception is the city of Varna which retains the highest property prices in the country and the market there is not as dynamic as in Sofia.

Average prices of sold apartments per sq.m. according to BULGARIAN PROPERTIES data:

Varna - 920 EUR/sq.m.
Bourgas - 650 EUR/sq.m.
Plovdiv - 650 EUR/sq.m.
Stara Zagora - 550 EUR/sq.m.
Veliko Tarnovo - 500 EUR/sq.m.

2. Holiday properties

2.1. Seaside holiday homes

Deals in the seaside resorts usually increase in summer. This year deals with beach holiday homes along the northern and southern Black Sea coast increased by an average of 20% compared to last summer. Apartments priced between 20,000 and 40,000 Euro are the most sought ones.

There are viewing almost on a daily basis but buyers continue to be indecisive and view many properties before choosing, which means that deals are concluded only after a lengthy research.

The average price of the apartments sold in the last 3 months in the area of the resort of Sunny Beach is 38,000 euro. The average price of the sold apartments is 510 EUR/sq.m., as prices vary between 370 and 770 EUR/sq.m. Apartments close to Sunny Beach and those that are unfurnished fall into the lower price category while those priced above 500 EUR/sq.m. are fully finished and furnished apartments in the resort.

This data shows that there is no change in the prices of sold properties along the seaside in the summer of 2010 compared to the previous summer and to the first two quarters of the year. There is an increase in the number of deals which is a good indicator for the increased dynamics in this segment which was significantly affected by the crisis.

2.3 Bansko

The number of deals with apartments in Bansko remains unchanged compared to the spring of 2010 as their average price is 650 EUR/sq.m. and the average sale price is 41,100 Euro.

3. Rural properties

The average price of the rural properties sold in the 3Q of 2010 is 11,630 Euro which is 20% lower compared to the average price in the 2Q of 2010.

This is how the average prices of sold rural properties changed in 2010:

1st quarter – 9 640 Euro
2nd quarter – 14 600 Euro
3rd quarter – 11 630 Euro

The number of realized deals with rural properties in the third quarter of 2010 has also decreased by 13% compared to the second quarter. This is not typical for the summer season which traditionally is an active season for rural property deals.

The statistics of BULGARIAN PROPERTIES shows the following:

- Average price of deals with rural properties in the 3Q 2010: 11,630 Euro with an average price for the 2Q of 14,600 Euro;
- Decrease of the price in the 3Q compared to the 2Q of 2010: -20%
- Decrease in the number of concluded deals with rural properties compared to the 2Q of 2010: -13%
- Accumulated decrease of average prices of rural properties in 2010 compared to 2009: -16%
- Increase in the number of concluded deals with rural properties in 2010 compared to 2009: +43%

Change in average prices of rural properties through the years:

Average prices and change from the previous year:
• 2004 – 11 300 Euro
• 2005 – 15 450 Euro +37%
• 2006 – 18 510 Euro +20%
• 2007 – 24 800 Euro +34%
• 2008 – 30 800 Euro +24%
• 2009 – 14 300 Euro -53,5%
• 2010 up to September inclusive – 11 950 Euro -16%

III. Discounts in the asking prices of properties - almost ј of the offers for sale are with discounted prices

After the dynamic property price correction in the second half of 2009 the discounts in the asking prices in 2010 are minimal. Moreover, most of the new offers for sale come to the market at their actual market prices. This shows that there is a complete cycle of price decrease which started at the end of 2008 and continued for about a year and a half.

The share of the discounted offers in the country at the end of September 2010 is 24% of all active offers on the sites of BULGARIAN PROPERTIES and LUXIMOTI. For comparison – in the beginning of 2010 this percent was 18, i.e. there is an increase of only about 6% in the number of discounted offers for the first 9 months of 2010. It is mainly prices of properties which were overpriced in view of the current market conditions that are discounted.

The average decrease in the asking prices of properties in the country is 22%, while in the beginning of the year it was 20%. This means that in 2010 there is a small increase in the average drop of property prices – just 2%.

At present the average percentage of the decrease in the asking prices in Sofia is 22%, as in the beginning of 2010 it was 17%. This means there is a 5% average decrease in the asking prices of properties in Sofia in 2010. For Varna this percentage is 19, which also increased by 5% in 2010.

From the data from the two sites it can be concluded that the slowdown of the pace of the discounts in the asking prices in 2010 is very clear. The market found a balance and at present everyone is waiting to see whether there will be signs of an increase in the number of the deals which will be a signal for recovery. In some market segments the increase in the number of deals is a fact, while in others there is a decrease (rural properties). There are also quite a few offers which were withdrawn from the market – they were tested at a specific price and after no deals were made they pulled out for now.

The average decrease in the asking prices as per property types from 2009 until now is as follows:

• apartments - 18%, as it is one-bedroom apartments and maisonettes where the decrease is the biggest - 20%, and the smallest decrease is with the smallest and largest apartments.
• houses - 22%
• land - 26%, as for agricultural land the drop is 30%
• offices - 28%
• shops - 30%

It can be seen that the smallest price decrease is for apartments which, although during a crisis, are in demand by buyers to fit their main needs.

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