The Bulgarian real estate market is affected by the financial crunch. Prices are declining in 23 out of the 28 regions in the country, with the region of Veliko Turnovo registering a drop of 11.7 per cent, Varna a significantly smaller drop of 1.3 per cent and Sofia with 0.5 per cent. Bourgas is the only region in Bulgaria that has recorded a rise of 2.1 per cent, weekly Stroitelstvo Gradut reported on January 26 2009.

The average decrease of value for the country is 4.1 per cent, the first such observed in the past seven years, since the end of 2001. People who purchased property at the end of 2007 are not likely to lose money on the deal, as the decline at the end of 2008 was compensated by the strong market prices in the first half of the year, where market prices rose by six to seven per cent in the first and second trimesters. Overall, prices for 2008 rose by 24.9 per cent in relation to the market prices in 2007, which was stronger than the annual rise of value in 2006, which was estimated at 14.7 per cent.

At the end of 2008, one square metre in Sofia was 12.4 per cent more expensive than in 2007, or 2374 leva a square metre. In the period July to September, however, a 3.9 per cent drop in value was recorded in the capital city.

The bleak forecast for the current year is reinforced by the fact that agencies report a drop of 30 to 40 per cent of completed deals and a decrease in value of as much as 20 per cent in the big cities, as a result of blocked loans, increased interest rates for mortgages and shrinkage of consumer purchasing power as a result of the economic stagnation gripping Bulgaria.

The data from the National Statistics Institute is not identical to the aforementioned prediction, but the overall forecast is the same: construction entrepreneurs whose projects are at early stages of development are under severe pressure to reduce their costs significantly, as they need to sell the apartments before they are even constructed in order to keep themselves in business and pay off bank loans. Customers, however, are leaving the market in droves in their expectations of sharp value decline in the future.

The predicament in the market is further exacerbated by the fact that the banks have sharply tightened their belts and have become far more conservative seemingly overnight. They have a far more elaborate selection process in regard to borrower income, payment potential and the future employment guarantees that a potential borrower must present - measures that did not exist previously and made lending and borrowing a lot easier. The over all fear is that, should the real estate market register an increasing slump in value, this will have a severe impact on the construction sector, generating increasing unemployment, which, in turn, will have even stronger repercussions for the sector and the economy as a whole.