How the credit market will change in 2024 and its impact on real estate

The credit market plays a critical role in the real estate sector, acting as a catalyst for sales activities and development.

Interest rates and the availability of credit directly affect the ability of individuals and companies to buy, sell, and invest in real estate. Low-interest rates generally stimulate market activity, making lending easier and making property purchases more affordable. Conversely, higher interest rates can slow market activity by making loans more expensive and reducing the number of transactions.

Thus, the dynamics of the credit market are closely related to the general health of the real estate sector, affecting prices, supply, and demand for properties. In this resource, we will look at the DOT.WON Real Estate team ‘s predictions for 2024, as well as give advice for those looking to buy property in the country .

Historical overview and current dynamics

Over the past decade, the credit market has undergone significant changes that shaped its modern structure.

Development of the credit market until 2023

From the crisis in 2008, which led to strict regulations and a more cautious approach to lending, to the gradual recovery and adaptation to new economic realities, the credit market has developed in the direction of greater sustainability and innovation. Technological innovations, such as the digitization and automation of credit processes, have contributed to more efficient and faster customer service.

In the period up to 2023, we also saw the rise of alternative forms of lending such as peer-to-peer platforms, which offered new opportunities for both lenders and borrowers. Despite global economic challenges such as the COVID-19 pandemic, the credit market has shown flexibility and the ability to adapt to changing conditions.

Current status and key drivers

Currently, the credit market is in a stabilization phase, continuing to be influenced by several key factors. Interest rates, which remain at historically low levels in many countries, are among the main drivers of market activity. This led to an increase in demand for housing loans, especially in the real estate sector, which in turn affected property prices.

Another important factor is the global economic uncertainty caused by various geopolitical and economic events. This leads to increased caution on the part of both lenders and borrowers. In addition, the rise of financial technology continues to change the way credit products are developed and delivered to end users, potentially having a long-term impact on the market.

Forecasts for the credit market in 2024

In the next section, we will discuss the expected trends in 2024 and their impact.

Growth of Interest Rates

It is predicted that interest rates on loans will begin to increase already at the beginning of 2024, as a continuation of the global trends that began in 2022. This growth is also a consequence of the increase in interest rates on deposits. However, due to the significant deposits attracted by the banks and the fierce competition between them, the increase in interest rates is expected to remain within the range of 1 to 1.5 percentage points for the whole year, with this increase taking place gradually.

Gradual cooling of the credit market

In view of the relative stability of the economy, low unemployment rates and wage increases, banks do not plan to tighten their lending policies and mortgage approval criteria for now.

However, the Bulgarian National Bank (BNB) is likely to continue its efforts to limit lending through further restrictive measures in an attempt to maintain market balance and prevent potential economic imbalances.

Development scenarios and potential risks

Changes in supply and demand

In the US, high property prices and unaffordability for the average buyer are freezing the market and leading to a decline in construction. In Sofia, despite significant new construction and the presence of many vacant properties, a similar slowdown can be expected if prices continue to rise and move beyond the affordability of average incomes

Possible Increase in Unsold New Properties:

If trends in Sofia continue towards an increase in supply with unchanged demand, this could lead to an increase in unsold new properties, which could affect prices and market development.

Changes in Lending and Market Impact

Following the model in the USA, where strict conditions for mortgage lending limit access to the real estate market, it is possible that a similar trend will develop in Sofia as well. This could lead to stricter credit approval criteria, which in turn could slow down market activity.

Impact of Economic Conditions on Consumer Demand

If economic conditions in Bulgaria change, this could have a significant impact on people’s ability to buy property, similar to the situation in the US. It is important to watch what impact these changes will have on purchasing power and market sentiment.

Expectations for the Future Development of the Real Estate Market in Sofia

Current economic and market trends suggest likely changes in the strategies of construction companies in Sofia. In view of the increasing saturation of the market and the changing needs of buyers, we can expect a focus on the development of smaller and affordable residential projects, as well as mixed-use projects that meet the diverse needs of the urban population.

At the same time, one of the key trends that can emerge is the slowdown in new construction in the city of Sofia itself. This can be caused by a combination of factors, including the saturation of the market with new properties and high prices that make some areas difficult to afford for the average buyer. In response to these conditions, construction companies may direct their efforts to develop projects in settlements outside Sofia or in other regional cities where the market still offers opportunities for growth and development.

This change in the dynamics of the construction sector reflects the adaptation to the changing needs of the population and economic conditions, while providing opportunities for the development of new residential and commercial spaces that are in line with current and future market trends.

Strategies and tips for market participants

Make the home buying process easier before you start your search

As a property buyer , it’s important to take a few key steps to ease the process and avoid potential problems. First, getting pre-approved for a loan from a bank before you have chosen a particular property can significantly speed up the purchase process, simplify procedures and prevent unwanted surprises.

The DOT.WON Real Estate team can assist with financing your property purchase.

Make sure you don’t take unnecessary risk when buying a property

In addition, it is advisable to make a preliminary check for the presence of public obligations at the National Revenue Agency. If you’re looking for a finished home, make sure it has a deed 16 guaranteeing its habitability.

The DOT.WON Real Estate team can assist in verifying key property features.

For Bulgarians or foreigners looking for investments in Bulgaria

For real estate deals, consider a long-term prepayment contract, taking into account factors such as existing mortgages, travel options, and more. In case you need to give a power of attorney, coordinate this process with your bank and the notary where the transaction will be concluded.

If you are abroad, consider getting your documents notarized in Bulgaria, as this can be faster and more efficient than waiting for it to be notarized at a consulate, which often takes a long time. Allow for wider rights in the power of attorney, especially if you permanently reside abroad, given that banks carefully check the details in these documents.

Read more about property lending for Bulgarians abroad.

Common credit problems

Communication and logistics issues

Lending can be complicated by various communication and logistical obstacles that often lead to delays. To address these challenges, it is advisable to take advantage of online counseling and application opportunities. Also, using an electronic signature to sign contracts and documents can significantly speed up the process.

Procurement of documents with representation before a bank and a notary by an attorney in Bulgaria

If it is necessary to procure documents and represent before a bank and a notary, the use of a proxy in Bulgaria can be an effective approach. The power of attorney must be agreed with the bank and with the notary who will certify the transaction. The certification of the documents is best done at a notary in Bulgaria or at the consular office of the respective country. Remember that the declarations required by law are valid for the calendar year!

Verification and repayment of public obligations

In addition, there is often a problem with the certificates of absence of public obligations under Art. 87 para. 6 of the DOPC of the TD of the NRA and possible obligations for health insurance for periods during which the client resided abroad. In these cases, it is important to take timely action to verify and settle any liabilities to avoid credit delays.

Key points and what investors should know

Based on the information discussed, here are a few key aspects that investors in the real estate and credit markets should keep in mind:

• Credit Market Dynamics: Credit interest rates are expected to increase gradually in 2024, in line with global trends. This may affect the ability of buyers to finance property purchases and overall market activity.
• Changes in the Construction Sector: In Sofia, there is a saturation of the market with new properties. This can lead to delays in construction and directing investment to settlements outside the city or other regional cities.
• Approaches to Investing: Investors must be ready to adapt to changing market conditions. This includes looking at smaller, affordable housing or mixed-use projects that meet current market needs.
• Legal and Logistical Challenges: Investors should be aware of potential legal and logistical hurdles, including the need for powers of attorney, certificates of no public liability and other documentation requirements. Effective management of these aspects is key to smooth transactions.
• The Importance of Advance Planning: Getting pre-approved for a loan and conducting thorough due diligence prior to investment can save time and prevent unexpected difficulties.
• Monitoring Global Trends: Investors should be aware of global economic trends and their impact on the local real estate market, as they can have a significant impact on investment decisions.

Investing in real estate and the credit market requires careful planning, flexibility and a deep understanding of current market dynamics. Keeping track of these key points can help investors make more informed and strategic decisions.