Hypostat 2015

EU 28 Country Reports
Bulgaria
By Maria Pavlova and Paolo Colonna, European Mortgage Federation – European Covered Bond Council
Macroeconomic Overview
2014 was a difficult and challenging year. Nevertheless, the Bulgarian economy
continued to grow, on the back of domestic demand. Unfortunately, in 2014,
Bulgarian consumers had to do most of the ‘heavy-lifting’ to compensate for
lacklustre demand from EU partners. Nevertheless, a looser fiscal policy and an
increased absorption of EU funds overshadowed sustained political uncertainty
and the failure of a large bank. Thus domestic demand improved in 2014.
While Bulgaria’s net external position has improved in recent years, the stock of
liabilities remains high. In 2014 the net international investment position fetched
76% of GDP at the end of the period, although a large proportion of this is due to
cross-border intra-company financing. Nevertheless, the stock of liabilities could
pose a risk for the financing of future investments and growth. However, a long
series of current account deficits in the first decade of the 2000s has left Bulgaria
a large external debt burden. Gross external debt stood at EUR 40 billion at end-
2014, accounting for a worrisome 94% of GDP, largely by the private sector. The
deflationary environment and growing government finance needs are putting
pressure on the stock of liabilities.
A deflationary trend has prevailed since the middle of 2013. Deflation has helped
push up real wages but has hampered businesses and it is likely to have a net
negative effect on the economy. On the one hand, debt servicing is likely to become
more expensive, on the other declining prices will slash profitability, especially
if wages and productivity do not rise in lockstep. Companies have been reacting
to a stagnating economy by cutting costs (pay/benefit reductions and lay-offs)
and perhaps more worryingly by curbing investments.
From a labour standpoint, convergence to EU income levels will remain slow, with
growth gradually reaching only 2.5% and unemployment declining to 11.4%.
Housing and Mortgage Markets
Bulgaria’s housing market is showing signs of recovery, despite the difficult years,
and property transactions are starting to pick up.
In 2014, the average price of existing flats in Bulgaria increased 1.15% to BGN
874.49 (EUR 447.02) per square metre, the first year-on-year increase since
2008. In Sofia, the capital, the average price of dwellings was up by 3.1% in
2014 from a year earlier.
Mortgage Funding
In 2014, one mortgage bond was issued. The volume of issued mortgage-backed
bonds totals EUR 273.3 million originated by 11 issuing banks (currently 10 banks
after the merger of MKB Unionbank and First Investment Bank). As of the 31 st of
December 2014, outstanding mortgage bonds amounted to EUR 5.0 million.
Notes:
Source: National Statistical Institute;
Source: Bulgarian National Bank;
Source: European Mortgage Federation-European Covered Bond Council.
Bulgaria
2013
Bulgaria
2014
EU 28
2014
Real GDP growth (%) (1) 1.1 1.7 1.3
Unemployment Rate (LSF),
annual average (%) (1)
13.0 11.4 10.2
HICP inflation (%) (1) 0.4 -1.6 0.6
Outstanding Residential Loans
(mn EUR) (2)
3,507 3,499 6,909,057
Outstanding Residential Loans
per capita over 18 (EUR) (2)
574 577 16,787
Outstanding Residential Loans to
disposable income ratio (%) (2)
n/a n/a n/a
Gross residential lending,
annual growth (%) (2)
6.0 9.7 n/a
Typical interest rate on new residential
loans, annual average (%) (2)
7.0 6.7 3.4*
Owner occupation rate (%) (2) 85.7 n/a n/a
Nominal house price growth (%) (1) -1.8 2.8 2.2
* Please note that this value is the simple average of the typical interest rate of the
EU 28 countries.
Sources:
(1) Eurostat
(2) European Mortgage Federation – Hypostat 2015, Statistical Tables.
Property transactions in Bulgaria, particularly in Sofia, continue to pick up. Threeand
four-bedroom apartments were the most popular in 2014, representing about
70% of all property sales, according to Global Property Index.
Bulgaria’s mortgage market expanded during the boom years from just 0.39%
of GDP in 2000, to 12.35% of GDP in 2010. Mortgage loans outstanding were
11.18% of GDP in 2014.
Credit demand remains weak. The total amount of outstanding housing loans
dropped 1.4% y-o-y to BGN8.69 billion (EUR 4.44 billion) in February 2015, despite
record-low interest rates, according to the Bulgarian National Bank.
28 | 2015 EMF HYPOSTAT