The current economic situation, with insecurity and restrictions in finance, has forced many developers to reduce the pace of construction or place entire projects on hold, a report of Colliers International shows. Sales have slowed down considerably, placing severe pressure on developers' cash flow.

Some residential properties are no longer being offered to the market. Presumably as a result of the widening gap between sellers' expectations and market demand in terms of pricing.

The first half of 2009 saw a wave of renegotiations between construction companies and developers trying to compensate for reduced sales prices by obtaining cost savings.

Regardless, in June three neighborhoods of Residential Park Sofia received permission for use (act 16). The project is characterized by good location, concept and infrastructure, and is furthermore offered by a reputable developer. Exactly the trademarks of residential projects that are expected to endure the current downturn.

Concerns have been raised over the potential development of a secondhand market fueled by banks offloading foreclosed property at highly discounted rates. Colliers analysis shows, however, that this is a highly unlikely scenario. The amount of overdue loans reached 3.2% of the total mortgage volume in March and even pessimistic scenarios show that this factor will hardly play more than a marginal role on the market.

The beginning of the year saw almost no demand on the market, while in April and May interest seemed to be picking up. Potential buyers mostly with cash or with urgent relocation needs started to look for attractive offers at lower prices. However, it is not yet evident if this reflects a return of genuine demand, the usual seasonal upswing, or rather the first wave of potential buyers investigating the new market conditions.

Factually, few transactions took place in the market in the first half of the year, and the current economic environment leaves buyers cautious, which at best prolongs the sales process as a whole.

In the first three months of 2009 the volume of mortgages decreased significantly. Year-on-year, from March 2008 to March 2009, the volume of mortgages decreased with 79% equal to EUR 59 million. The bottom appeared to be reached in February, with the volume of mortgages starting to increase in March 2009 coinciding with the perceived slight increase in demand.

The dramatic fall is driven by a number of factors: Generally, banks are much more restrictive in their mortgage lending policy. In most cases only registered income is considered, while previously, unregistered income was also taken into account.

Typically, mortgages given cover no more than 60-70% of the total purchasing price, down from 80% few months ago.

Interest rates have increased over the past months, making the price of mortgages significantly higher and offsetting some of the reductions in purchasing prices.

New payment schemes were introduced this period as a means to facilitate transactions.

The methods include lease-to-buy - with low initial down payments followed by three years of rental payment, and completed with the outstanding amount cleared via a mortgage. With another option - preliminary contract with delayed payments - the buyer typically pays 30% down payment with a certain percentage of the total sales price paid as monthly installments in a period between three to ten years (depending on the developer). After this period the installments are deducted from the sale price and a mortgage is obtained for the residual. For both options, the offered interest rates is generally lower than what is being offered by the banks. The capacity of these schemes to actually catalyze transactions remains to be seen.

Overall for the monitored areas (selected prime and emerging neighborhoods), on an annual basis, average asking sales prices fell with 14 %. On a half-year basis the figure is approximately 10%, demonstrating that the largest fall happened in the first half of 2009.

Behind these figures, however, are significant differences between the various areas. Average asking sales prices fell almost 20% on average in the prime neighborhoods in the first half of the year. Doctor`s Garden has experienced the largest decrease (almost 33%) going below to EUR 1,500/m2. This is partly driven by unrealistic/opportunistic offers being removed from the market as mentioned previously.

Property prices are expected to continue to decline eventually bottoming out at the end of this year and starting gradually to pick up next year, according to Tatiana Emilova, residential services manager at Colliers International.

The average asking sales prices in the Ivan Vazov neighborhood decreased with 17%, while in Lozenets the decrease was 12%. Iztok, which was the only area showing an increase in the prices by the end of 2008, has now seen a reversal of fortune with an average decrease in average asking sales prices of 11%.

The emerging neighborhoods proved more resilient with average falls of 6%. The largest change was seen in Bukston (dipping just below the EUR 1,000/m2 mark), followed by Gotze Delchev with a 10% decrease. The areas of Vitosha (EUR 1,036/m2 on average) and Manastirski Livadi (EUR 1,078/m2 on average) showed almost no decrease, compared with the previous half year period.

In the first half of 2009 the asking rental levels showed a significant decrease of 18% in the prime areas of Sofia. The highest decrease was in Doctor's Garden, where the asking rents went down to EUR 6/m2/month on average - a fall of almost EUR 2/month. Again - this is likely also caused by a return to market prices, but also the fact that many expatriates, the typical target group for this type of properties, enjoy less favorable allowances now.

Ivan Vazov showed a decrease of 21%, and is reaching more realistic price levels.