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Industry Watch: Investments in Residential Property More Profitable than Financial Assets

Investments in residential properties in Bulgaria provide a considerably higher return upon the sale of the property compared to investments in financial assets, official statistical data shows. Residential property prices in Bulgaria went up by 32% in one year, while investments in stocks or in a mutual fund provide negative return on an annual basis and the interest on term deposits stands at up to 6%, Industry Watch told property price growth in Bulgaria picked up considerably in the middle of 2007 after the first signs of the global credit crisis emerged. The spread between the prices of residential properties in Bulgaria and in Europe gradually declines, an Industry Watch report on the Bulgarian residential property market in Bulgarian in the third quarter of 2008 shows.Nevertheless, the prices pf residential properties across the country remain relatively low in nominal terms. An apartment in Sofia is twice cheaper compared to a residential property in Lithuania's capital Vilnius.Mortgage penetration in Bulgaria is still low at 12%, compared to 39% in the eurozone, even though the total value of the home loans in the country exceeds 7 bln leva.The credit expansion will continue to be a major factor of demand and mortgage lending growth is expected to settled at 20-25% annually over the next few years, according to Industry Watch.The inflow of foreign direct investments into the real estate sector is slowing down, preliminary data show. The segment of residential properties that are purchased most often will hardly be affected even if there is a considerable decline in investment inflow.The importance of Bulgarian emigrants as investors in residential properties grows against the backdrop of the poor interest on the part of foreign buyers. Bulgarian emigrants have transferred 2.7 bln euros to their relatives in Bulgaria over the last 12 months, which is more than the foreign investments in real estate over the same period.The slowdown in mortgage lending and the declining demand by foreigners have a strong effect on the planned construction of holiday villages. The gross built-up area of the residential construction permits has declined by more than 55% in Bourgas region, while in Varna it has risen by 12% compared to the other big regions. A reverse trend may be witnessed in Sofia with residential construction permits growth up to 82%. The growth rate in Plovdiv remains high at 43%.Residential property prices in the country will settle down with the market getting in a more mature phase. There will be no turmoil on the segment of the residential properties that are bought most often by Bulgarian and are the biggest asset of the households, according to Industry Watch