The profitability of this investment in 2009 is higher in comparison with 2008. The price of real estates in Bulgaria is dropping faster than the rent prices. This means that if you purchase an real estate at a good price, the eventual profitability from letting it will be higher. The estimates come from the non-banking mortgage crediting business union CREDITEX. It’s based on up to date data from experts.

Profitability

For the experts from the union, the relation between rent prices and real estate prices is an important clue for the direction of the real estate market. The current average profitability from real estates in Sofia during the first half of this year is 4,5% on a yearly basis, while for the second half of 2008 it was 4,1%.

Return

The return of investment is measured by the so called “gross rent multiplier”. It shows the number of monthly rent payments that can pay off the investment in the real estate – the lower this index is, the higher the Return of investment of the estate, and the quicker the real estate will pay off. As a rule of thumb, indexes of over 200 months means that the estates are overvalued. The gross rent multiplier for the first six months of this year lowered to 209,4 months, compared to 237,3 months for the last six months of the last year.

Example

For example, the current profitability of the investment in a standard three rooms apartment in the district Mladost in Sofia would look something like that: the rent price for the estate varies between 320 and 380 EUR per month, or between 3,840 and 4,560 EUR per year (depending on the type and location of the estate). However, this isn’t the net profit for the owner. Usually this sum has to cover different expenses – insurance of the real estate, taxes, major repairs over periods of time and losses from eventual periods without tenants. Because of this, the net income from an real estate like this one is about 15% lower than the gross income – or an average of 3,570 EUR per year. If we divide this income to the market value of the apartment (about 75,000 EUR), we will have a 4,76% current annual profitability from the investment – a number that’s higher than last year’s.

Reasons

The explanation for the growing profitability of the real estates lies in two reasons; first, the crediting institutions don’t finance the purchase of estates adequately, which lowers the prices; second, the inability to purchase a new home through crediting forces a percentage of the potential buyers to rent estates, which sustains the level of the rent prices, despite the growing supply.

Over the last five years, we’ve seen a decrease of profitability from investments in real estates in Bulgaria – which was no surprise to specialists in the conditions of high-speed crediting and large supply on the market. Since the beginning of this year, there have been signs of an increase of income from the real estates – an indication for the stabilizing of the estate market, commented CREDITEX.