Experts foresee that 2009 will be particularly difficult for the residential segment in Bulgaria and Romania.
A report, released by Jones Lang LaSelle, the international real estate company consultant, predicts that the market in Europe's two youngest members will shrink further, causing a price reduction of as much as 20 per cent, particularly in certain areas of Bucharest and Sofia.
Values of houses and flats in Bulgaria fell for the first time in seven years at the end of 2008, reaching a 4.1 per cent drop on a quarterly basis. For Sofia, however, the decrease was 3.9 per cent although data indicated that, overall, on an annual basis a growth of 12.4 per cent was registered.
The situation is exacerbated by the failure to complete several projects on time, whereas others have been scrapped altogether. In light of the latest market developments "a large section of the residential property offers for sale in Romania and Bulgaria do not meet local criteria and demand", the report says.
The global economic crisis has made foreigners more reluctant to invest in the Bulgarian housing market, whereas new screening procedures employed by most banks mean that most Bulgarians simply do not qualify to obtain a loan to pay off their mortgage.
These figures by Jones Lang LaSelle, however, are not necessarily in accord with a report released by Bulgarian Investor.bg
According to Investor, processed real estate deals in Bulgaria have realised a substantially bigger drop.
It stresses that the economic crisis has affected long term investment and construction plans in Sofia and the surrounding area, affecting the market, causing a slump in value of up to 30 per cent in some regions.
Southern Sofia boroughs like Dragalevtsi, Boyana and Simeonovo have maintained their value, indicating a marginal decrease but locations around the Sofia circular road, around Krivina and the area between Hemus and Trakia motorways, have gone down from 120-150 euro for a sq m to 70 to 80 euro per sq m.
Jones Lang LaSelle is still optimistic, however, claiming that Bulgaria still offered the best location for Western European businesses looking to outsource in the midst of the economic crunch. The country's main advantages were low real estate and labour costs.
The stable economic and political systems, as well as European Union membership, were cited as competitive advantages. At the same time, however, Bulgaria had not yet adopted the euro and with average labour costs of 2.09 euro an hour in 2007, projected to rise to 2.95 euro an hour in 2012, wages were among the lowest in Europe.
