Mid-year: supply expanding, prime pricing holding

The Bulgarian macro backdrop in Q3 2025 was the kind that typically flatters a property thesis: steady real output, a visible inflation descent, and labour markets still tight enough to keep consumption resilient. None of the three indicators surprised — the surprise was that none of them disappointed.

Real GDP growth held around +3.3% year-on-year, keeping Bulgaria comfortably above the EU-27 average. Harmonised inflation continued the descent visible throughout 2024–2025, printing around +3.1% for the quarter and approaching the ECB target zone more credibly than it had at any point in the previous three years. The Bulgarian National Bank held its base rate unchanged at 3.79%, consistent with the ECB trajectory that matters for a pegged-currency system.

Unemployment compressed further to the 4.1% handle. For a property operator, the relevant implication is less the direct demand effect (residential demand in Sofia is not unemployment-driven in the short cycle) and more the construction-labour tightness it implies. Contractors in the Sofia market entered Q3 with wage-pressure conversations, not cost-collapse conversations.

Sofia residential prices, on VIG's weighted compilation, rose ~2.4% quarter-on-quarter to an average of around €1,680/m². The eight-percent year-on-year pace held. Strength concentrated in prime districts — Lozenets, Vitosha, Iztok — where inventory remained thin and turnover was transaction-paced rather than listing-paced. Outer districts moved less on price and more on volume.

The quarter's most informative data point was housing starts: permits issued across Sofia were up ~14% year-on-year, with the gain concentrated in Lyulin, Druzhba, and Nadezhda. This is the classic Sofia pattern — prime pricing pulls the market, then outer-district supply responds with a lag. The implication for any 2027–2028 underwriting is that Class-B commodity inventory in the outer belt will be materially larger than it is today, and value-add / prime-location strategies will continue to earn their premium.

Gross rental yields compressed ~10 bps as price growth outran rental growth. At 5.7% gross (indicative, weighted), Sofia continues to offer a meaningful spread to mature EU markets — but the direction is clear: future return will be more exit-driven and less yield-driven until the rental market catches up.

Visible transaction flow across Sofia in Q3 2025 remained disciplined rather than speculative. Land trades concentrated on partially-permitted plots in districts with infrastructure committed. The secondary market in built Class-A residential was thin; Class-B was liquid but price-sensitive.

VIG reviewed 47 opportunities during the quarter, accepted 2, and declined 45. The accepted opportunities — one prime-location plot, one value-add building — were priced below our internal underwriting threshold on a base-case basis. Neither required unusual leverage.

The meaningful pattern we tracked was sponsor differentiation. Operators with an in-house construction capability continued to bid competitively on mid-market plots where cost execution was the margin lever. Pure-financial operators with no construction bench bid less competitively and were net sellers on several land positions.

Bulgaria's eurozone accession track registered no setbacks during Q3 2025. The quarterly convergence indicators — inflation, fiscal position, long-term interest rates, exchange rate stability within the ERM II mechanism — all remained consistent with eligibility. No formal announcement was made; none was expected in this period.

On the AIFMD front, the Bulgarian Financial Supervision Commission (FSC / KFN) continued routine operations without material framework changes. Bulgarian-domiciled AIFs under the local regime continued to launch and operate normally.

Tax policy was quiet in the quarter — the 10% flat corporate rate and 5% withholding on distributions to non-residents (subject to treaty relief) remained unchanged. No investor-residency programme changes of material relevance to real-estate capital flows.