Bulgaria ranks third in the world in terms of property price growth in 2007. Average sale real estate prices rose by 36 per cent last year, whereas rentals posted a more modest mark-up of 6 to 7 per cent nationwide, reaching 10 per cent in Sofia, Deyan Kavrukov, head of Bluehouse equity fund and a former partner at Equest, said in an interview with public television channel BNT. The significant increase is propelled by a number of factors: ** steady domestic demand ** robust investment growth ** a rise in mortgage lending, which has been increasing by almost 100 per cent annually over the last years ** GDP growth ** considerable foreign demand for local property ”The happy-go-lucky times of striking exorbitant profits out of property deals on Bulgarian market are gone for two years now,” Kavrukov noted and added that currently the most attractive real estate sectors are residential and office ones. Housing developments enjoy the most stable demand, particularly in Sofia, which is a result of the steadfast internal migration towards the capital, the hefty foreign and domestic demand and the interest of Bulgarians working abroad and willing to invest in a residential unit in their home country. Kavrukov said that office segment still makes a lucrative investment. There is a large demand for office areas in Sofia. Supply, however, has started to catch up with demand. Currently, the capital city absorbs 50-60 000 sq m of office space a year. Almost 150 000 sq m of new units are launched in Sofia alone every year. Even if the annual absorption rate increases to 70-80 000 sq m, there still will be a tangible vacancy, aggravated by the fact that Bulgaria lost a significant number of potential tenants in the face of large international companies, which chose Bucharest for their South-East expansion. Kavrukov explained that on they opted for Romania because on one hand its market is larger, which makes it a better option for an office relocation. On the other hand, Romania introduced tax reforms in favour of business earlier than Bulgaria. Moreover, its construction and zoning regulations are more flexible and work faster than Bulgarian ones. Bulgarian real estate market has shifted towards maturity and in the years ahead we are unlikely to witness abrupt price rises, the realtor said.