THE NOTARIES’ VERDICT
The notaries at the Black Sea reported that the number of deals have decreased sharply in comparison with last year. In the last 2 wees there have been days without a single purchase. The purchases for investment have almost stopped. Only people who need cash urgently sell. In such cases prices drop dramatically up to three times.
Purchases are made only of home to live. They have drop by 50% in Kavarna, while in Balchik by 10%. Concerning the plots of land, the tendency is similar. Only agricultural land sells. In some cases prices have fallen from 20 to 5 Euros per sq.m. due to the lack of buyers.
PRICES IN SOFIA DROP BY HALF
It is expected that the average price of properties in Sofia will drop by half. Six months ago the middle class apartment used to sell for 1300 Euros per sq.m., while now it sells for 1000 Euros per sq.m., but there are only a few buyers on the market. This trend suggests that within six months the prices will fall to 800 Euros per sq.m. At the moment this is the price for an off-plan property in the up-market Manastirski Livadi district.
The panic due to the global financial crisis, the outflow of foreign investors and the high mortgage interest rate by all means shall have a long term effect on the property market. It is expected that alongside the falling prices, the quality of the construction and of the finishing will increase due to the competition. Completely finished apartments are already on offer and it is expected that developers will come up with new customer orientated payment plans.
Thousands of newly finished apartments remain unsold in Sofia. Developers try to negotiate with potential buyers and offer different incentives only to sell their properties. Many of those who bought as investment try to sell their properties with a small profit or without a profit, just to get their money in cash. They even offer higher commissions to the estate agents in order to sell. The few buyers on the market tend to wait longer before making a purchase and expect to receive more for their money.
Bulgaria - Economic Forecast
Bulgaria alongside Romania, will experience a shock because of the global slow down of the world economy according to analysts. There will be job cuts both in these countries, as well as in Spain, Italy and the U.K. where many Bulgarians and Romanians work to support their families back home. The lack of access to foreign capital will be the major problem for the the East-European economies next year according to BNP Paribas. The huge foreign disbalance must be corrected now to avoid problems in the future. The expectation is that Romanian economy will shrink by 0.6%, while Bulgarian economy will shrink by 1,2%. The official unemployment figures are on the increase and has already reached 5.9% in Bulgaria and 4% in Romania in October 2008. In the last six years, unemployment has been steadily decreasing due to the emigration of work force to the West. The return of many of the this guest workers back home will combine with the inability of those who remain abroad to support their families in their homeland. In Bulgaria the money sent from workers abroad used to amount to 5% of the GDP according to the International Organisation for Migration.
EC CUTS AID FOR BULGARIA
Bulgaria lost 220 million Euros with the decision of the European commission not to resume the accreditation of the two PHARE agencies in the country which has been taken in July of this year. The two agencies, one at the finance ministry, the other at the regional development ministry, have been administration 560 million Euros coming from the EU, of which 340 million Euros have already been allocated. The rest - 220 million Euros - had to be contracted in November 2008 but have been frozen and can not be used now.
The reason for this is that according to the European Commission, the measure which Bulgaria introduced in the last six months have been only promises and there have not been any concrete results. The problems linked to corruption, the application of law, the conflict of interest, the qualification and the number of the employees in administration and the management of the funds. This decision of the European Commission aims to protected the interests of all European citizens, including the Bulgarians, said Kristina Nagy, the speakeswoman of the European Commission. This action against an EU member state is without precedent in EU history. The aid that has been canceled or frozen is for farmers, road-building and other infrastructure projects.
NO SKYSCRAPERS
There won’t be any skyscrapers in the near future in Sofia. The fear of bankruptcy put on hold all projects Manhattan style in the Bulgarian capital. Some of the projects for new shopping centres have also been stopped indefinitely. Many of the investors contemplate selling their plots of land rather than pushing ahead with their plans. Others decided to make completely new projects. They think that it is safer to have their money in cash which will give them the opportunity to buy bigger plots of land in two years time.
Due to the unpredictability of the property market at the moment, nobody expects the investors to pay the fee for planning permission for the first skyscraper in Sofia, despite the fact that ten companies have expressed interest in the project. Nobody can predict the fate of the first 90 m high skyscraper in Sofia which had to be built behind the central railway station. The project is only at the planning stage and the developers have not submitted the documentation in the municipality.
Some of the investors who started building office buildings combined with apartments, now would like to change their plans because of the falling prices of apartments.
“At the moment there are several projects approved by the municipality but they have not been launched yet by the developers. Everybody waits to see which way things will go. In March of next year the first blows will come. Then we shall see who will sell and who has the real intention to build”,
said Petar Dikov, the Chief Architect of Sofia. A clear example is the shopping mall on the junction of Todor Kableshkov Blvd and Bulgaria Blvd which for the second consecutive year has not even reached the ground level stage. A Lithuanian investment company has put on hold for an indefinite period their 500 million Euro project called Sofia Acropolis. The initial plans were to build a 800 000 sq. m. of shopping and entertainment area.
However, having in mind the atrocious practice of the last years to give planning permissions virtually for any building anywhere, if the uncontrolled construction stops, there are expectations that this might be to the benefit of Sofia.
Bulgaria Brushes Aside Warning Signs
Рublished in the Financial Times
By Kerin Hope and Theodor Troev in Sofia
There are warning signals everywhere, yet the European Union’s poorest member insists it can weather the global financial crisis.
Standard and Poor’s last month downgraded Bulgaria’s long-term debt to BBB. Fitch this month cut its rating to BBB- just one notch above junk bond status.
On Friday, the Bulgarian Industrial Association urged the finance ministry to redraft next year’s budget and cut the growth forecast from 4.7 per cent to 2 per cent of gross domestic product.
“We are witnessing an unprecedented global crisis… for the first time, the tensions in Bulgaria’s economy are caused not by internal but by foreign factors,” the association said.
However, Plamen Oresharski, the finance minister, rejects a suggestion that after bail-outs of Hungary and Ukraine by the International Monetary Fund, Bulgaria may be among the next in line.
“We are not in a similar position. Our banking system looks sound, with a good level of liquidity and healthy reserves,” he said. “Our concerns about the real economy are greater, but we still expect comparatively strong growth next year.”
Thanks to a record grain harvest, the economy is projected to expand this year by 6.9 per cent.
But the current account deficit – the highest in south-east Europe at about 24 per cent of GDP – appears unsustainable given an accelerating decline in foreign direct investment.
Investment inflows fell 48 per cent in the third quarter, according to central bank figures, following the collapse of a holiday-home construction bubble and a freeze on transfers by eurozone banks to their Bulgarian subsidiaries.
“Construction has been the most important growth driver, even more than in Spain, so the outlook is grave,” said Lubomir Christoff, a former chief economist at the central bank.
Sergey Stanishev, prime minister, has suggested Bulgaria should join the EU’s exchange rate mechanism next year. But although Bulgaria can point to a budget surplus and a low public debt (about 18 per cent of GDP), an annual inflation rate above 10 per cent rules out any chance of an early entry to the euro.
Mr Oresharski argues that an accumulated fiscal surplus of Lev12bn ($7.8bn, €6.2bn, £5.2bn) provides a cushion.
“One relief is that the government doesn’t have any short-term borrowing requirements,” he said.
In spite of rapid credit expansion since EU accession last year, total bank indebtedness is still low at about 30 per of GDP.
Lending is tight because foreign banks have lost access to funding from parent groups squeezed by the global credit crunch.
“We’ve been told to rely on our own resources, which means lending will slow,” said a senior executive at a foreign-owned bank.
Bulgaria’s currency board, which pegs the lev to the euro, is intended to eliminate foreign exchange risk. The arrangement also requires that money in circulation does not exceed central bank reserves.
With reserves at 180 per cent of currency in circulation, the lev was buttressed against an all-out attack on the currency board, Mr Oresharski said.
But other currency boards in the Baltics look less stable following Latvia’s request last week for EU help to fend off a crisis.
CASH IN HAND
The total amount paid cash in hand by Bulgarian companies to their employees totals 4 billion levs (2 billion Euros) per annum according to Mediana social agency. More than 50% of the Bulgarian workforce confess that they receive part of their income unofficially, according to the Ministry of Social Affairs. The average income for the country is 523 lv. At the same time many Bulgarians have bought new homes and cars. According to the General Labour Inspectorate, 90% of the inspected companies have labour contracts with their employees at the minimal wage. The loss of the state in unpaid tax is enormous.
FALLING PRICES
Because of the lack of demand in the last year the prices of rural properties fell dramatically. Plots of land around Sofia have decreased in price by 50%. The trend at the Bulgarian Black Sea coast is exactly the same. In the last 12 months mainly Bulgarians bought properties near to the big cities according to Dobromir Ganev, executive director of Foros Estate agents. The main reason for this is the world financial crisis and prospective buyers have become more cautious, especially when applying for mortgages.
A regulated plot of land of 1020 sq m situated between Sofia and Pernik has decreased by 50% in price and it is now on offer for 12 000 levs (apprx 6 000 Euros). An old two-storey house in a village with a garden of about 1500 sq m can be purchased for 6-7 000 levs (apprx. 3 000 Euros). In the past the prices of rural properties in the area of Bansko, Sunny Beach and Burgas have been artificially increased but now they have fallen dramatically. The purchases of property for investment have almost stopped and most people buy for their own needs.
The financial crisis have affected the sales of land for the construction of industrial developments. All investors have experienced difficulties in financing and several projects in Varna and Sofia have stopped.
The sharpest fall of the prices according to analysts and advisors are in holiday properties. Due to over supply in Bansko only the prices have fallen by 48%. The number of one-bedroom apartments on offer is astonishing and prices range from 780 to 2015 Euros per sq m.
BOOM OF REPOSESSIONS
Each week about 20 new repossessed properties are declared at Sofia Regional Court. All repossessed properties are listed in the Third Civil Department of the regional court. Most of them are apartments, houses and bigger buildings, agricultural land and regulated plots.
One-bedroom prefab apartment in Liulin gets a starting price of 36 000 levs, while an apartment of the same size in Mladost 4 - 74 000 levs.
A three-storey building in Vassil Levski Boulevard in the centre of Sofia has a startign price of 821 000 levs, while an apartment of 100 square metres in Strelbishte has a starting price of 205 000 levs. At the same price will start the auction for a plot of land of 5 000 square metres in Vrajdebna, a suburd of Sofia. The most expensive repossessed car has a starting price of 4 800 levs. In the process of auctioning the price very often is increased by 100%.
Euromoney Conference
The average price of properties in Bulgaria in the first half of the year has been 1418 levs per sq.m. according to the National Statistics Institute. The most expensive properties have been in Sofia where on average they sold for 2470 levs per sq. m. Varna has been in the second place with 2130 levs per sq.m. In third place was Burgas with 1755 levs per sq.m., closely followed by Plovdiv (1655 levs per sq.m.) and Veliko Turnovo (1331 levs per sq.m.). The cheapest properties have been in Kiustendil (751 levs per sq.m.) and Silistra (763 levs per sq.m.).
According to the analysis of UniCredit Group presented at the Euromoney Conference in Salonica, the average Bulgarian household consists of 2.8 rooms, while the average for the European Union is 4.2 rooms. However, the size of the living area in Bulgaria fairs better than in many other countries in Eastern Europe like: Romania (2,6 rooms), Ukraine (2.3 rooms), Lithuania (2.5 rooms) and Latvia (2.4 rooms).
According to the UniCredit Group Bulgaria has the highest number of home owners in the EC. There are on average 486 apartments per 1000 people in the country, while this ratio for the EU is 472 apartments and in South-East Europe - 413.15% of the Bulgarians intend to buy their own property in the next decade. However, according to the legal and financial advisers the recession will lead to slowing down in crediting. The growth of crediting in 2007 has reached 63%, while this year it will barely come to 40% and it is expected to slow down to only 25% in 2009.
