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.
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.
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.
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.
SUNNY BEACH - NEW DEVELOPMENTS
Despite the looming global financial crisis. New developments open in the Bulgarian Black Sea resort of Sunny Beach.
Oasis VIP Homes and Blue Pearl Apartment Complex in Sunny Beach will be presented at the largest property exhibition on the Balkans - BalPex. Oasis VIP Homes is the first luxury development of Galaxy Property Group in Sunny Beach. The development is in Mediterranean style with a park of more than 10 000 sq.m. and with three swimming pools. This project includes also Royal Sun development with 530 apartments.
The other project Blue Pearl is a development with apartments situated in the central part of the Sunny Beach. It comprises of 85 apartments overlooking the bay with Nessebar and St. Vlas, 16 shops, barber shop, gym and two swimming pools with a bar.
PROPERTY SALES DROP
The sales of properties have decreased twice in the first three months of 2009 in comparison with the same period in 2007. The main reason is the shrinking of the market. The investments in the property market are much less than in previous years.
In order to attract clients the construction companies now tend to building longer - up to 3 years. At the same time they accept smaller instalments during the construction and a bigger final instalment when the project is ready. It is difficult to make predictions at the moment but for the time being there are no significant changes in the cities.
PROPERTY PRICES
Despite the financial crisis, the property prices in the suburbs of Sofia have been constantly increasing due to the migration of people from smaller towns and villages who seek employment in the capital. In the last year, more than 30 000 people have relocated to Sofia, while 12 000 people have moved to Varna, the second largest Bulgarian city. The same tendency can be seen in Plovdiv, Russe and Burgas. The newcomers to the cities usually look for cheaper properties in the suburds. As result the prices of apartments in those areas keep rising. The average porperty price in Sofia is 1094 Euros per square metre, while in the county it is 588 Euros per square metre. The studios seem to be very popular and their sales have increased by 17% in the last months. At the same time the demand for one-bedroom apartments have decreased by 28% and of larger apartments by 3%. Most of the sales are of newly built properties.
NEW CREDIT RULES
The Bulgarian banks have introduced tougher rules for lending money after two days of stopping crediting. Now they lend money only for the purchase of properties which can be easily sold if reposessed. Families with total income under 1500 levs per month can not take a mortgage to purchase an apartment in one of the larger cities. To such families the banks offer only small size credits with monthly instalments not exceeding 50 Euros. While in the past the banks were satisfied if the monthly repayment instalments were up to 50% of the total income of a family, now they restrict the instalments to not more than 39% of the monthly income. The average mortgage interest is 8.2% per annum and the average instalment is 360 Euros per month, which is an increas of 40 Euros for the last six moths.
INCREASE OF SHARE CAPITAL INVESTMENTS
The direct foreign investments in share capital in Bulgaria have increased by 237 million Euros in the fist six months of this year in comparison with the same period of last year according to Stoyan Stalev, the director of the Bulgarian Investment Agency.
According to the Bulgarian National Bank, the investments in share capital has increased to 2.029 billion Euros in the first seven months of 2008. This increase is due to the low taxes in Bulgaria, the monetary board and the fixed Euro-BGN rate, Stalev explained.
WHO IS TELLING THE TURTH
The forecast of Bulgarian and American analysts for the future of the real estate business in Bulgaria are absolutely different.
According to the National Revenue Agency, the business climate in Bulgaria has got worse by 1.1 points. According to 69% of the interviewed industrial and construction business managers, the sale prices will not change in the next three months, 20,5% of them expect a decrease, while only 10,5% predict an increase. The unstable business environment and the lack of qualified workers are the reasons for the decrease by 2.5 points of the business climate in the construction industry in July alone. The increasing competition and the rising prices of materials make the business more difficult. At the same time more clients delay their payments. Despite this developers expect price rise in the next three months.
According to the US analyst Nouriel Roubini, Bulgaria’s future is bright due to the good financial policy and the high level of the foreign investments in the country. However, he expects slowing down of the Central and Eastern European economies in 2008 which is in tune with Western Europe. The new EU-member states are tied to the West as 65% of their export is in the Euro zone. It is expected that Bulgaria and Romania will show steady but stable progress.
Having in mind the current account deficit of 20% of the GDP and the frozen EU funding it is difficult to predict Bulgaria’s future.
