In the next four to five months the property price drop in Bulgaria will be much of smaller scale, according to analysts. After that the property market will hit the bottom.

According to the statistics, the property prices in Sofia drop slower in the last months. In February the price drop was of 6.88 % while in August it was 3.84%. The slowing down of the recession can be also seen in the rents . In May the rents in Sofia were by 2.8% lower than in April, while in June they were by 1.9% lower than in May and in July by 1,6% lower than in May.  In the end of August the  price drop was only by 0.6 in comparison with July.

The same tendency can be observed in the other major Bulgarian towns.

The developers in Bulgaria still find it very hard to sell. Those at the Black Sea coast claim that they mainly rely on buyers from Russia who look for finished apartments, positioned right on the sea coast, close to the beaches.

It is expected that the prices of apartments in Bulgaria will reach a new bottom at the end of this year and in the beginning of the next one.  The analysts predict that the further decrease will be moderate and will not exceed 10%.  The property prices will stabilize in the first half of 2010.

So far this year apartment prices have slumped by 10% on average and the highest drop is of apartments in prefabricated blocks from the days of socialism – 12%.  The lowest drop is of finished new properties – by only 4%.

The highest decrease of the property prices in Sofia has been in the top notch areas of the Doctor’s Garden (by 33%) and in Ivan Vazov (by 17%)

Many new construction projects situated beyond the ring road of Sofia and in Manastirski Livadi have been put on hold due to the recession. At the moment all off-plan purchases have stopped.

The construction of two new shopping malls in Sofia have been stopped – Europe Mall and the Mall of the Spanish company Riofisa. Currently the rent of commercial space in shopping malls have fallen to 41 EUR/ sq m while in the central boulevards of Sofia it is 100 EUR/sq m. Big retail chains – Billa, Carrefour, Kaufland and Piccadilly – have taken advantage of this situation and have opened new shops. Analysts think that the rents will not go up before the shops start making much higher turnover.

In the first half of 2009 the rental space in shopping malls have increased by 50 000 sq m and have reached 220 000 sq m in total.  This is the reason why it is more and more difficult for their owners to find tenants for all empty spaces. In Sofia the situation is better and there almost no malls with empty shops. However in the country the situation is different. Retail centres with good location have 3% of their space free, while the others have more than 10% of their space empty.

Concerning office space, 13.4% of it in the central parts of Sofia and 20% of it in the outskirts of the city have been empty. In the central parts of the city prices are still high but in the greater center of Sofia the prices have fallen by 1.5 EUR/ sq m. In the outskirts this decrease has reached 12 EUR/ sq m or the levels of 2006.

According to specialists the freight forwarding and logistic centres and warehouses have been doing better than any other properties in the country. Their rents are the same as last year due to the fact that these properties have developed later than all other types and currently there is a demand for logistics’ space.

Until now the information about repossessed properties offered at auctions was only available at the offices of the private judges, in the municipalities and the in the regional courts. Often this information which had to be available a month before the auction disappeared.

Now, the cheap repossessed properties which judges sell in Bulgaria can be found on the web. The Chamber of the Private Court Executors publishes information for upcoming auctions at http://www.sales.bcpea.org

At the moment there are 164 announcements for the sale of all types of property – apartments, houses, warehouses, plots of land, etc. The information is constantly updates. The highest number of announcements have been made by the Sofia City Court. Among them are auctions for apartments with a starting price of up to 60 000 levs (30 000 Euros) . For example, the bidding for a one-bedroom apartment on Alexander Stamboliysky Boulevard will start at 52 400 levs, while the bidding for the same size of apartment by located in Hadji  Dimitar at 65 000.  Bidding for apartements in the areas in the outskirts of Sofia start at under 20 000 Euors.  The announcement coming from other Bulgarian cities are quite interesting.  In Varna the bidding for a two-bedroom apartment will start at 80 000 levs and for a villa at 105 000 levs.  In general currently there are eight houses in the country at prices under 10 000 levs.  The most expensive offers are: a factory in Burgas with a starting price of 29 826 750 levs and a house in the affluent Dragalevtsy in Sofia with a starting price of 760 000 levs.

If an auction fails and nobody bids for a property, there is a second auction and the price drops by 20%. The successful bidders must pay the whole amount of the price of the property within 7 days. Potential bidders’ only worry is that the former owners of repossessed apartments can appeal against the repossessions.

The property prices in Bulgaria at the moment are at the real market value according to analysts.  Nevertheless it is still difficult to predict when they will start growing. The most popular property among buyers in Sofia  is the one-bedroom apartment. The areas of Liulin and Drujba offer the best prices now.  The most prestigious area is South Park. For 1000 – 12000 Euros/sq m there the buyers can get a new quality built apartment in a good location. However, most of the estate agents in the Bulgarian capital think that the real market is at prices below 900 Euros/sq m., depending on the quality of the finish.

]]> http://lmlegalservices.com/blog/archives/603/feed 0 http://lmlegalservices.com/blog/archives/580 http://lmlegalservices.com/blog/archives/580#comments Mon, 01 Jun 2009 09:21:59 +0000 Boyan Yordanov http://lmlegalservices.com/blog/archives/580

Jessie Hewitson, The Observer

Back in 2006, Andrew and Pat Pryce decided to buy an investment property in Bulgaria. With retirement looming, they were hoping for rental income to supplement their pension, and a flat they could eventually sell on at a profit. When they read on the internet about the Mechi Chal mountain lodge in Pamporovo, advertised by overseas property agent Someplace Else as “the most exclusive in Bulgaria’s booming ski resorts” and offering a guaranteed rental yield of 7% a year for the first three years, they put down a deposit of £19,485.

It was a year later, in 2007, that they had the first inkling that something might be wrong. No one was asking them for more money, and there seemed to be no evidence that building was taking place. By 2008, they were so concerned with the lack of progress that they went to Bulgaria and drove around Pamporovo to investigate for themselves.

“We couldn’t see any sign of the development,” says Andrew. “On a second visit we attempted to locate the agency’s Bulgarian office in Plovdiv, but found it inhabited by another company.”

Having lost faith that the development would ever be built, the Pryces asked for their deposit to be returned. They say Someplace Else agreed to this more than a year ago but, despite being promised the money on three occasions, they have received only £2,000. They have now consulted a lawyer.

The Pryces are not alone. Since January 2008, the Association of International Property Professionals (AIPP) – a voluntary organisation with 376 members – has received 116 formal complaints from buyers unhappy about purchases abroad.

The number of people who have lost money in projects around the world is likely to be far higher than most realise, partly because nobody is keeping a record, and partly because those who have lost money are too embarrassed – and upset – to talk about it.

John Howell, senior partner in the International Law Partnership, specialising in overseas property purchases, estimates that 20% of those who have bought off-plan in the past two years are likely to run into “significant difficulty”. According to AIPP estimates, in 2007 193,600 of us bought property in the 10 countries most favoured by British buyers. This means more than 38,000 may be in hot water from just a single year’s overseas property purchases – and some may not even realise it yet.

The collapse of Churchill Properties Overseas alone meant about 340 investors, mainly British and Irish, lost deposits worth an estimated £4m. The company, which sold property in Estonia, Cape Verde and Goa, went into “voluntary liquidation” last summer.

Out of pocket

Another high-profile company, Bulgarian Dreams, closed at the end of 2008 and is currently being investigated by the City of London Police economic crime department. It is impossible to know exactly how many of its investors – who have bought in more than 40 developments in the eastern European country – have been left out of pocket.

Some of the estimated 100-150 investors who, like the Pryces, bought off-plan apartments in the Mechi Chal lodge, are leaving desperate posts on property forums and seeking legal action to get their money back.

Ben Mason, a partner of Someplace Else, says the delays have been caused by the local water authority rescinding permission it had previously granted. He is hoping to get it reinstated. “Providing this happens in the next two months, we can get the first phase finished by December this year and the second phase completed by December next year,” he says.

Mason admits the development is hard to find, but claims that the foundations are in place for phase one, many of the houses have been built off-site and when they do get water permission, the Bulgarian office will reopen.

As for the Pryces’ deposit, he says: “Due to the current economic climate, it has taken us longer than we expected to make this refund from the UK … however, there is no question of the Pryces not receiving the balance of their deposit, with interest, over the next few weeks.”

Howell notes that the developers in trouble are not typically local but British would-be Donald Trumps, and new to the game. “Many of these developers probably started off with good intentions but soon got in over their heads,” he says. “Whether it was fraud or bad economic times is a moot point, frankly, because the end result is the same: people lose money.”

Bad lands

Derek Smythe (not his real name) is more than aware of his predicament, and resigned to losing the £30,000 he invested in 2006 into a company that promised to buy land in Montenegro, get planning permission, build and sell on.

“Since investing the money, I’ve had virtually no communication from the directors [both British],” he says. “There’s no evidence that the money was used to purchase any land at all – I have absolutely no idea what happened to it. It’s been pretty miserable – and the worst thing is, it’s all my fault as I didn’t ask enough questions.”

The sums of money being lost are vast: Howell recently met 70 people, mainly Britons, who had sunk an average of €80,000 (£70,000) into a troubled development in Bulgaria.

He also has clients who regret buying in Dubai. “The problem is that all the major building companies belong to the royal family, and you won’t find a lawyer who will sue.”

The range of people losing money this way spans class, gender and age: young, old, working class, middle class, the gullible, the naive and the greedy are all suffering alike.

“I’ve got clients who are working-class people who invested the £20,000 equity they had in their home, and high-flying professionals who frankly ought to have known better,” says Howell, adding that one client who got stung was a partner in a chartered accountancy firm.

Many of these problems would not have happened if the investors had sought the advice of a good lawyer – something that many of the people interviewed for this article bitterly regret not doing.

More and more ex-pats who have bought holiday apartments on the Bulgarian Black Sea coast have put their properties on the market for sale. They do not have money to pay for the maintenance of their holiday apartments and would like to sell them as soon as possible, but there are no buyers.  Mainly Irish, British and Russian owners have put more than 10 000 properties on the market, all of them located in the stretch from Sunny Beach to Sozopol.

In the Bulgarian cities the tendency is exactly the opposite. There is a growing interest among prospective buyers due to the fact that prices have fallen between 16% and 38% in the first four months of this year. In the capital Sofia the apartments with living area of 50 to 70 sq m are most in demand. The most popular areas are Liulin, Mladost, Dianabadt, Ovcha Kupel, Nadezhda and Zona B17. The lowest price has been registered in Liulin and it is 454 Euros per sq m for an off-plan property.

Estate agents claim that at the moment buyers have much higher expectations from a property. They insist on location close to the public transport and on quality construction work and materials.

The reason for the raising interest among prospective buyers is the fact that banks have started giving more mortgages and there are people who have savings that can pay for at least 50% of the price of the properties. The average size of the mortgage in Bulgaria at the moment is 35 000 Euros, a decrease by 15 000 Euros in comparison with 2008.

A repossessed one-bedroom apartment in an affluent area of Sofia can be purchased for 25 000 Euros at an auction. According to the court statistics there is a boom in the number of the auctioned repossessed properties in the last few months. The information about these auctions is displayed in the municipalities and the auctions take place at the regional courts. A repossessed property is evaluated by a judge who then auctions it at 50% of the market price. Due to the recession and the collapse of the property market, there is no interest in repossessed properties. If such a property does not sell, it is offered again at an auction a month later at a price which is further 20% decreased. The expectations are that the number of the repossessed apartments will continue to grow.

For the first time in four years there are clear signs that the interest towards holiday homes in Bulgaria has decreased. The major buyers on this market – the Irish and the English – have stopped buying. The estate agents now joke that the result of this crisis is exactly what the greens have been striving to achieve – there is no construction in the resorts whatsoever.

According to the analysts, the slump has come as a natural result of the wish of the developers to constantly increase the number of foreign buyers, taking advantage of the low prices. At the moment there are no buyers at all and many developers sell their properties well below their value. Those few developers who have free cash despite the recession do not want to invest in the overdeveloped Black Sea and mountain resorts. There the property prices have dropped so much that a studio costs as much as a new middle class car. Despite this, there are no buyers. The supply on the holiday property market is 80% higher than the demand. There are thousands of sellers and no buyers. There is no secondary market due to the low rental income.

40 000 Euros can buy you a furnished one bedroom apartment in Sunny Beach. Most buyers receive not only discounts but also fitted kitchens, furniture or at least laminated floor.

In Bansko the situation looks similar. A one bedroom apartment of 80 sq m, situated close to the gondola lift costs 38 000 Euros. Further away from the lift in the direction of the central parts of the town price fall and for 30 000 Euros investors can buy an apartment of 64 sq m. Completed furnished apartments sell for about 600 Euros per sq m.

Although the holiday homes market has reached new lows, the analysts believe that in long term there will be good prospects for its development. The recession itself has lead to to preservation of the nature and this will eventually attract new buyers and tourists. On the other hand the recession has brought new lower prices of materials and labour. Many companies which got involved in construction because of the high profits are now going bankrupt. The developers are becoming more careful and there are expectations that the new projects will be of much better quality and with better location.

Regardless of the fact that the British and Irish buyers have lost interest towards the Bulgarian market, the analysts expect that soon Russians, Poles and Scandinavians will start buying in great numbers in Bulgaria. However, they look for different products and it seems that what has been built for the British buyers will not satisfy them. The holiday apartment or house will be less important than the environment, the peace and quiet, and the services on offer.

The Bulgarian ski resort Bansko was a typical example of the “hot market” in Easter Europe. Now, the small town is an example for the exactly the opposite.
The balloon has burst and the market of holiday properties in Bulgaria has collapsed. With this, sank the dreams for fast returns of many investors who have poured money into the region. Bansko is an emblem of the end of the hot market of holiday properties in the region. Most often the investors in the region are Brits and Irish who relied on the rental market or on the sharply increasing prices. The locals have earned some cash by selling their land, but the charm of the small town with small houses and narrow streets has disappeared forever. Now there are huge hotels and the roads are either made wider to cope with the traffic or are under construction. The holiday property market has suffered more than any other during the recession. The number of purchases has decreased by 10% at the end of the last year. The property boom in Bulgaria started in 2002 and the pivotal points were Bansko and some Black Sea resorts like Sunny Beach.
Now, when the market has collapsed, the biggest advantage of the situation take investment funds which buy properties in great numbers in the resorts at low prices and wait for the market to recover, the buyers to return and the prices to start going up again. There are buyers who are not so happy. Many British owners who bought their apartments at the Black Sea a year ago at prices exceeding 1000 Euros per square metre are ready to sell them now for as little as 500 Euros per square metre.

Because of the recession many sellers drop the prices of their properties to be able to sell them. The number of prices of apartments in the big Bulgarian cities which are under 30 000 Euros have drastically increased in the first three months of this year. One of the reasons for this is the lack of buyers due to the strict rules of the bank for lending. A few months ago all Bulgarian banks stopped lending money for the purchase of apartment in prefabricated blocks from the communist era. After that the banks have sharply increased the mortgage interest rates and have decreased the size of the mortgages, thus have put off many prospective buyers. In reality the Bulgarian property market have moved back to the situation years ago of expensive mortgages.

In Plovdiv 70 apartments are on the market for prices under 30 000 Euros. Only 20 of them are off plan. Prefabricated apartments with total area exceeding 90 sq m are for sale for as little as 13 000 Euros.
In Varna the number of the apartments under 30 000 Euros is 60, the cheapest property is a one-bedroom apartment for 20 000 Euros in the outskirts of the city. There is ever an apartment in the central parts of Varna offered at 30 000 Euros, which is still at the off-plan stage. Prefabricated apartments sell for about 25 000 Euros in the outskirts of Varna.

In the second largest city on the Black Sea, Burgas, the number of apartments on offer are twice more than in Varna but most of them are off-plan and in the outskirts of the city. The cheapest offer, €15 120, is for an off-plan apartment with are of 41 sq m. There are ten prefabricated properties for sale at prices starting at 24 000 Euros. All of them are located in the outskirts of Burgas.

In Russe there are 20 apartments under 30 000 Euros. The cheapest offer is for a studio for 12 900 Euros. Prefabricated apartments start at 15 000 Euros.

While in the country at the moment prices range from 440 to 580 Euros per sq m, in the capital Sofia, the property prices have dropped everywhere, apart from the central parts of the city. The sharpest drop of prices is in the southern parts of the city where there are more unfinished buildings then anywhere else in the city. The prices of prefabricated apartments have fallen more than any other. While last year they used to sell for more than 1000 Euros per sq m, now they are on offer for under 750 Euros per sq. m. Newly finished properties are offered for 700 – 800 Euros sq m. Off-plan apartments are offered for 500 Euros per sq m. Some developers offer discounts of 20 % of the prices of their finished apartments in cases of payment in cash. Others who are stable financially offer 15 leasing schemes to their customers.

In 2008 the number of newly built properties kept  increasing, according to the new information released by the National Statistics Institute. The number of new buildings has increased by 9% in 2008 in comparison to 2007 and has reached 2939 and the number of apartments in them has increased by 11.5% and has reached 21 041. At the same time the area of the average apartment has decreased by 2 sq. m. from 80.6 sq. m. in 2007 to 78.2 sq. m. in 2008.

The number of the purchases will fall by more than 12% in comparison to 2008, according to analysts. Their number is expected to be about 263 000.

In 2008 the overall number of purchases have decreased by 7.8 % in comparison with 2007, totalling 300 100. According to the Land Registry the total number of new inscriptions in 2007 was 325 385.

Some analysts predict that more than 3000 from the existing 6000 estate agencies will go bankrupt. This means that 7000 people will lose their jobs. It is expected that mainly small estate agencies will close. From the big players, not more than 6% will go bankrupt. The workload of the brokers will fall and their monthly income is expected to be under 300 levs per month.

According to the National Statistics Institute the average area of a property is 63.82 sq.m. and the average price at the moment is 580 sq. m., meaning that the average price of the average apartment is 37015Euros.

The analysts expect that if property prices fall by 14.85%, the market will come back to life. This would mean a price of 493 Euros per sq. m. and 31 518 Euros for the price of an average size apartment 63.82 sq.m.

The situation on the Bulgarian property market in the beginning of 2009 remains similar to the one in the end of 2008. There are no deals, the number of the properties for sale increase, while serious buyers take their time before they commit themselves to a purchase. The new features are – perks offered by the developers, estate agencies who do not take commissions and the birth of a new type of property in the property web sites – “property with falling prices”. Only on 3 and 4 of January 2009 the number of the properties with falling prices increased to fifteen. In this category the decrease of the prices of  houses beats all other properties  -  15 – 20%. Plots of land are in the second place, closely followed by offices and garages.  House prices fall everywhere – from Sofia to small towns like Smolyan. Even prestigious locations in the centre of Sofia can not prevent prices from falling.  The price of a house in Dondukov Boulevard in Sofia which has been for sale for some time has dropped by 40% to 450 000 Euros. It is difficult to say whether this will attract new buyers. One thing is certain, the Bulgarian property market has entered a period at the end of which the prices of properties will be very different from the price of the last two years.

The developers are the ones who experience the harshest problems. This is the reason why they look for solutions in all possible ways. Apart from dropping the prices, they have started to lease the apartments built by them to buyers with a minimal interest. Their return has been delayed by 15 years in some cases, thus preventing them from making new investments. Other bonuses include fitted kitchens costing up to 3000 lv and in the cases of two-bedroom apartments complete furnishing plus one or two parking lots. Some developers add to this a plasma TV. However, the analysts do not believe that these perks will do the trick and attract more customers. All these bonuses can not solve the problems of the buyers in getting a mortgage.

According to Bulgarian estate agents in the first half of the year it will be more sensible to rent rather than to buy. Although property prices have decreased in comparison to the last year, they are still high. At the same time, mortgages have become more expensive because of the high interest. As result, mortgage instalments are higher than monthly rents.

However, those who offer their property to tenants can not expect high profits. The number of prospective tenants is on the decrease because of the recession. High number of people from the country who had been looking for work in Sofia have gone back to their home towns and villages as there they can survive better during the recession due to the fact that living costs are cheaper.

On the other hand, those who have bought properties for investment can not sell at the moment and try to rent them. The supply of apartments for rent has increased while the demand has decreased and it is expected that this will lead to the drop of prices and of rents.

It is expected that in the second half of 2009 it will be profitable to buy property. Prices of properties are expected to drop further and by the end of the year it is expected that the mortgage interest will start decreasing, as of 1 January 2009 the Bulgarian National Bank has decreased the basic interest from 5.77 to 5.15, which is the first decrease since June 2005.

In the first months of 2008 rentals have increased by 12% in comparison to the same period of 2007. The major reason for this is the constant decrease of the number of purchases caused by the recession and the lack of clarity about the future of the property market.  More and more potential buyers turn towards renting, rather than buying.  This is due to the restrictive politic of the banks and the growing financial uncertainty, as well as the growing expectations for an upcoming decrease of the property prices.

More and more apartments which have been bought for investment are offered for rent. The one bedroom apartment is the mostly in demand – the interest towards renting such kind of apartments have increased by 14% in the first ten months of this year. At the same time the demand for studios has decreased by 6%. This is due to the fact that the rent of the studios and the one bedroom apartments are similar in size.

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.

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.

Almost 400 hotels on the Bulgarian Black Sea coast are for sale, according to Colliers. In the last year only, 20 000 new apartments have appeared on the market, while at the moment another 12 000 are in the process of construction. Half of the apartments for sale are secondary market. However, the deals with holiday apartments have decreased by 40% in comparison to last year.