LM Legal Services Blog

According to the State Agency for Tourism (DAT), three-four hotels go bankrupt every week in Bulgaria. They are unable to re-pay their mortgages. Many hotels are put for sale but there are no buyers and banks repossess them but it remains unclear if the banks will be able to sell them.

It seems that Bulgaria follows the road of Spain where the state buys the bankrupted hotels and demolishes them, in order to create parks.

According to the statistics, in the first half of the last year, 820 new hotels have opened on the Black Sea coast. As result of the construction boom the number of hotels and holiday properties is much higher than the number of  the tourists.  Many hotels can not sell all their beds and their owners suffer losses. All this makes it impossible for the hoteliers to repay their mortgages and other credits and go bankrupt.

The mortgage applications in Bulgaria have increased by 20% in April in comparison to March 2009. They are mostly young professionals who work for foreign companies and have good incomes. They would like to take advantage of the good prices and think that it is worth paying higher mortgage interest. Most of them have savings which can pay for 50% of the price of the property that they would like to buy and answer to the stringent requirements of the Bulgarian banks which do not lend higher than 50% mortgages.

In connection with this and with the decreasing property prices, the average amount of the mortgage in Bulgaria has fallen down to 35 236 EUR, levels typical for the summer of 2007.

According to a prominent Bulgarian banker, the property market in Bulgaria has grown at a 45 degrees but later it has dropped like a stone at 90 degrees. According to him in this situation profit or much smaller loss suffer the developers who sell first. According to him in the times of recession for the developers is crucial to have their own capital. The highest risk for him is if the recession lasts longer than expected in which case even companies with rich reserves might see them draining. The investors in property projects in Bulgaria should focus on the Bulgarian buyer and should drop the prices to levels attractive for him. In this way the developers will get cash so much needed during the recession.

According to the prominent banker, the Bulgarian banker should not be accused for the problems in the property industry in the last months. The banks follow the success and in the last years in the property business there have been no losers. The profits have been huge both for the good and for the bad companies regardless of the quality. The positive effect from the recession will be that the profit margins will shrink.

The number of mortgages lent in the first two months of the year in Bulgaria is twenty times lower in comparison with the same time last year. In January and February last year the banks lent mortgages to the value of 355 million levs, in the same months of this year the same figure was 18 million levs. The positive effect of the limiting of the landing is that for the first time in two weeks there is a tendency for decreasing the interest rate, although not by all banks. This decrease is of 0.54% for the mortgages in levs and 0.36% for the mortgages in euros. The average mortgage interest at the moment is 9.95%.

However, leading bankers think that in a recession the sensible policy is not to drop the interest rate. They have warned the developers to forget about the Brits and the Irish who used to buy all the properties at the Black Sea resorts and to focus on the Bulgarian customers, in order to survive the recession. It is expected that the Bulgarian property market will suffer mostly in September and October of this year.

According to developers the state must support the construction industry and the property market by pressing the water and electricity suppliers to offer better services.

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.