From the end of 2008 the number of new buildings in Bulgaria has decreased by 432 and the number of the apartments in them has decreased by 42.8%.

The greatest number of new apartments still are completed on the Bulgarian Black Sea coast. Only in Burgas district 1136 new apartments have been finished this winter. In second place is Varna district with 727 newly finished apartments, followed by Sofia with 580 and Plovdiv with 265. There are no new apartments in Stara Zagora and Kyustendil.

The area of the newly finished apartments in the first quarter of 2009 is 294 000 sq m which is a decrease by 16% in comparison with the same period of 2008. The size of the average living area has also diminished from 78.3 to 75.5 sq m in the same period.

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.

Unlike earlier expectations the market of luxury property in Bulgaria has also experienced price decreases. Rich buyers bargain and refuse to pay the high prices for top properties in the Bulgaria. As result prices of luxury properties have dropped by 1 million levs on average according to market analysts. The most striking example is a luxury apartment close to the National Theatre in Sofia which appeared on the market last year with asking price of 2 million Euros. The total area of the apartment was 253 sq m and this was the top price for the country – of 7905 EUR per sq m. The apartment is located in a listed building constructed in 1912. A year later the seller has dropped the asking price to 1,5 million EUR or 5929 EUR per sq m.

At the same time the price of a house close to Perla Hotel in Dragalevsty has dropped by half a million Euros to 2,5 million EUR. The total area of the three-flour house is 900 sq m and it has 7 bedrooms and six bathrooms as well as inside pool, jacuzzi and sauna.

Another striking example of a price decrease of a luxury property is in the affluent suburb of Plovdiv – the village of Markovo. A year ago this property, with total are of 2417 sq m used to sell for 2,5 million EUR. In the last few months its price has dropped to 2 million Euros.

Sofia is in third place among the European capitals in terms of profitability of office space. A high quality office building can have a 10% annual return. Only the Russian capital Moscow (11.5%) and the Ukrainian capital Kiev (14%) are rating better than Sofia. The profitability of office space in the Bulgarian capital has increased by 3% or 300 points from its lowest position three years ago. The figures for Belgrade are similar – 10% – while for the other Balkan cities this ratio varies from 7% to 8.5%. Only offices in the Romanian capital Bucharest show higher annual return of 9.5%. The more developed markets of office space like Prague, Budapest and Warsaw have much lower levels of annual returns of 6.75 % – 7.75%.

The rent of office space in the Bulgarian capital has actually decreased by 6.85% in the last year and now is 17 EUR/sq.m. on average as it is linked to the decreasing prices of properties in general. There is similar decrease of office rent in Madrid, Dublin, Moscow, Kiev, Belgrade, Budapest, Warsaw and Bucharest. In the 15 older EU-member states the office rent has decreased by 4% on average.

Construction projects in Bulgaria exceeding 2,5 billion Euros have been put on hold because of the recession. There are a few large projects, which do not have problems with financing. The fear of bankruptcy and the lack of free money is the reason for the investors to give up their plans for big projects and to sell their business. Some developers are prepared to sell parts of their future developments at lower price just to be able to finish their projects. On 2 April 2009 they met with Russian investors at a business meeting organised in the Russian capital Moscow. There were different projects on offer – holiday homes, residential homes, power plants, regulated and unregulated land, concrete buildings and whole residential areas. However the accent was on holiday homes and golf courses throughout Bulgaria.

Apart from the Russians the other type of investors interested in Bulgaria are those from the Middle East. Some of them are prepared to put on hold their projects in their home countries in order to buy at low prices attractive projects in Europe and in the USA.

By Anna Mikhailova, The Times

When Maryla Guzinska, a housewife from the Isle of Wight, read an article in a national newspaper extolling the virtues of property on the Estonian riviera, it seemed like a sound investment. In June 2005, she put down a deposit of £10,500 on a two-bedroom villa in Parnu, the seaside “summer capital” of the Baltic state, and was told her new holiday home would be ready by the end of the next year, when the remainder of the £42,500 sale price would be due.

Churchill Properties Overseas, which was building and selling the villas, assured Guzinska that her home would double in price in the 18 months or so it would take to build, thanks to the property boom under way in the former Soviet republic. Guzinska, 49, believed them – not least because the company was based near her on the Isle of Wight. When she went to the office, the salesman was “professional and well spoken” (even if, in retrospect, she recalls that he never looked her in the eye).

The completion date came and went, however, and in the months that followed, Guzinska was repeatedly told that her home on the Churchill Village development had been delayed.

Then, last July, she received a letter from Churchill Innovative Solutions – as the company appeared to have renamed itself – saying that it had been put into “voluntary liquidation”. Guzinska began to doubt that she would ever see her £10,500 again. “I was hoping to buy something that would be an investment and a holiday home,” she says. “Now I’m on a debt management programme.”
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Gary Fensome, a company director from Luton, has also lost hope of recovering the £12,000 he invested in a one-bedroom flat in the same development. “I’m furious and I want my money back,” says Fensome, 48. “When Churchill showed me the site in 2006, it looked lovely. It all sounded reputable. But for the next year I had to keep chasing them for receipts, then it emerged that nothing was being built.”

Churchill – which had a local office in Parnu, but sold its off-plan log cabins and villas largely to British customers – is not believed to have obtained planning permission for Churchill Village or for two other developments in Parnu, Audru Golf and Parnu River (although it appears to have received it for a fourth one). As a result, no building work had started on the land, even though Churchill gave the impression to investors that the projects were in full swing.

In the meantime, hundreds of investors are left wondering what has happened to their deposits, which total more than £1.5m. Hampshire Constabulary confirmed that two men, aged 40 and 44, were arrested on suspicion of theft in August and November last year, respectively, and released on bail until this August. No charges have been brought. They are thought to be Paul Wade, 40, and Karl Goldthorpe, 44, both directors of the company.

In an attempt to recoup their losses, 120 of the investors have signed up to the Action Against Churchills group (actionagainstchurchills.blogspot.com), founded last summer, but are frustrated at the lack of progress. “We’ve given up hope of getting our money back,” says Guzinska’s husband, Clive Bowley, a spokesman for the group, who separately invested just over £14,000 in another Churchill villa. “Lawyers tell us it will cost £100,000 to fight our case, so it’s out of the question.” Churchill – which has no connection with the insurance company of the same name – did not respond to requests for comment from The Sunday Times.

Estonia is not the only place where Britons have seen hopes of easy profits turn to dust. During the boom years of this decade, property abroad – once the preserve of the wealthy – became all too accessible for anyone with a few thousand pounds for a deposit and, ideally, a UK home from which to withdraw equity. Teachers, civil servants, social workers and academics all piled in. It was, in the words of salesmen, a “no-brainer”: you put down a deposit on an off-plan flat, chalet or villa, then sat back and waited for the profits to roll in.

Since the credit crunch struck and world economies hit the buffers, however, the laws of gravity have come back into play with a vengeance. It is not just that many buyers have seen the capital gains on which they were counting turn into losses as property prices across Europe – and beyond – continue to spiral downward.

More serious is the impact that the downturn has had on the developers who were meant to be building those homes. Many have run out of money, leaving properties unbuilt and developments as little more than ghost towns. In other cases – such as that of Churchill Properties Overseas – there are doubts as to whether they ever intended to build anything in the first place.

John Howell, senior partner in the International Law Partnership (ILP), which specialises in overseas property purchases, says he has seen a fivefold increase in the number of clients with problems over the past 12 months. In the same period, the number requiring conveyancing has dropped by 70% as sales have plunged. “Developers are either going bankrupt or the development is not as specified,” Howell says. “One of the first things that happens when developers are in trouble is that they start stripping back on expensive items.”

The problem, he says, has been especially acute in the “emerging markets” of eastern Europe, whose economies – until recently the most dynamic on the continent – have been hit hard. Matters have been made worse by the way in which some local developers teamed up with foreign estate agents in the hope of selling to gullible foreigners at inflated prices.

“In places such as Bulgaria, everybody wants to become a developer, and as well as illegal building, you get oversupply in a market that is always going to be a marginal one,” Howell says.

ILP is representing a number of clients who bought property from Bulgarian Dreams, a London-based estate agency that folded last year, but have yet to take possession of their homes.

Founded and owned by Robert Jenkin, a Cambridge graduate, and his Bulgarian wife, Mariya Georgieva, the company sold flats and houses at more than 40 developments in Sofia, the capital, in ski resorts such as Bansko and Pamporovo, and on the Black Sea coast.

A message on the Bulgarian Dreams website says that the company has ceased trading “following the extraordinarily difficult economic conditions” and suggests those who bought property through it should contact the Bulgarian developers directly.

One of the three companies it names is Interlink BG, of which Georgieva was a “manager”. Jenkin insists, however, that the position did not give his wife similar powers to those of the director of a British company, and says she took it merely so she could “have better access to information regarding the developments”.

Bulgarian Dreams is being investigated by the City of London Police Economic Crime Department. “We have received a number of complaints about Bulgarian Dreams and have begun an investigation,” a spokeswoman says. She confirmed that the company closed its Moorgate offices at the end of 2008, but could not comment further.

Indy Gill, 45, an accountant from Nottingham, and his wife, Kim, 44, who runs a nursery, are among those ruing the day they invested in Bulgaria. In 2005, he says, he paid Bulgarian Dreams a £15,930 deposit on a £55,000 penthouse flat in the first phase of the Windows to Paradise complex in Balchik, on the Bulgarian Black Sea coast, which was due to be completed in December 2006.

Early in 2007, having heard nothing, Gill says he contacted Bulgarian Dreams and was told that, due to planning problems, the top floor of the building, with the penthouse, would not be built – and he would instead be given a flat in the development’s third phase, due to be completed a year or so later.

Then, this year, he received a letter from Bulgarian Dreams informing him that it was no longer acting as agent for the development – and told him to deal directly with Interlink BG instead. Despite sending the Bulgarian-based company repeated e-mails, Gill has heard nothing, and says he fears work has not even started on the third phase in which his flat is meant to be. “We’ve got absolutely nothing to show for our money,” says Gill. “I’ve resigned myself to losing my £16,000, but my wife still wants to do something, so we are trying, though a Bulgarian lawyer, to recover our money.”

In a statement to The Sunday Times, Jenkin insists his company is working with Bulgarian developers to resolve problems with projects in the country with which it has been involved. “If any delays or issues exist with a development, they are due to the current economic conditions affecting all of the property industry,” he says.

Most of the investors who have lost out in schemes in Bulgaria, Estonia or elsewhere put their money into projects that seemed completely above board and were, in some cases, recommended by independent financial advisers. In retrospect, however, some buyers appear to have been simply too trusting – especially when developments were being sold by British-based agents.

“A lot of people never took legal advice, never got an independent valuation or never checked the deeds,” says Simon Conn, technical consultant to Conti Financial Services, which specialises in overseas mortgages. “Many overpaid for their property even before the credit crunch struck, and now these homes are worth even less.” In many cases, Conn says, buyers took advice from a lawyer recommended to them by the developer. Others made the mistake of signing an “English version” of their contract rather than obtaining an accurate translation.

Nor is it just in eastern Europe that things have gone wrong. Hundreds of Britons are reported to have lost money in an alleged £24m housing scam in Orlando, Florida. This month, court documents were filed in America on behalf of a class action against the Superior Homes & Investments estate agency, accusing the company of defrauding customers by taking payments for homes that were never built. More than 500 people paid deposits of up to £217,000.

In Calabria, southern Italy, meanwhile, British and Irish investors have run into difficulties with properties they have purchased. One of the biggest developments in the region, the Jewel of the Sea, was blocked for environmental reasons. Last month, 120 illegally built flats, valued at a total of £28m, in the Santa Venere and Marinate resorts at Vibo Marina were sequestered by police. The El Caribe scheme, where 90 investors have paid deposits totalling £4m, was due to be completed in May, but work has not started.

Then, of course, there is Spain, where a mixture of collapsing property companies, arbitrarily implemented government rules, and out-and-out fraud have put paid to the property dreams of many British buyers.

Last year, Spanish police broke up For-tuna Land, an organisation they claimed had cheated foreign investors, predominantly from Britain and Ireland, out of £61m. As many as 2,000 people are believed to have lost money – some as much as £500,000 each – after investing in the developments in Andalusia.

Others, such as Paul Sibley, 45, an electrician from Luton, have been caught out by the collapse of Martinsa-Fadesa, one of Spain’s biggest developers, which filed for court protection from its creditors last year.

In 2005, Sibley put down a €119,000 deposit on a €400,000 villa on the La Oliva Golf development, near Corralejo, in the north of Fuerteventura, one of the Canary Islands. Although the property was already built when he paid his money, the golf course was not, and problems in obtaining a licence for the course, compounded by the discovery of an archeological site, delayed completion. Then, in the middle of last year, Martinsa-Fadesa went down.

“Work stopped before they finished the access road and the mains water connection,” Sibley says. “I would consider completing without the golf course, if the price was reduced enough, but not without access and water.”

Sibley hopes that the administrators will make finishing the development a priority for Martinsa-Fadesa. If not, his money could be tied up for years. “We decided to invest because the developer was the biggest in Spain, listed on the stock exchange – a blue-chip developer,” he says. “It should have been one of the safest.”

Anna Micklewright, a senior NHS purchasing manager from Cheshire, paid a 30% deposit of €39,000 in January 2006 for an off-plan two-bedroom semidetached house in Jumilla Golf, Murcia. Then, last May, the developer, Herrada del Tollo SL, was obliged to seek voluntary protection from its creditors. Although companies can recover from administration, this is difficult at the best of times – let alone during the current economic conditions.

“The administrators are now in charge, but millions of euros that the developer took in deposits seem to have disappeared,” says Micklewright, 33, adding that under Spanish law, those deposits should have been ring-fenced. “It’s a disaster for hundreds of British buyers who have lost their savings. It is especially tough on those who moved out to Spain to live in rented accommodation provided by the developer while waiting for their retirement homes. They have been evicted.”

“Some 95% of the buyers at Jumilla Golf don’t have a bank guarantee, even though many were told that they did, and they only found out they didn’t when the developer went into administration,” Micklewright says. In her case, she says, they insisted on – and obtained – a guarantee from a bank called Banco Pastor, but were not sure whether this would mean they would be compensated.

Micklewright has complained to the Foreign Office, her MP, her MEP and the Bank of Spain. “In Spain, developers and banks announce that they are not going to honour contracts, and lawyers just shrug their shoulders,” she says.

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 turnover of the largest Bulgarian construction companies in 2007 was 2.7 billion levs according to the Builders’ Chamber in Bulgaria (KSB) which announced the annual statistics on the eve of the day of the builders, St Dimitre’s Day. More than 2400 Bulgarian construction companies have provided information for these statistics.

The largest construction company in Bulgaria is Glavbolgarstroy AD with a turnover reaching 228.9 million levs. Roads Holding is in the second place with 151.7 million levs. It seems unlikely a company building roads to take the first place, as there are no infrastructure projects for the time being.

The growth of the construction industry according to its chamber demonstrated a growth of 16% per annum but this year there will be a slow down. This recession has been expressed in the halting of investment projects and of planning permissions. If the European funding has not been stopped, the construction industry would have maintained its growth.

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.

According to Credit Centre the most popular mortgage in Bulgaria at the moment is for a plot of land and a prefabricated house. More and more Bulgarians prefer to move in the outskirts of their cities and to build their own house, rather than to buy an apartment in a block, where two-bedroom apartments are in the same price bracket.

Another new trend is the increasing number of customers who restructure their debt, due to the increase of the interest rate. Many Bulgarians face difficulties repaying their mortgages and some even their utility bills. According to Credit Centre in September each sixth credit has been taken to pay old debt.

In general more than 79% of the mortgages are for the purchase of property and only 1.3% for construction.

Another tendency is that for a second consecutive month the average size of the mortgage has decreased to 43 000 Euros, while during the peak of the property boom it has exceeded 50 000 Euros. Customers freeze their purchase or redirect to a cheaper property. The change is more obvious among the most popular customers – the middle class ones – who used to take a 80 % mortgage for the purchase of one-bedroom apartments. Now these clients are seeking smaller apartments and try to pay a large proportion of the price with their own funds.

Despite the new Law for the Black Sea Shore which came into effect in January of this year, the developers have found a way to continue building right on sea shore. They call their buildings apartment complexes instead of hotels. However, because of the new restrictions for the height of hotels on the shore and for their size – the height of a hotel should not exceeding 7.5 metres which in reality is two or three floors  – it is expected that investments in such hotels will not have a good return. The investors have switched to building villas and have ignored the warnings of the experts for a property slump.