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.

Property prices in Bulgaria have fallen by 13.57% in the first quarter of 2009 in comparison with the same period last year, according to the Global Property Guide. This time last year the Bulgarian property prices have registered an increase of 16%. Now, in 14 countries the property prices have dropped by more than 10%. The main reason for this tendency in Bulgaria is the drop in the number of foreign buyers.

According to the Global Property Guide the property market is in crisis in 27 out of 32 reviewed countries. The main reasons for this are the growing unemployment, stricter bank rules for landing and diminishing consumer confidence.

Only a few countries experienced increase of property prices. Switzerland is in the first place with a growth of 4% in the first quarter of 2009. The main reason for this is the stable demand supported by falling interest rates and the presence of a great number of foreign buyers. Next are Thailand, Austria and Israel with a price growth of 3%, shortly followed by Shanghai with 1.76%.

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.

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.

Irish estate agencies offer holiday apartments in the Bulgarian resorts at prices which 35% lower than the original ones. Part of the offer is that if the purchase is completed by the end of the month the buyers will save further 500 Euros.

In Sunny Beach on the Black Sea cost the cheapest offer is 24 990 Euros for a studio apartment. At the same time in the ski resort of Bansko studios are on offer for 20 000 Euros and generally prices at the mountain resorts are lower.

The number of the personal and business bad debt has been steadily increasing for a second consecutive month according to the statistics of the Bulgarian National Bank. In the end of February 2009 the bad and restructured debt has reached 1.65 billion levs which is an increase of 314 million lev only in a month. This is 3,4% of all loans. In comparison last year this ratio was slightly above 2%. According to analysts this level is still not worrying as the overall condition of the Bulgarian bank system is rather stable. Companies which collect bad debt claim that their work has increased by 40% in the first two months of 2009. The level of the repayment of loans received by Bulgarian banks have decreased by 20%. The level of partial repayments has increased, while the level of total repayments have decreased. Job losses and the increase of the part-time employment are key factors for this.

In February 2009 the number of the delayed repayment has increased by 19% in comparison with January 2009 and for January 2009 the increase was 13% in comparison with December 2008.

While the property prices in Bulgaria fall, the business of letting luxury properties flourish. The rent of luxurious apartments range from 400 to 2000 Euros per month, depending on the quality of the interior. The rent of luxury villas in the beginning of the Vitosha Mountain can reach up to 11 000 Euros per month. Estate agents expect that the rents of luxury properties, especially if they are located in and around Sofia, will steadily increase during the recession. Such properties are often rented by Bulgarian emigrants who come back to Bulgaria to work for large international companies, foreign diplomats and Hollywood stars who shoot films in Bulgaria. The properties fetching the highest rent are located in the central parts of the city, close to all administrative centres and institutions. When they are vacated, they do not stay long on the property market but are rented again within 2-3 weeks. Very often luxury villas in the outskirts of Sofia are rented by people with good incomes who have homes in Sofia but need a high quality property for a short term for their guests.

Russians buy hotels on the Bulgarian Black Sea cost for peanuts. They hire estate agents to look for cheap property, mainly hotel owners who are on the verge of bankruptcy or developers who cannot complete their projects. They also buy already developed projects for holiday resorts which have been denied financing from banks. About ten very good purchases at attractive prices have been completed since the beginning of the year. Most of them are for about 500 Euros per sq m. The jewel in the crown is a four story hotel in Svety Vlas the area of which exceeded 1000 sq m. The hotel sold for 300 000 Euros. The Russians invest their money in Bulgaria in order to save them, as the trust in the Russian banks have sharply decreased over the last six months.

The Bulgarian economy has been affected by the world recession. The growth of Bulgaria’s GDP in the last quarter of 2008 was just 3.6%, according to the National Statistics Institute. This is an almost two fold slowing down – in the previous quarters the GDP’s growth was between 6.8% and 7.1%.

After Bulgaria moved out of the hyperinflation and the recession during the rule of the government of Zhan Videnov (1996-1997), the economy’s growth has never been so small, except once, nine years ago, in the last quarter of 1999 when the GDP grew by 3,5%. Since then the Bulgarian economy has been growing steadily and the annual growth in the last six years was never under 4%.

The Bulgarian industry has suffered the hardest blow. In the last quarter of 2008 it has had a negative growth of -0.1%. The export has decreased by 6,8% in October-December 2008. At the same time the import has shrunk by 3.7%. The growth of the GDP, although rather small, is due to the growth of the agricultural production of 20.6%. The reason for this is mainly the good harvest.

For the whole of 2008, the GDP’s growth was 6% which was due to the active economic growth in the first nine months of the year. Bulgaria’s GDP for 2008 was 66 billion levs.

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.

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.

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.

The collapse of the banks in the West is a serious warning for the future of Bulgarian banks. In the last three-four years, the Bulgarian banks enjoyed enormous profit and record growth levels but the world financial crisis is going to put an end to this.

Almost all Bulgarian banks have started to change their development policy following September, 14.  Almost all plans for the opening of new branches have been frozen. The major problem in the banking sector is the lack of fresh money. The foreign financing has stopped and now all Bulgarian banks have focused on the domestic market to keep their growth. It is expected that a within a year a real war to attract deposits of new clients will unleash and the perks for the clients will include holidays abroad and golden watches.

However the biggest loser will be the business and the ordinary consumer. Many banks have changed their policy to attract new clients and now focus on keep the reliable clients with a good track record. It will be very difficult to get a credit if you are a new company. The price of this will be high for the Bulgarian economy – so far the banks have been the major force of the economic growth.

More than 97 Bulgarians have drawn loans exceeding 1 million Bulgarian levs, they owe 153.1 million levs to the banks, or in other terms, on average each one of them owes 1.56 million levs. Generally, the individual borrowing in the country has increased, according to the Bulgarian National Bank. The average personal loan is 5841.42 levs, which is an increase of 1139 levs in comparison to 2007. The size of the most of the personal loans does not exceed 10 000 levs. 2.46 million personal loans totaling 4.71 billion levs have been lent. Although these are as much as 88.4% of all loans, in terms of money, they are only 29% of the total amount of the loans measured in levs. The concentration of the credits is between 10 000 and 250 000 levs. In this price bracket the number of the loans is 320 000 but their volume in levs is 10.43 billion which is 64.1% of the total amount of all personal loans. The tendency shows that within a few years time the amount of the personal loans will exceed the company loans in Bulgarian.