LM Legal Services Blog

The Bulgarian property market has entered into a constant slum and it is expected that the earliest in 2011 it will pick up, according to developers, analysts and estate agents.

This conclusion is based on the expectation for a deep recession in the country in the next two years. Prominent business analysts think that the recovery of the property market in Bulgaria entirely depends on the economic development of the country. The boom of the property market coincided with the economic boom. However, now the forecast of the IMF for Bulgaria is most worrying – recession in the next two years, high unemployment and shrinking of the spending. Traditionally, the economic process in Bulgaria lags behind the one in the developed Western countries. Only in case that Bulgaria starts using the European funds properly and more companies from Western Europe relocate in Bulgaria by 2010 the country will reach the lowest point of the economic recession and the economy will start moving upwards.

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.

402.6 million Euros is the total turnover from merging and acquisitions in the first three months of this year, which is a decrease of 18.2% or 72% less than in the first quarter of 2008. The recession has hit the merging and acquisitions in Bulgaria. Only 32 M&A have been completed in the first three months of this year. In the same period of last year there were 136 deals to the value of 3.5 billion Euros.

The decrease in the first three months of 2009 still can not give a clear idea about the market situation later during the year. The prices of companies have dramatically decreased and the number of deals has shrunk by 1/3 on annual basis. The analysts still think that the situation is not that bad. In March the number of the deals has increased which might be a sign of recovery at the end of 2009.

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 rent of industrial plots of land in Sofia have increased by 8% or by 0,5 Euros (1 lv) per sq m in 2008 in comparison with 2007. The average rent of industrial land in the country is 6.5 Euros per square metres. This is by 1 Euros more expensive than the neighbouring countries. The reason for this situation is that more and more companies have been looking for industrial land while there have not been many plots on offer.

This year the tendency outlined by the recession is owners first to find tenants and only then to start turning their land into an industrial one. Estate agents expect that the demand for industrial land will not be affected by the recession, as it is expected that more companies will relocate from Western into Eastern Europe.