The construction of buildings in the forests will stopped with a moratorium on the change of the purpose of exchanged land formerly belonging to the State Agricultural and Forestry Fund, according to the new Bulgarian Minister of Agriculture Miroslav Naydenov.

The planning permissions for apartment buildings which have been issued in the first three months of 2009 have been by 40% less than in the same period of 2008, according to the National Statistics Institute. 1470 projects have received planning permissions from January to March 2009. They are for 6530 apartments with a total area of 895 173 sq m. The number of the apartments has decreased by 49% and of the total area, also by 49% in comparison with the same period of 2008.

79 office buildings, as well as 978 other type of buildings – industrial, etc – have received planning permissions. The number of administrative buildings is by 21% less, while their total area has increased by 21%. The number of all other types of buildings has decreased by 36% and their total area has decreased by 44%.

The only tendency that continues into 2009 from the same period of 2008 is that the major part of the planning permissions for new apartment buildings have been issued in the large administrative centres of the country -
Burgas – 185, Sofia – 182, Varna – 170, and Plovdiv – 158. The number of newly planned apartments in Sofia is 1340, in Varna – 1 305, in Burgas – 896, in Blagoevgrad – 668 and in Plovdiv – 537.

Jack Fagan, Irish Times

AROUND THIS time of year, the newspapers are generally packed with large ads for overseas real estate. That has been going on for over a decade but, in recent years, Bulgaria and other former Eastern Bloc countries have been particularly active in targeting Irish buyers who had a reputation for being big spenders during the Celtic Tiger years.

These overseas property ads are rarely, if ever, seen any more simply because Bulgaria’s real estate boom has turned to bust and Irish and UK buyers are fleeing due to rapidly falling values and the rising number of uncompleted developments.

Other former Eastern Bloc countries are suffering the same fate.

Bulgaria became a particular favourite for many Irish investors because holiday homes were frequently available at half, or even one-third, of the price of similar properties on the Costa del Sol. Attracted by unrealistic promises of exceptional returns, Irish investors had no hesitation in borrowing heavily to buy cheap buy-to-let homes.

Dublin mortgage agents say that, because of the refusal of Irish banks generally to fund property investments in Bulgaria, many purchasers released equity from their homes or Irish-based property investments. Others used hot money in the belief that the Revenue had enough on its plate in tracing second homes and investments in Spain, France, Portugal and other popular destinations without traipsing through the former Eastern Bloc.

“A great deal of the money invested in Bulgaria never appeared on the radar. It would be hard to trace,” says one of Dublin’s largest mortgage lenders.

Tom McGrath, a Dublin solicitor specialising in the overseas residential markets, says that a combination of naivety and greed led many Irish people to buy up to five properties in Bulgaria with the intention of “flipping” them on before they were completed to make a profit.

Any number of estate agents had recommended this as a fool-proof way of making money but the reality was different and they have been left “with properties that they do not want, cannot sell and cannot afford to complete on”.

The market in Bulgaria is over-supplied and pretty well on the floor. Real estate agencies say that at least one-third of the 2,200 foreign-owned holiday flats in Bansko – one of the country’s top ski towns – are on the block again, often at half price.

One media report has suggested that some Black Sea hotel owners have offered their debt-laden businesses for sale for €1 – grim news for tourism, Bulgaria’s top foreign investment sector.

The property market in Bulgaria, like Ireland, has had a hard landing. Construction firms have been laying off workers and, with bank borrowing getting more difficult, many developers are finding it increasingly hard to complete schemes.

McGrath says that promises of guaranteed rent from developers are often unfulfilled and these properties were overvalued in the first instance to take account of this arrangement.

Investment in the property sector, which accounted for 30 to 40 per cent of GNP in the past few years, brought an immediate profit, says local economist Tihomir Bezlov: “Real estate for Bulgaria was like oil and gold for other countries.”

The same could probably be said of Ireland but, unlike Bulgaria, there was never any suspicion here that the industry was being used to launder money from criminal proceeds.

Bulgaria’s authorities have admitted they cannot prove where the money that fed the boom came from. Could some of the proceeds of the Northern Bank robbery in Belfast in 2004 be in the Black Sea? There’s a thought.

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.

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.

The number of new shopping centres in Europe which will open in 2009 be about 40% lower than the forecasts made a year ago. In 2010 it is expected that this number will be even lower and the total area of the new shopping centres will not exceed 7 million sq m. These will be the lowest figures in the last five years.
Due to the recession in Europe alone the construction of newly planned shopping centres totaling 7 million square metres will be put on hold.

In 2008 in Europe 310 retail centres with a total area of 9 million sq m have been completed. Most of them were in Russia where the growth was 23% and the total area of the newly completed retail centres was 1,65 million sq m. Turkey was in the second place, closely followed by the U.K., Spain and Romania. In terms of percentage, the highest increase was in Bulgaria – 76% and in Romania – 63%.

It is expected that the current recession will have the most powerful effect in Turkey, Russia and the Ukraine. A year ago 58% of the project took place in these countries, but now only 22% of the new shopping centres are completed in these countries.

The cold weather and the financial crisis have made their impact on the construction industry. According to the  Bulgarian National Statistic Institute (NSI) in November 2008 the volume of construction has decreased by 14.9% in comparison to October 2008.

The most serious decrease is in the construction of buildings – 15.7% – while the construction of infrastructure has decreased by 13.2%. The decrease is typical for this industry in this part of the year according to the analysts, as this industry depends heavily on the weather conditions. The entrepreneurs, however, explain it with the recession which has hit them since the summer of 2008. The investors on their part wait to see the depth of the recession and its duration in time.

This is the reason why many prospective purchases of plots of land and many construction projects have been frozen. The entrepreneurs who rely on bank loans do not want to stop work but this is still better than sinking into yet more debt. According to some professionals the official statics lie and the real decrease of the volume of construction exceeds 15%.

The speed of work on many projects have decreased dramatically due to the lack of new purchases. Because of difficulties in getting bank loans many preliminary contracts for purchases of properties have been terminated.

The annual statistincs of the National Statistic Institute (NSI) still show a slight increase of the volume of construction in comparison to 2007. For November it has been of 1%. However, the expectations for 2009 are for general increase of the volume of 2 to 3% due to infrastructural projects and general decrease in the construction of homes and offices.

The maximal new foreign debt of Bulgaria in 2009 will be increased by 25% or 2.5 billion levs (about 1.2 billion Euros) according to the decision of the parliamentary budget and finance committee. The council of Ministers will not make any changes in the credit framework during the year as the loans and the beneficiaries have been already chosen. The largest loan is of 600 million Euros and it is for the construction of the nuclear power station Belene.

It is expected that the average price of properties in Sofia will drop by half. Six months ago the middle class apartment used to sell for 1300 Euros per sq.m., while now it sells for 1000 Euros per sq.m., but there are only a few buyers on the market. This trend suggests that within six months the prices will fall to 800 Euros per sq.m. At the moment this is the price for an off-plan property in the up-market Manastirski Livadi district.

The panic due to the global financial crisis, the outflow of foreign investors and the high mortgage interest rate by all means shall have a long term effect on the property market. It is expected that alongside the falling prices, the quality of the construction and of the finishing will increase due to the competition. Completely finished apartments are already on offer and it is expected that developers will come up with new customer orientated payment plans.

Thousands of newly finished apartments remain unsold in Sofia. Developers try to negotiate with potential buyers and offer different incentives only to sell their properties. Many of those who bought as investment try to sell their properties with a small profit or without a profit, just to get their money in cash. They even offer higher commissions to the estate agents in order to sell. The few buyers on the market tend to wait longer before making a purchase and expect to receive more for their money.

There won’t be any skyscrapers in the near future in Sofia. The fear of bankruptcy put on hold all projects Manhattan style in the Bulgarian capital. Some of the projects for new shopping centres have also been stopped indefinitely. Many of the investors contemplate selling their plots of land rather than pushing ahead with their plans. Others decided to make completely new projects. They think that it is safer to have their money in cash which will give them the opportunity to buy bigger plots of land in two years time.

Due to the unpredictability of the property market at the moment, nobody expects the investors to pay the fee for planning permission for the first skyscraper in Sofia, despite the fact that ten companies have expressed interest in the project. Nobody can predict the fate of the first 90 m high skyscraper in Sofia which had to be built behind the central railway station. The project is only at the planning stage and the developers have not submitted the documentation in the municipality.

Some of the investors who started building office buildings combined with apartments, now would like to change their plans because of the falling prices of apartments.

“At the moment there are several projects approved by the municipality but they have not been launched yet by the developers. Everybody waits to see which way things will go. In March of next year the first blows will come. Then we shall see who will sell and who has the real intention to build”,

said Petar Dikov, the Chief Architect of Sofia. A clear example is the shopping mall on the junction of Todor Kableshkov Blvd and Bulgaria Blvd which for the second consecutive year has not even reached the ground level stage. A Lithuanian investment company has put on hold for an indefinite period their 500 million Euro project called Sofia Acropolis. The initial plans were to build a 800 000 sq. m. of shopping and entertainment area.

However, having in mind the atrocious practice of the last years to give planning permissions virtually for any building anywhere, if the uncontrolled construction stops, there are expectations that this might be to the benefit of Sofia.

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.

The size of the grey economy in Bulgaria is 30% of the country’s GDP or 21 billion levs for 2008 according to the Budget Committee of the Bulgarian Parliament. In comparison the whole of the budget for this year is 27 billion levs. The analysts claim that the negative tendency is due to the change of legal environment in Bulgaria after the EU accession together with the high expectations for the businesses in parallel with the political instability in the Interior and Economic Ministries.

The grey sector is mainly focussed in construction, tourism and agriculture. Most of the time the real turnover is not declared which leads to unreasonably low taxation.

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.

The number of planning permissions issued in the first half of the year have decreased by 6%. 4300 new buildings with total area of 2,8 million square metres have been approved for construction, 62% of them are new apartments. The number of the new office spaces have stayed the same, while there has been a sharp decrease in the number of all other types of buildings.

The highest number of planning permissions have been issued in Sofia, Plovdiv is in the second place, while Varna is in the third. Plovdiv heads the list with the highest number of planning permissions for new office buildings.