LM Legal Services Blog

According to analysts there are two scenarios for the future development of the property market in Bulgaria. If by March 2009 the Bulgarian economy continues to grow, even by a fraction of the recent growth, the property market in the country will calm down and there will be no serious crisis. The demand will continue to decrease and as result the prices of newly built properties will stay at the same levels while the prices of apartments in prefabricated blocks will decrease from 10% to 15%. The total number of the sales will decrease, not only because of the caution of the purchasers but also because of the more difficult process of getting mortgages. Part of the projects will be put on hold, especially those relying on off-plan financing but on the whole this will be good for the market. At the moment there are no signs for upcoming bankruptcies of developers, although there might be some in the future but it is expected that this will not have a dramatic effect on this sector.

However, if the economic recession becomes more serious in the first six months of 2009, the level of the unemployment increases and the purchase power diminishes, the property market shall experience serious crisis which will be fatal for some of the players. In case of such developments the prices will fall dramatically and there will be a small number of sales. Though possible, these kind of developments seem less likely to occur in Bulgaria because the level of home ownership is rather high and the relative ratio of the mortgages that have been lent is low, while the banking system is still stable. To this adds the typical Bulgarian mentality to re-pay debts, despite difficulties. That is the reason why the expectations are for a weak and inactive market, rather than a dramatic crisis.

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.

Рublished in the Financial Times

By Kerin Hope and Theodor Troev in Sofia

There are warning signals everywhere, yet the European Union’s poorest member insists it can weather the global financial crisis.

Standard and Poor’s last month downgraded Bulgaria’s long-term debt to BBB. Fitch this month cut its rating to BBB- just one notch above junk bond status.

On Friday, the Bulgarian Industrial Association urged the finance ministry to redraft next year’s budget and cut the growth forecast from 4.7 per cent to 2 per cent of gross domestic product.

“We are witnessing an unprecedented global crisis… for the first time, the tensions in Bulgaria’s economy are caused not by internal but by foreign factors,” the association said.

However, Plamen Oresharski, the finance minister, rejects a suggestion that after bail-outs of Hungary and Ukraine by the International Monetary Fund, Bulgaria may be among the next in line.

“We are not in a similar position. Our banking system looks sound, with a good level of liquidity and healthy reserves,” he said. “Our concerns about the real economy are greater, but we still expect comparatively strong growth next year.”

Thanks to a record grain harvest, the economy is projected to expand this year by 6.9 per cent.

But the current account deficit – the highest in south-east Europe at about 24 per cent of GDP – appears unsustainable given an accelerating decline in foreign direct investment.

Investment inflows fell 48 per cent in the third quarter, according to central bank figures, following the collapse of a holiday-home construction bubble and a freeze on transfers by eurozone banks to their Bulgarian subsidiaries.

“Construction has been the most important growth driver, even more than in Spain, so the outlook is grave,” said Lubomir Christoff, a former chief economist at the central bank.

Sergey Stanishev, prime minister, has suggested Bulgaria should join the EU’s exchange rate mechanism next year. But although Bulgaria can point to a budget surplus and a low public debt (about 18 per cent of GDP), an annual inflation rate above 10 per cent rules out any chance of an early entry to the euro.

Mr Oresharski argues that an accumulated fiscal surplus of Lev12bn ($7.8bn, €6.2bn, £5.2bn) provides a cushion.

“One relief is that the government doesn’t have any short-term borrowing requirements,” he said.

In spite of rapid credit expansion since EU accession last year, total bank indebtedness is still low at about 30 per of GDP.

Lending is tight because foreign banks have lost access to funding from parent groups squeezed by the global credit crunch.

“We’ve been told to rely on our own resources, which means lending will slow,” said a senior executive at a foreign-owned bank.

Bulgaria’s currency board, which pegs the lev to the euro, is intended to eliminate foreign exchange risk. The arrangement also requires that money in circulation does not exceed central bank reserves.

With reserves at 180 per cent of currency in circulation, the lev was buttressed against an all-out attack on the currency board, Mr Oresharski said.

But other currency boards in the Baltics look less stable following Latvia’s request last week for EU help to fend off a crisis.

Each week about 20 new repossessed properties are declared at Sofia Regional Court. All repossessed properties are listed in the Third Civil Department of the regional court.  Most of them are apartments, houses and bigger buildings, agricultural land and regulated plots.

One-bedroom prefab apartment in Liulin gets a starting price of 36 000 levs, while an apartment of the same size in Mladost 4 -  74 000 levs.

A three-storey building in Vassil Levski Boulevard in the centre of Sofia has a startign price of 821 000 levs, while an apartment of 100 square metres in Strelbishte has a starting price of 205 000 levs. At the same price will start the auction for a plot of land of 5 000 square metres in Vrajdebna, a suburd of Sofia. The most expensive repossessed car has a starting price of 4 800 levs.  In the process of auctioning the price very often is increased by 100%.

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.