LM Legal Services Blog

The total  value of the properties owned by Bulgarian families was 140 billion levs (about 70 billion euros) in the end of 2009, while in the end of 2008 it was 176 billion levs (about 80 billion euros), according to Industry Watch. The drop is due to the devaluation of the properties during the recession and Industry Watch expect that this tendency will continue in the next six months.

The  devaluation of properties has slowed down in the last quarter of 2009 and it has reached 2% in the end of 2009 in comparison to the previous quarter. Because of this devaluation the purchase power of the middle class Bulgarian measured in square metres of living area has increased by 50% in 2009.

The financial resources of the Bulgarian families were 36 billion levs (18 billion euros) in total in the end of 2009 and this is an increase by 7% in comparison with 2008. The annual speed of the growth has slowed down, however, as in 2007 the growth was by 28.5% while in the last year it was just 8%. The amount of 36 billion levs does not include the debt and the credits of the Bulgarians. Last year the debt of the Bulgarians was 1/3 of their financial resources, now the level of debt has decreased according to Industry Watch.

According to the State Agency for Tourism (DAT), three-four hotels go bankrupt every week in Bulgaria. They are unable to re-pay their mortgages. Many hotels are put for sale but there are no buyers and banks repossess them but it remains unclear if the banks will be able to sell them.

It seems that Bulgaria follows the road of Spain where the state buys the bankrupted hotels and demolishes them, in order to create parks.

According to the statistics, in the first half of the last year, 820 new hotels have opened on the Black Sea coast. As result of the construction boom the number of hotels and holiday properties is much higher than the number of  the tourists.  Many hotels can not sell all their beds and their owners suffer losses. All this makes it impossible for the hoteliers to repay their mortgages and other credits and go bankrupt.

According to the IMF report about Bulgaria, 3,5 billion BGN from the planned budget income will not be collected in 2009 due to the recession. This will mean automatic activation of the so-called 10% rule – shrinking of the expenses of all ministries and government agencies by 10% in order to achieve an annual budget with a small profit.

The current IMF mission in Bulgaria aims to establish the economic situation in the country. The most dramatic development is the inability to collect VAT to the value of about 3 billion BGN from the initially planned amounts. The most optimistic forecast of the National Revenue Agency is that the VAT collection will be 5% less than the planned for 2009 or an amount exceeding 110 million BGN, which still will be an increase of 6% in comparison to last year.

Generally, the tax collection might increase by 12% in comparison with last year.

Concerning the collection of Capital Gain Tax, the optimistic forecast underlines that 14% or 360 million BGN will not be collected. Still the collection of Capital Gain Tax will be 2% more than last year.

According to the IMF report, the decrease of income will force Bulgaria cut the budget expenses to the value of 1,7 billion BGN in 2009. The state expenses must be cut, as well as the salary increases, because the economic growth in 2009 will slow down to 1%.

The decrease of lending and of the foreign investment will lead to the shrinking of sales in the country. This in combination with the decrease of property prices and the possible increase of the number of bad debt might lead to shrinking of the economy and a negative GDP growth of – 3,5%, according to the pessimistic forecast of the IMF.

Representatives of the Bulgarian Chamber of Construction have had a fruitless meeting with managers from the leading Bulgarian banks. The developers have informed the bankers that construction projects exceeding 2 billion levs have been stopped. According to information of the chamber in 2008 the number of the new planning permissions have decreased by 20%.  The situation of the projects which have been already started but their developers do not have money to complete them is most alarming.  Although there are many shopping malls and business centres among the projects put on hold, there are also apartment buildings where most or all apartments have been sold off-plan to buyers who took mortgages. The owners of such kind of properties are in dire straights as they can not use them -  the buildings where the properties are situatied can not acquire permission to use (Protocol 16) in the foreseable future.  Deadlines have been missed.

The response of the bank managers was that now banks can only rely on the personal savings and on the budget and ignored warnings that they might also suffer from the recession and told the developers to manage on their own.

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.