LM Legal Services Blog

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.

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.

The number of purchases of property in Bulgaria is expected to increase in the summer according to analysts. However, there will be no growth unlike the last two years due to the lack of fresh money and the stricter rules for lending of the Bulgarian banks. The prices of properties in Bulgaria are expected to decrease by further 15% by the end of the year.

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.