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 British estate agents Knight Frank by 31 March 2009 the property prices in Bulgaria have increased by 3,3% annually and in the first three months of 2009 they have decreased only by 1,2%, which puts Bulgaria in ninth place in terms of property price growth.

The information provided by the Bulgarian National Statistics Institute (NSI) shows that in the first quarter of 2009 the property prices have fallen by 12,4% and by 8,4% on annual basis. According to NSI from January to March 2008 the properties in Bulgaria cost on average 1299,9 levs (650 Euros) per sq m. In the first quarter of this year this price has fallen to 1190,7 levs (just under 600 Euros) per sq m. If the information of the NSI is taken into account, then Bulgaria will be in the top ten shrinking property markets.

In the first quarter of 2009 the property prices in 32 out of 46 countries world wide have fallen. The most serious price decrease has been in Singapore, Dubai and Latvia. In Latvia alone the prices of property have been steadily falling in the last two years and only in the last 12 months they have fallen by 36%. In Dubai the prices have fallen by 40% only in the last three months. The short term forecast is that the recession will continue at least until the end of 2009.

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.

The Bulgarian economy has been affected by the world recession. The growth of Bulgaria’s GDP in the last quarter of 2008 was just 3.6%, according to the National Statistics Institute. This is an almost two fold slowing down – in the previous quarters the GDP’s growth was between 6.8% and 7.1%.

After Bulgaria moved out of the hyperinflation and the recession during the rule of the government of Zhan Videnov (1996-1997), the economy’s growth has never been so small, except once, nine years ago, in the last quarter of 1999 when the GDP grew by 3,5%. Since then the Bulgarian economy has been growing steadily and the annual growth in the last six years was never under 4%.

The Bulgarian industry has suffered the hardest blow. In the last quarter of 2008 it has had a negative growth of -0.1%. The export has decreased by 6,8% in October-December 2008. At the same time the import has shrunk by 3.7%. The growth of the GDP, although rather small, is due to the growth of the agricultural production of 20.6%. The reason for this is mainly the good harvest.

For the whole of 2008, the GDP’s growth was 6% which was due to the active economic growth in the first nine months of the year. Bulgaria’s GDP for 2008 was 66 billion levs.

The collapse of the banks in the West is a serious warning for the future of Bulgarian banks. In the last three-four years, the Bulgarian banks enjoyed enormous profit and record growth levels but the world financial crisis is going to put an end to this.

Almost all Bulgarian banks have started to change their development policy following September, 14.  Almost all plans for the opening of new branches have been frozen. The major problem in the banking sector is the lack of fresh money. The foreign financing has stopped and now all Bulgarian banks have focused on the domestic market to keep their growth. It is expected that a within a year a real war to attract deposits of new clients will unleash and the perks for the clients will include holidays abroad and golden watches.

However the biggest loser will be the business and the ordinary consumer. Many banks have changed their policy to attract new clients and now focus on keep the reliable clients with a good track record. It will be very difficult to get a credit if you are a new company. The price of this will be high for the Bulgarian economy – so far the banks have been the major force of the economic growth.