LM Legal Services Blog

The situation on the Bulgarian property market in the beginning of 2009 remains similar to the one in the end of 2008. There are no deals, the number of the properties for sale increase, while serious buyers take their time before they commit themselves to a purchase. The new features are – perks offered by the developers, estate agencies who do not take commissions and the birth of a new type of property in the property web sites – “property with falling prices”. Only on 3 and 4 of January 2009 the number of the properties with falling prices increased to fifteen. In this category the decrease of the prices of  houses beats all other properties  -  15 – 20%. Plots of land are in the second place, closely followed by offices and garages.  House prices fall everywhere – from Sofia to small towns like Smolyan. Even prestigious locations in the centre of Sofia can not prevent prices from falling.  The price of a house in Dondukov Boulevard in Sofia which has been for sale for some time has dropped by 40% to 450 000 Euros. It is difficult to say whether this will attract new buyers. One thing is certain, the Bulgarian property market has entered a period at the end of which the prices of properties will be very different from the price of the last two years.

The developers are the ones who experience the harshest problems. This is the reason why they look for solutions in all possible ways. Apart from dropping the prices, they have started to lease the apartments built by them to buyers with a minimal interest. Their return has been delayed by 15 years in some cases, thus preventing them from making new investments. Other bonuses include fitted kitchens costing up to 3000 lv and in the cases of two-bedroom apartments complete furnishing plus one or two parking lots. Some developers add to this a plasma TV. However, the analysts do not believe that these perks will do the trick and attract more customers. All these bonuses can not solve the problems of the buyers in getting a mortgage.

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.

Office and retail rents fall and will keep falling in the next two years according to Raiffeisen Property. In short term the office space on offer will outnumber the demand. The same tendency is valid for retail space, as only in the next 2.5 years it is expected that the retail space will increase eight times.

Meanwhile the interest of investors is expected to decrease due to the world crisis which has hit the property market. As result the secondary market will become rather active.  Those who bought property as investment will rush to sell it. The demand will be focused mainly in the cities. The prices of high quality residential property will rise in expensive city areas.

In the mountain and sea resorts there are too many properties on offer. In the end of 2007 there were more than 80 000 newly built properties there, while currently there is demand for about 65% of them.