Dnevnik Daily

A new public institution will be set up in Bulgaria to manage and control amounts from all real estate transactions in an effort to bring them into the light and crack down on money laundering in the industry.

The new Deposit and Consignation Fund will be inaugurated by special legislation hammered out by the Ministry of Justice and the Notary Chamber.

The institution will be a state-owned enterprise and not a bank and will be modelled on a system already operational in France, said Notary Chamber head Dimitar Tanev. Under the scheme, the sellers will receive their money with a short delay but it will ensure transparency and security to all loyal parties as well as central and local authorities.

The system will see buyers transfer the money into the fund where it will spent two or three weeks before it is passed on the seller. The period will be used to check up the resource’ origin and charge all dues of the government and municipalities. It is expected to put an end to sham transactions and block cash payment as money will have to be put into the fund by a bank transfer, Tanev explained.

Market values in the different regions will be determined by experts and updated every three or four months. The price will serve as a reference point for actual property transactions to make sure money laundering and tax evasion is prevented. A difference within 10-15% could be assumed thanks to property improvements but current differences topping out at between 300% and 1000% will be impossible, Tanev said.

The Notary Chamber discussed the proposal with representatives of the European anti-fraud office OLAF, who said the project will indicate the country’s commitment to combat abuse and money laundering.

The rents of apartments in Sofia and Istanbul are almost the same. An apartment of 75 sq m in Istanbul rents for 431 Euros per month, while the same apartment in Sofia rents for 400 Euros per month. Renting in Instanbul, however, is better because tenants pay for the living are, while in Bulgaria, they also pay for the common parts.

Purchase prices of properties in Sofia and in Istanbul are also similar. A 75 sq m apartment in Instanbul sells for about 80 000 Euros, while in Sofia it sells for 78 400 Euros. The prices of larger apartments in Sofia, however, are by 20 000 Euros more expensive in comparison with Istanbul. An apartment of 120 sq m in Sofia costs 158 000 Euros while in the Turkish megalopolis it costs 123 100 Euros. The reason for this is the increased demand for bigger apartments in Sofia.

The number of the purchases will fall by more than 12% in comparison to 2008, according to analysts. Their number is expected to be about 263 000.

In 2008 the overall number of purchases have decreased by 7.8 % in comparison with 2007, totalling 300 100. According to the Land Registry the total number of new inscriptions in 2007 was 325 385.

Some analysts predict that more than 3000 from the existing 6000 estate agencies will go bankrupt. This means that 7000 people will lose their jobs. It is expected that mainly small estate agencies will close. From the big players, not more than 6% will go bankrupt. The workload of the brokers will fall and their monthly income is expected to be under 300 levs per month.

According to the National Statistics Institute the average area of a property is 63.82 sq.m. and the average price at the moment is 580 sq. m., meaning that the average price of the average apartment is 37015Euros.

The analysts expect that if property prices fall by 14.85%, the market will come back to life. This would mean a price of 493 Euros per sq. m. and 31 518 Euros for the price of an average size apartment 63.82 sq.m.

There is a big difference between the property prices officially declared on the Bulgarian market and the willingness of the buyers to pay them. The drop of the number of purchases of property in the last months of 2008 has lead to a new tendency – the buyers dictate the situation on the property market.

According to the official information in the last year Bulgarian property prices have increased by 22%, which has been wiped out by the decrease of the demand for properties by 20% for the same period.

From the beginning of 2009 there is a new trend – the higher proportion of the purchase price  the buyer can pay without a mortgage, the higher reduction of the final price he will get. January 2009 was the first month without foreign participation on the Bulgarian property market. There were no buyers from abroad – neither Bulgarians, nor foreigners.

Due to the recession, renting has become a more popular option than buying. The lack of stability and the uncertainty have forced people to avoid long term bank loans.  At the same time those who have bought a second home have started renting it and the properties for rent have increased by 20%. The highest increase in the number of the rentals was in Rousse – of 31% – while in Blagoevgrad this increase has been the smallest in the country – only of  5%.

In comparison with 2007, the highest increase of the property prices was in Plovdiv – 32% – where the average price in 2008 was 756 Euros/sq.m. The capital Sofia was in second place with increase of 30.13% and an average price of 1087.33 Euros per sq. m. Veliko Turnovo and Rousse share the third place with 27%.

The number of property purchases in Bulgaria has decreased by 40% in 2008 in comparison with 2007, and in the mountain ski resorts like Bansko, Pamporovo and Borovets it has reached a decrease by 80%, while at the Black Sea cost it is significantly less – by 30%.  This has lead to a price drop and in the resorts currently there are very cheap properties on offer.

At the same time in Sofia the decrease in the number of purchases is 33%, while in Plovdiv it is 50%. The smallest decrease is in Vidin, where it is only 15% in comparison with 2007.

This is mainly due to the recession in the last three months of 2008. Until October 2008 the purchase prices have been on average 26% higher than the ones in 2007.  The the market virtually went dead and it has not been possible to make real statistics of the prices, in some cases prices were 20% lower than in 2007.

The new year is wonderful for the buyers of properties in Sofia. Those who have money and can negotiate are able to secure unexpected reductions and perks. Most of the sellers are immediately ready to reduce their price by 20% and at the moment there are no purchases without bargaining.

According to estate agents, in the last year virtually in all parts of Sofia the prices of properties have dropped. The most stable market is in the southern districts of the city where the demand is generally higher and in the last months prices have dropped by merely 5 to 15%. At the moment the prices there vary from 1050 to 1250 Euros per square metre. In the central parts of the city, the decrease is insignificant and the highest price is 2000 Euros per square metre. There are no more offers in the range 3000 to 6000 Euros. The most significant drop of prices is in the northern and western parts of the city where the decrease have reached 20%. New properties in Nadezhda and Levski are offered for 700 Euros per square metre while exactly a year ago they were offered at 900 Euros per square metre.

The loan interests in Bulgaria have risen to the levels of 2005. In December 2008 half of the banks in the country have increased their interest and some of them have also increased the fees for servicing a loan.

It is unlikely that loan interests will fall in the first six months of 2009. Some bankers expect this to happen at the end of the year. This means that the prices of credits will not decrease. It is expected that the level of bad debt will increase.

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.

According to Bulgarian estate agents in the first half of the year it will be more sensible to rent rather than to buy. Although property prices have decreased in comparison to the last year, they are still high. At the same time, mortgages have become more expensive because of the high interest. As result, mortgage instalments are higher than monthly rents.

However, those who offer their property to tenants can not expect high profits. The number of prospective tenants is on the decrease because of the recession. High number of people from the country who had been looking for work in Sofia have gone back to their home towns and villages as there they can survive better during the recession due to the fact that living costs are cheaper.

On the other hand, those who have bought properties for investment can not sell at the moment and try to rent them. The supply of apartments for rent has increased while the demand has decreased and it is expected that this will lead to the drop of prices and of rents.

It is expected that in the second half of 2009 it will be profitable to buy property. Prices of properties are expected to drop further and by the end of the year it is expected that the mortgage interest will start decreasing, as of 1 January 2009 the Bulgarian National Bank has decreased the basic interest from 5.77 to 5.15, which is the first decrease since June 2005.

The notaries at the Black Sea reported that the number of deals have decreased  sharply in comparison with last year. In the last 2 wees there have been days without a single purchase. The purchases for investment have almost stopped. Only people who need cash urgently sell. In such cases prices drop dramatically up to three times.

Purchases are made only of home to live. They have drop by 50% in Kavarna, while in Balchik by 10%.  Concerning the plots of land, the tendency is similar. Only agricultural land sells.  In some cases prices have fallen from 20 to 5 Euros per sq.m. due to the lack of buyers.

Because of the lack of demand in the last year the prices of rural properties fell dramatically. Plots of land around Sofia have decreased in price by 50%. The trend at the Bulgarian Black Sea coast is exactly the same. In the last 12 months  mainly Bulgarians bought properties near to the big cities according to Dobromir Ganev, executive director of Foros Estate agents. The main reason for this is the world financial crisis and  prospective buyers have become more cautious, especially when applying for mortgages.

A regulated plot of land of 1020 sq m situated between Sofia and Pernik has decreased by 50%  in price and it is now on offer for 12 000 levs (apprx 6 000 Euros). An old two-storey house in a village with a garden of about 1500 sq m can be purchased for 6-7 000 levs (apprx. 3 000 Euros). In the past the prices of rural properties in the area of Bansko, Sunny Beach and Burgas have been artificially increased but now they have fallen dramatically. The purchases of property for investment have almost stopped and most people buy for their own needs.

The financial crisis have affected the sales of land for the construction of industrial developments. All investors have experienced difficulties in financing and several projects in Varna and Sofia have stopped.

The sharpest fall of the prices according to analysts and advisors are in holiday properties. Due to over supply in Bansko only the prices have fallen by 48%. The number of one-bedroom apartments on offer is astonishing and prices range from 780 to 2015 Euros per sq m.