According to leading Bulgarian banks, the value of the properties owned by Bulgarians has decreased by 3 billion levs (1.6 billion Euros) to 208 billion levs (106 billion Euros) in the last quarter of 2011. At the same time the savings held in bank accounts have increased by 1.4 billion levs and at the end of last year they have reached 30.9 billion levs (16 billion Euros). The debt of the Bulgarians has decreased and currently is under 52%. The loss from investments in shares has increased to 285 million levs (190 million Euros) at the end of 2011, an all time record.

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.

A repossessed one-bedroom apartment in an affluent area of Sofia can be purchased for 25 000 Euros at an auction. According to the court statistics there is a boom in the number of the auctioned repossessed properties in the last few months. The information about these auctions is displayed in the municipalities and the auctions take place at the regional courts. A repossessed property is evaluated by a judge who then auctions it at 50% of the market price. Due to the recession and the collapse of the property market, there is no interest in repossessed properties. If such a property does not sell, it is offered again at an auction a month later at a price which is further 20% decreased. The expectations are that the number of the repossessed apartments will continue to grow.

Jack Fagan, Irish Times

AROUND THIS time of year, the newspapers are generally packed with large ads for overseas real estate. That has been going on for over a decade but, in recent years, Bulgaria and other former Eastern Bloc countries have been particularly active in targeting Irish buyers who had a reputation for being big spenders during the Celtic Tiger years.

These overseas property ads are rarely, if ever, seen any more simply because Bulgaria’s real estate boom has turned to bust and Irish and UK buyers are fleeing due to rapidly falling values and the rising number of uncompleted developments.

Other former Eastern Bloc countries are suffering the same fate.

Bulgaria became a particular favourite for many Irish investors because holiday homes were frequently available at half, or even one-third, of the price of similar properties on the Costa del Sol. Attracted by unrealistic promises of exceptional returns, Irish investors had no hesitation in borrowing heavily to buy cheap buy-to-let homes.

Dublin mortgage agents say that, because of the refusal of Irish banks generally to fund property investments in Bulgaria, many purchasers released equity from their homes or Irish-based property investments. Others used hot money in the belief that the Revenue had enough on its plate in tracing second homes and investments in Spain, France, Portugal and other popular destinations without traipsing through the former Eastern Bloc.

“A great deal of the money invested in Bulgaria never appeared on the radar. It would be hard to trace,” says one of Dublin’s largest mortgage lenders.

Tom McGrath, a Dublin solicitor specialising in the overseas residential markets, says that a combination of naivety and greed led many Irish people to buy up to five properties in Bulgaria with the intention of “flipping” them on before they were completed to make a profit.

Any number of estate agents had recommended this as a fool-proof way of making money but the reality was different and they have been left “with properties that they do not want, cannot sell and cannot afford to complete on”.

The market in Bulgaria is over-supplied and pretty well on the floor. Real estate agencies say that at least one-third of the 2,200 foreign-owned holiday flats in Bansko – one of the country’s top ski towns – are on the block again, often at half price.

One media report has suggested that some Black Sea hotel owners have offered their debt-laden businesses for sale for €1 – grim news for tourism, Bulgaria’s top foreign investment sector.

The property market in Bulgaria, like Ireland, has had a hard landing. Construction firms have been laying off workers and, with bank borrowing getting more difficult, many developers are finding it increasingly hard to complete schemes.

McGrath says that promises of guaranteed rent from developers are often unfulfilled and these properties were overvalued in the first instance to take account of this arrangement.

Investment in the property sector, which accounted for 30 to 40 per cent of GNP in the past few years, brought an immediate profit, says local economist Tihomir Bezlov: “Real estate for Bulgaria was like oil and gold for other countries.”

The same could probably be said of Ireland but, unlike Bulgaria, there was never any suspicion here that the industry was being used to launder money from criminal proceeds.

Bulgaria’s authorities have admitted they cannot prove where the money that fed the boom came from. Could some of the proceeds of the Northern Bank robbery in Belfast in 2004 be in the Black Sea? There’s a thought.

Unlike earlier expectations the market of luxury property in Bulgaria has also experienced price decreases. Rich buyers bargain and refuse to pay the high prices for top properties in the Bulgaria. As result prices of luxury properties have dropped by 1 million levs on average according to market analysts. The most striking example is a luxury apartment close to the National Theatre in Sofia which appeared on the market last year with asking price of 2 million Euros. The total area of the apartment was 253 sq m and this was the top price for the country – of 7905 EUR per sq m. The apartment is located in a listed building constructed in 1912. A year later the seller has dropped the asking price to 1,5 million EUR or 5929 EUR per sq m.

At the same time the price of a house close to Perla Hotel in Dragalevsty has dropped by half a million Euros to 2,5 million EUR. The total area of the three-flour house is 900 sq m and it has 7 bedrooms and six bathrooms as well as inside pool, jacuzzi and sauna.

Another striking example of a price decrease of a luxury property is in the affluent suburb of Plovdiv – the village of Markovo. A year ago this property, with total are of 2417 sq m used to sell for 2,5 million EUR. In the last few months its price has dropped to 2 million Euros.

Prices of apartments in prefabricated apartment blocks are higher by 100 Euros in Sofia. In middle class areas like Mladost and Borovo in the outskirts of the capital prices of prefabricated apartments vary from 550 Euros to 900 Euros per square metre. Newly built properties in those areas vary from 450 Euros to 850 Euros per square metre.

In the central parts of Sofia the prefabricated apartments sell for 1240 Euros per sq m while newly built ones for 770 Euros.

This is due to several reasons. One of them is that some of the newly built apartments are not of good quality. Some of the owners of prefabricated apartments on the other hand keep the prices from last year in their attempt not to lose money. In order to attract buyers, the developers offer free furnishing of at least one room as a bonus. However, despite the falling prices there are only a few buyers who are ready to pay in cash. Many developers offer payment in instalments, only to attract new buyers.

Despite the fact that the number of purchases has slightly increased, there are no expectations that the property prices will increase in the next three months. To the contrary, all professionals expect further reduction of the prices.

According to a prominent Bulgarian banker, the property market in Bulgaria has grown at a 45 degrees but later it has dropped like a stone at 90 degrees. According to him in this situation profit or much smaller loss suffer the developers who sell first. According to him in the times of recession for the developers is crucial to have their own capital. The highest risk for him is if the recession lasts longer than expected in which case even companies with rich reserves might see them draining. The investors in property projects in Bulgaria should focus on the Bulgarian buyer and should drop the prices to levels attractive for him. In this way the developers will get cash so much needed during the recession.

According to the prominent banker, the Bulgarian banker should not be accused for the problems in the property industry in the last months. The banks follow the success and in the last years in the property business there have been no losers. The profits have been huge both for the good and for the bad companies regardless of the quality. The positive effect from the recession will be that the profit margins will shrink.

The property prices in Bulgaria have dropped on average by 12.4% in the first three months of the year according to information of the National Statistics Institute. The sharpest price drop was in Veliko Turnovo – 25.1%, followed by Kyustendil – 21.5% and Blagoevgrad – 20.5%. The average price for the country is 1190.7 levs (608 Euros) per sq m. The most expensive apartments are in Varna – 1982 levs (1013 Euros) per sq m, closely followed by Sofia – 1980 levs per sq m.

Now is a good time to buy a property according to estate agents and there are no expectations in the next two years for the property price to start going up.

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.

By Anna Mikhailova, The Times

When Maryla Guzinska, a housewife from the Isle of Wight, read an article in a national newspaper extolling the virtues of property on the Estonian riviera, it seemed like a sound investment. In June 2005, she put down a deposit of £10,500 on a two-bedroom villa in Parnu, the seaside “summer capital” of the Baltic state, and was told her new holiday home would be ready by the end of the next year, when the remainder of the £42,500 sale price would be due.

Churchill Properties Overseas, which was building and selling the villas, assured Guzinska that her home would double in price in the 18 months or so it would take to build, thanks to the property boom under way in the former Soviet republic. Guzinska, 49, believed them – not least because the company was based near her on the Isle of Wight. When she went to the office, the salesman was “professional and well spoken” (even if, in retrospect, she recalls that he never looked her in the eye).

The completion date came and went, however, and in the months that followed, Guzinska was repeatedly told that her home on the Churchill Village development had been delayed.

Then, last July, she received a letter from Churchill Innovative Solutions – as the company appeared to have renamed itself – saying that it had been put into “voluntary liquidation”. Guzinska began to doubt that she would ever see her £10,500 again. “I was hoping to buy something that would be an investment and a holiday home,” she says. “Now I’m on a debt management programme.”
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Gary Fensome, a company director from Luton, has also lost hope of recovering the £12,000 he invested in a one-bedroom flat in the same development. “I’m furious and I want my money back,” says Fensome, 48. “When Churchill showed me the site in 2006, it looked lovely. It all sounded reputable. But for the next year I had to keep chasing them for receipts, then it emerged that nothing was being built.”

Churchill – which had a local office in Parnu, but sold its off-plan log cabins and villas largely to British customers – is not believed to have obtained planning permission for Churchill Village or for two other developments in Parnu, Audru Golf and Parnu River (although it appears to have received it for a fourth one). As a result, no building work had started on the land, even though Churchill gave the impression to investors that the projects were in full swing.

In the meantime, hundreds of investors are left wondering what has happened to their deposits, which total more than £1.5m. Hampshire Constabulary confirmed that two men, aged 40 and 44, were arrested on suspicion of theft in August and November last year, respectively, and released on bail until this August. No charges have been brought. They are thought to be Paul Wade, 40, and Karl Goldthorpe, 44, both directors of the company.

In an attempt to recoup their losses, 120 of the investors have signed up to the Action Against Churchills group (actionagainstchurchills.blogspot.com), founded last summer, but are frustrated at the lack of progress. “We’ve given up hope of getting our money back,” says Guzinska’s husband, Clive Bowley, a spokesman for the group, who separately invested just over £14,000 in another Churchill villa. “Lawyers tell us it will cost £100,000 to fight our case, so it’s out of the question.” Churchill – which has no connection with the insurance company of the same name – did not respond to requests for comment from The Sunday Times.

Estonia is not the only place where Britons have seen hopes of easy profits turn to dust. During the boom years of this decade, property abroad – once the preserve of the wealthy – became all too accessible for anyone with a few thousand pounds for a deposit and, ideally, a UK home from which to withdraw equity. Teachers, civil servants, social workers and academics all piled in. It was, in the words of salesmen, a “no-brainer”: you put down a deposit on an off-plan flat, chalet or villa, then sat back and waited for the profits to roll in.

Since the credit crunch struck and world economies hit the buffers, however, the laws of gravity have come back into play with a vengeance. It is not just that many buyers have seen the capital gains on which they were counting turn into losses as property prices across Europe – and beyond – continue to spiral downward.

More serious is the impact that the downturn has had on the developers who were meant to be building those homes. Many have run out of money, leaving properties unbuilt and developments as little more than ghost towns. In other cases – such as that of Churchill Properties Overseas – there are doubts as to whether they ever intended to build anything in the first place.

John Howell, senior partner in the International Law Partnership (ILP), which specialises in overseas property purchases, says he has seen a fivefold increase in the number of clients with problems over the past 12 months. In the same period, the number requiring conveyancing has dropped by 70% as sales have plunged. “Developers are either going bankrupt or the development is not as specified,” Howell says. “One of the first things that happens when developers are in trouble is that they start stripping back on expensive items.”

The problem, he says, has been especially acute in the “emerging markets” of eastern Europe, whose economies – until recently the most dynamic on the continent – have been hit hard. Matters have been made worse by the way in which some local developers teamed up with foreign estate agents in the hope of selling to gullible foreigners at inflated prices.

“In places such as Bulgaria, everybody wants to become a developer, and as well as illegal building, you get oversupply in a market that is always going to be a marginal one,” Howell says.

ILP is representing a number of clients who bought property from Bulgarian Dreams, a London-based estate agency that folded last year, but have yet to take possession of their homes.

Founded and owned by Robert Jenkin, a Cambridge graduate, and his Bulgarian wife, Mariya Georgieva, the company sold flats and houses at more than 40 developments in Sofia, the capital, in ski resorts such as Bansko and Pamporovo, and on the Black Sea coast.

A message on the Bulgarian Dreams website says that the company has ceased trading “following the extraordinarily difficult economic conditions” and suggests those who bought property through it should contact the Bulgarian developers directly.

One of the three companies it names is Interlink BG, of which Georgieva was a “manager”. Jenkin insists, however, that the position did not give his wife similar powers to those of the director of a British company, and says she took it merely so she could “have better access to information regarding the developments”.

Bulgarian Dreams is being investigated by the City of London Police Economic Crime Department. “We have received a number of complaints about Bulgarian Dreams and have begun an investigation,” a spokeswoman says. She confirmed that the company closed its Moorgate offices at the end of 2008, but could not comment further.

Indy Gill, 45, an accountant from Nottingham, and his wife, Kim, 44, who runs a nursery, are among those ruing the day they invested in Bulgaria. In 2005, he says, he paid Bulgarian Dreams a £15,930 deposit on a £55,000 penthouse flat in the first phase of the Windows to Paradise complex in Balchik, on the Bulgarian Black Sea coast, which was due to be completed in December 2006.

Early in 2007, having heard nothing, Gill says he contacted Bulgarian Dreams and was told that, due to planning problems, the top floor of the building, with the penthouse, would not be built – and he would instead be given a flat in the development’s third phase, due to be completed a year or so later.

Then, this year, he received a letter from Bulgarian Dreams informing him that it was no longer acting as agent for the development – and told him to deal directly with Interlink BG instead. Despite sending the Bulgarian-based company repeated e-mails, Gill has heard nothing, and says he fears work has not even started on the third phase in which his flat is meant to be. “We’ve got absolutely nothing to show for our money,” says Gill. “I’ve resigned myself to losing my £16,000, but my wife still wants to do something, so we are trying, though a Bulgarian lawyer, to recover our money.”

In a statement to The Sunday Times, Jenkin insists his company is working with Bulgarian developers to resolve problems with projects in the country with which it has been involved. “If any delays or issues exist with a development, they are due to the current economic conditions affecting all of the property industry,” he says.

Most of the investors who have lost out in schemes in Bulgaria, Estonia or elsewhere put their money into projects that seemed completely above board and were, in some cases, recommended by independent financial advisers. In retrospect, however, some buyers appear to have been simply too trusting – especially when developments were being sold by British-based agents.

“A lot of people never took legal advice, never got an independent valuation or never checked the deeds,” says Simon Conn, technical consultant to Conti Financial Services, which specialises in overseas mortgages. “Many overpaid for their property even before the credit crunch struck, and now these homes are worth even less.” In many cases, Conn says, buyers took advice from a lawyer recommended to them by the developer. Others made the mistake of signing an “English version” of their contract rather than obtaining an accurate translation.

Nor is it just in eastern Europe that things have gone wrong. Hundreds of Britons are reported to have lost money in an alleged £24m housing scam in Orlando, Florida. This month, court documents were filed in America on behalf of a class action against the Superior Homes & Investments estate agency, accusing the company of defrauding customers by taking payments for homes that were never built. More than 500 people paid deposits of up to £217,000.

In Calabria, southern Italy, meanwhile, British and Irish investors have run into difficulties with properties they have purchased. One of the biggest developments in the region, the Jewel of the Sea, was blocked for environmental reasons. Last month, 120 illegally built flats, valued at a total of £28m, in the Santa Venere and Marinate resorts at Vibo Marina were sequestered by police. The El Caribe scheme, where 90 investors have paid deposits totalling £4m, was due to be completed in May, but work has not started.

Then, of course, there is Spain, where a mixture of collapsing property companies, arbitrarily implemented government rules, and out-and-out fraud have put paid to the property dreams of many British buyers.

Last year, Spanish police broke up For-tuna Land, an organisation they claimed had cheated foreign investors, predominantly from Britain and Ireland, out of £61m. As many as 2,000 people are believed to have lost money – some as much as £500,000 each – after investing in the developments in Andalusia.

Others, such as Paul Sibley, 45, an electrician from Luton, have been caught out by the collapse of Martinsa-Fadesa, one of Spain’s biggest developers, which filed for court protection from its creditors last year.

In 2005, Sibley put down a €119,000 deposit on a €400,000 villa on the La Oliva Golf development, near Corralejo, in the north of Fuerteventura, one of the Canary Islands. Although the property was already built when he paid his money, the golf course was not, and problems in obtaining a licence for the course, compounded by the discovery of an archeological site, delayed completion. Then, in the middle of last year, Martinsa-Fadesa went down.

“Work stopped before they finished the access road and the mains water connection,” Sibley says. “I would consider completing without the golf course, if the price was reduced enough, but not without access and water.”

Sibley hopes that the administrators will make finishing the development a priority for Martinsa-Fadesa. If not, his money could be tied up for years. “We decided to invest because the developer was the biggest in Spain, listed on the stock exchange – a blue-chip developer,” he says. “It should have been one of the safest.”

Anna Micklewright, a senior NHS purchasing manager from Cheshire, paid a 30% deposit of €39,000 in January 2006 for an off-plan two-bedroom semidetached house in Jumilla Golf, Murcia. Then, last May, the developer, Herrada del Tollo SL, was obliged to seek voluntary protection from its creditors. Although companies can recover from administration, this is difficult at the best of times – let alone during the current economic conditions.

“The administrators are now in charge, but millions of euros that the developer took in deposits seem to have disappeared,” says Micklewright, 33, adding that under Spanish law, those deposits should have been ring-fenced. “It’s a disaster for hundreds of British buyers who have lost their savings. It is especially tough on those who moved out to Spain to live in rented accommodation provided by the developer while waiting for their retirement homes. They have been evicted.”

“Some 95% of the buyers at Jumilla Golf don’t have a bank guarantee, even though many were told that they did, and they only found out they didn’t when the developer went into administration,” Micklewright says. In her case, she says, they insisted on – and obtained – a guarantee from a bank called Banco Pastor, but were not sure whether this would mean they would be compensated.

Micklewright has complained to the Foreign Office, her MP, her MEP and the Bank of Spain. “In Spain, developers and banks announce that they are not going to honour contracts, and lawyers just shrug their shoulders,” she says.

Some analysts predict further 15% decrease of the property prices in Bulgaria. However, they do not expect prices to drop before the value.

The advise of the experts is to buy apartments now, while buyers of office and industrial space will have to wait for another 2-3 years for price to fall further down.

The number of purchases in the first three months of this year has fallen three times in comparison with the same period last year.

The real increase of property prices in Bulgaria for the last year was 2.25% according to the Global Property Guide. This puts the country in the fourth place for price increase among 32 property markets across the world. In 2007 the nominal property price increase in Bulgaria was 19.68%. The United Arab Emirates hold the first place for 2008 with a price increase of 40.86%. Shanghai in China is in second place with 4.83% and Switzerland is in third place with 4%. Nominally, without taking the inflation into account, Bulgaria is in second place with a price increase for 2008 of 11.72%.

The property market in Bulgaria showed a decrease of 5.31% taking the inflation into account or nominally 4.15% in the last three months of 2008.

In the last year the property prices have increased only in eight of the 32 countries taking part in the survey, while in 20 there has been a decrease when compared with the inflation. In 2007 the situation was strikingly different – only in six of the countries there was a price decrease, while in 24 there has been an increase of the property prices.

In 2008 in Bulgaria the number of purchases of property was 309 788 which was 4.79 % less than in 2007 when their number was 325 385.
The direct foreign investment in property in Bulgaria in the first nine months of 2008 amounted to 1190.5 million Euros which is a decrease of 33.34% in comparison to 2007. At the same time the direct foreign investment in construction in the same period showed a decrease of 27.99% and amounted to 405.2 million Euros.
The average property price increase in Bulgaria for 2008 was 14.88% due to the expansion of the construction industry in the first half of the year unlike the stalemate of the last months. The average increase of the rent was 4.74%. Most of the buyers in 2008 were Bulgarians and Russians. The average monthly yield in 2008 was 6.34% which is about the average for Europe. In Sofia it was 5.89%, in the second largest Bulgarian city Varna it was 4.97%, while in Plovdiv, the third city it was 4.86%.
The average mortgage in February was 36 100 Euros. Mostly people who have savings able to cover 40% of the price of the property take mortgages at the moment. In Sofia the average mortgage was 45 200 Euros, in Varna – 36 140 Euros, and in Plovdiv – 25 400 Euros. Nobody takes mortgages exceeding
70 000 Euros at the moment and the banks do not lend mortgage which cover 80% or 90% of the price of the property.

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.

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.

In the first months of 2008 rentals have increased by 12% in comparison to the same period of 2007. The major reason for this is the constant decrease of the number of purchases caused by the recession and the lack of clarity about the future of the property market.  More and more potential buyers turn towards renting, rather than buying.  This is due to the restrictive politic of the banks and the growing financial uncertainty, as well as the growing expectations for an upcoming decrease of the property prices.

More and more apartments which have been bought for investment are offered for rent. The one bedroom apartment is the mostly in demand – the interest towards renting such kind of apartments have increased by 14% in the first ten months of this year. At the same time the demand for studios has decreased by 6%. This is due to the fact that the rent of the studios and the one bedroom apartments are similar in size.

The average price of properties in Bulgaria in the first half of the year has been 1418 levs per sq.m. according to the National Statistics Institute. The most expensive properties have been in Sofia where on average they sold for 2470 levs per sq. m. Varna has been in the second place with 2130 levs per sq.m. In third place was Burgas with 1755 levs per sq.m., closely followed by Plovdiv (1655 levs per sq.m.) and Veliko Turnovo (1331 levs per sq.m.). The cheapest properties have been in Kiustendil (751 levs per sq.m.) and Silistra (763 levs per sq.m.).

According to the analysis of UniCredit Group presented at the Euromoney Conference in Salonica, the average Bulgarian household consists of 2.8 rooms, while the average for the European Union is 4.2 rooms. However, the size of the living area in Bulgaria fairs better than in many other countries in Eastern Europe like: Romania (2,6 rooms), Ukraine (2.3 rooms), Lithuania (2.5 rooms) and Latvia (2.4 rooms).

According to the UniCredit Group Bulgaria has the highest number of home owners in the EC. There are on average 486 apartments per 1000 people in the country, while this ratio for the EU is 472 apartments and in South-East Europe – 413.15% of the Bulgarians intend to buy their own property in the next decade. However, according to the legal and financial advisers the recession will lead to slowing down in crediting. The growth of crediting in 2007 has reached 63%, while this year it will barely come to 40% and it is expected to slow down to only 25% in 2009.

The slowing down of the Bulgarian property market is most obvious at the Black Sea resorts, namely the Sunny Beach and the Golden Sands, and in the mountain ski resorts like Bansko and Pamporovo. The price of properties there have reached their peak levels and the number of purchases has been falling. There is no demand for such properties, while the the properties on offer are many. This is the reason why the Bulgarian banks avoid financing such purchases, as well as the construction of properties along the coast. According to leading business and legal advisers, the prospective investors can not  rely on off-plan sales at the moment. Many hotels along the Bulgarian Black Sea coast have been put up for sale and there are no prospective buyers interested in them. This means that most of them will be acquired by the Bulgarian banks which credited their construction. In the long run if the intensive construction does not stop, many hotels along the coast will have to be demolished like in Spain. However, in order to do this, a new legislative framework needs to be introduced by the Bulgarian parliament, and leading solicitors have been investigating the Spanish experience and preparing the necessary amendments to the current Bulgarian laws. Generally, the lawyers and the law companies seem to be more occupied than anybody else involved in the construction business.

Away from the Black Sea and the mountain resorts, the Bulgarian property market keeps moving because traditionally Bulgarians consider buying a property not only an investment but  most of all a form of security.

Despite the looming global financial crisis. New developments open in the Bulgarian Black Sea resort of Sunny Beach.

Oasis VIP Homes and Blue Pearl Apartment Complex in Sunny Beach will be presented at the largest property exhibition on the Balkans – BalPex. Oasis VIP Homes is the first luxury development of Galaxy Property Group in Sunny Beach. The development is in Mediterranean style with a park of more than 10 000 sq.m. and with three swimming pools. This project includes also Royal Sun development with 530 apartments.

The other project Blue Pearl is a development with apartments situated in the central part of the Sunny Beach. It comprises of 85 apartments overlooking the bay with Nessebar and St. Vlas, 16 shops, barber shop, gym and two swimming pools with a bar.

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.

Despite the financial crisis, the property prices in the suburbs of Sofia have been constantly increasing due to the migration of people from smaller towns and villages who seek employment in the capital. In the last year, more than 30 000 people have relocated to Sofia, while 12 000 people have moved to Varna, the second largest Bulgarian city. The same tendency can be seen in Plovdiv, Russe and Burgas. The newcomers to the cities usually look for cheaper properties in the suburds. As result the prices of apartments in those areas keep rising. The average porperty price in Sofia is 1094 Euros per square metre, while in the county it is 588 Euros per square metre. The studios seem to be very popular and their sales have increased by 17% in the last months. At the same time the demand for one-bedroom apartments have decreased by 28% and of larger apartments by 3%. Most of the sales are of newly built properties.

The Bulgarian banks have introduced tougher rules for lending money after two days of stopping crediting. Now they lend money only for the purchase of properties which can be easily sold if reposessed. Families with total income under 1500 levs per month can not take a mortgage to purchase an apartment in one of the larger cities. To such families the banks offer only small size credits with monthly instalments not exceeding 50 Euros. While in the past the banks were satisfied if the monthly repayment instalments were up to 50% of the total income of a family, now they restrict the instalments to not more than 39% of the monthly income. The average mortgage interest is 8.2% per annum and the average instalment is 360 Euros per month, which is an increas of 40 Euros for the last six moths.

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.

According to Credit Centre the most popular mortgage in Bulgaria at the moment is for a plot of land and a prefabricated house. More and more Bulgarians prefer to move in the outskirts of their cities and to build their own house, rather than to buy an apartment in a block, where two-bedroom apartments are in the same price bracket.

Another new trend is the increasing number of customers who restructure their debt, due to the increase of the interest rate. Many Bulgarians face difficulties repaying their mortgages and some even their utility bills. According to Credit Centre in September each sixth credit has been taken to pay old debt.

In general more than 79% of the mortgages are for the purchase of property and only 1.3% for construction.

Another tendency is that for a second consecutive month the average size of the mortgage has decreased to 43 000 Euros, while during the peak of the property boom it has exceeded 50 000 Euros. Customers freeze their purchase or redirect to a cheaper property. The change is more obvious among the most popular customers – the middle class ones – who used to take a 80 % mortgage for the purchase of one-bedroom apartments. Now these clients are seeking smaller apartments and try to pay a large proportion of the price with their own funds.

According to professor Minasian, it is likely that the Bulgarian economy might suffer a mini-recession in 2009 similar to the one in the much bigger economies, but in a much smaller scale.  There are investments in the Bulgarian economy and they lead to an increase of the total demand, however, the increase of the GDP is not that fast the levels remain modest. The only logical conclusion is that the investments do not generate the necessary economic growth as they are not in production but in properties.

The sales of properties in Bulgaria have decreased for the first time in the last few years, according to the Land Registry. From January to June 2008 there have been 134 891 sales while for the same period of the last year their number was 136 457. The decrease is just by 1.1% but it is a fact. Since 2003 the number of the sales has been increasing by about 20% per annum and this has lead to a constant increase in the prices of properties. At the moment, the buyers are still active in Sofia, Varna, Burgas, Plovdiv and Pleven. The number of sales in these cities has increased, though insufficiently. However, in many regional centres like Shumen, Sliven, Smolyan, Pazardjik, Veliko Turnovo, Vidin, Vratsa and Gabrovo the sales have decreased, and in Ruse and Razgrad this decrease has exceeded 10%. Last year Ruse was the leader in the property price increase which reached 41% but the high prices have put off many prospective buyers.

On the Black Sea coast it seems that the buyers’ activity has moved south. The Land Registry in Nessebar which covers Sunny Beach, St. Vlas, and Ravda reported a decrease of 12.5% for the first half of this year. At the same time the sales in Tsarevo have increased by 50%.

The interest in agricultural land has not diminished at all, according to the activity of the most developed market of agricultural land in the country, which is in the area of Dobrich, Lom and Montana.

Despite this, Bulgaria is still in the first place in the world for the increase of property prices from June 2007 to June 2008. According to Knight Frank the prices of properties in Bulgaria have increased on average by 32.3%.