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Bulgarian Property Market Update – June 2007

Most people who are interested in buying property abroad, whether as a permanent residence, a holiday home or as an investment, will be very aware of what is currently happening in Spain at the moment.  For a number or reasons the property market in Spain is now somewhat stagnant and, in places, chaotic.

These reasons are, for the most part:

• fear and uncertainty about the likely effect of the “land grab” regulations by virtue of which a developer (working hand in glove with a Mayor who may be somewhat less than honest!) can “steal” some or all of your land if it is “essential” for the development of adjoining land; this fear is driving many owners to sell up
• German people who own second homes abroad are now taxed at home on foreign property to bring back into the country much needed funds for investment in the stagnating German economy and this has also brought a lot of property onto the market
• there has been considerably over development, particularly in the coastal regions, which has lead to an over supply of properties; many properties remain unsold
• in the UK there is a mountain of personal debt (3 billion pounds) and, with inflation at higher that the target given to the Bank of England, as a result of several rises in the base interest rate with another one to come in July and yet another forecast for the autumn, people need to pay more to service any UK borrowing; this has resulted in less money being available for investment in Spain

Indeed, this last point impacts quite heavily on the owners of second properties in Spain and many of them are now seeking to “unload” their properties so as to be better able to meet their increasing liabilities in the UK.

The situation in Spain will take quite a long time to stabilise and then recover because, quite apart for the over development issue, it mostly depends on improvements in the situations in other countries taking place.
You may well feel that, for this reason, Spain is not as safe a place in which to invest as it was once thought.
Many of these factors do not apply to Bulgaria.  Consider:

• there are no corresponding “land grab” laws
• with the exception of the Sunny Beach area, there has been no coastal over development and, in any event the Government has intervened and passed legislation restricting the density of development in coastal areas and resorts
• UK citizens are unlikely to be taxed on foreign property because our economy is in much better shape that the German economy (that makes a change!)

It was, of course, the British who led the charge of investing in Bulgaria.  With the exception of the Russians, by far the greater number of foreign buyers came from the UK and Ireland.  The Irish and the Russians are still buying.  For the financial reasons outlined above, the UK buyers are far less numerous than before.

The big difference between the Spanish market and the Bulgarian market is the relative absence of destabilising factors.
Yes, there is a lot of property on the market in Bulgaria but this is largely because of the current absence of UK buyers.  This means that the market has swung – as things inevitably do swing – from being a sellers’ market to a buyers’ market.

Of course, the Bulgarians are going to have to get used to the fact that this sort of thing happens.  They have only been out of Communism for 16 years and, until now, the only experience they have had of the property market is that prices rise.  You, of course, are much better informed and very much more experienced.  I will explain, for logical reasons and not merely “sales puff”, why now is a good time to buy.

1. When interest rates rise so does the value of the Pound against the Euro.  Properties in Bulgaria are priced and traded in Euros.  For this reason, your Pound buys the same property for less.
2. The Bulgarian Lev is tied to the Euro at around 1.96 Leva to the Euro.  This mean that, if you want work doing, it will cost you less to have it done.
3. Because the market was buoyant and prices rising steadily, it was not usually possible to negotiate prices with Bulgarian sellers.  Now, because of the large number of properties for sale, those sellers who are really serious about selling, are having to agree more realistic prices.
4. Bulgaria joined the EU on 1 January 2007.  There is now going to be a massive amount of money for improving the country’s infrastructure and its economy generally going into the country from the EU.

This means that the speed with which an affluent middle class becomes established is going to grow rapidly and there are going to be more and more Bulgarians who are going to want to buy their own homes or buy homes which are bigger and better.

Spain has already been through that process and the additional development was to meet foreign and not domestic demand.

For those of you who already own property in Bulgaria, it will not be hard to see the secondary message in this newsletter.  Now is a very bad time to sell up.  There are a lot of owners competing for fewer buyers.  In our opinion it would be wise to hold out for about 18 months or so.

Conversely, now is a good time to buy if you are thinking about it but be careful what and where you buy and make sure that you have negotiated the right price.  Do not be blinded by the fact that property appears to be very much lower in relative terms than in the UK or the rest of Western Europe.

Also be aware that if a property is really cheap (i.e. only 6,000 Euros for a plot of 2,000 square metres) there may well be a very good reason for it!

We do not recommend that you buy an apartment within a resort such as Sunny Beach.  Certainly, if you are thinking of going into the holiday rental business – forget it!  There are presently a few thousand apartments unsold (and nearly as many apartment owners chasing holiday lets) and maintenance charges are rising faster than prices.

Some owners are already becoming very concerned about this and selling up.  If the trend continues, places like Sunny Beach could become ghost towns in 15-20 years and the properties derelict and valueless.  Already much new building work in Sunny Beach has stalled and the place continues to resemble a permanent building site!  The main road through the resort is still dreadful and, as the serious flooding last year proved, the infrastructure was never properly upgraded to take account of the massive development which has taken place.

This does not apply to the newer resort of Albena and will not apply to any further resorts such as the one planned for Shkorpilovci.

The advice we give is to focus on properties with reasonably good access to an international airport and to towns and cities that have a good commercial and industrial base.  You should be looking to buy land (with or without a house) so that you are not dependent on any developer or property owning company to maintain the structure of the building.

We give this advice as to location because, in the not too far distant future, the Bulgarian middle class will become accustomed to the merry Western European sport of “commuting” and this will drive up the prices of rural and semi rural properties in the areas around the principal towns and cities.

Finally, not all UK airports yet fly into all Bulgarian international airports.  It does pay to check your nearest airports to see which air links are currently in existence and to choose your search area accordingly.

Paul Moody
Owner and UK Manager
VisitPoint Bulgaria EOOD