Experts Warn about Property Bubble Risk in Eastern Bulgaria

Business » PROPERTIES | April 10, 2014, Thursday // 13:30| Views: 1576 | Comments: 0
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Bulgaria: Experts Warn about Property Bubble Risk in Eastern Bulgaria Photo by bnr.bg

Major players in the construction industry have cautioned about a bubble risk on the real estate market and in the construction sector in eastern Bulgaria in the next few years.

Bubble fears are explained with the fact that the demand for vacation properties, mostly by Russian-speaking citizens, is concentrated there, according to reports of investor.bg.

The forecast was presented as part of the presentation of the annual report of National Registry for New Constructions and Reconstructions bcc.bg on the construction market.

During the presentation, Angel Zahariev from A & A Architects and Nikolay Bachvarov from Baumit warned about the unsustainable model in the construction industry created by the lack of a national strategy on the housing policy and on the concentration of new construction in the Black Sea coast region (the districts of Varna, Burgas, and Dobrich), caused by increased demand for vacation properties.

Zahariev claimed that the vacation properties market was strongly dependent on foreign policy events and global economic trends, stressing that it was an unsustainable practice for the sector to rely on increases in this segment of the market.

The two cautioned that a collapse on the vacation properties market would be detrimental to the entire construction sector, citing Spain as a case in point.

In 2013, the newly launched vacation property projects exceeded 438 000 square meters of gross floor area, up by over 19% from 2012, when the newly launched construction projects in this segment amounted to slightly over 367 000 square meters, according to data of bcc.bg.

The gross floor area of the completed holiday complexes, however, dropped by 25.6% year-on-year from a rate of over 577 000 square meters to slightly over 429 000 square meters.

Angel Zahariev pointed out that there were positive signals in the construction sector, citing the growth in the construction of industrial buildings as an example. He claimed that the increase in this segment was evidence of economic revitalization trends.

The participants in the discussion agreed that the construction sector had reached a bottom in the period 2012-2013 and was just beginning to spring back to life.

Petar Mastikov from bcc.bg informed that in 2013 the gross floor area of the newly launched construction projects increased by nearly 22% on the year to over 2.4 million square meters.

The only decrease was registered in the segment of commercial construction, which fell by nearly 23% to slightly over 197 000 square meters.

The sharpest increase was registered in office construction, up by 153% to over 174 000 square meters of gross floor area, despite the fact that the amount of newly launched construction projects was far from the levels recorded in the peak years for the market.

Newly launched hotel construction projects increased by 1.7%, residential buildings went up by around 17%, and industrial buildings added 18%.

Residential buildings continued to dominate in the total volume of newly launched construction projects, with a stake of over 763 000 square meters, followed by vacation properties with over 430 000 square meters, industrial buildings with over 400 000 square meters, specialized buildings with 226 000 square meters, commercial site projects with 197 000 square meters, and hotels with slightly over 100 000 square meters.

The year 2014 started on a moderately optimistic note, with an annual increase of slightly over 6% in newly launched construction projects. Apart from that, several large-scale projects, mostly for vacation properties on the Black Sea coast, were launched, or were in a pre-launch stage.

As regards finished works, 2013 saw a 2.7% decrease in the volume of completed construction projects to slightly over 2.32 million square meters on a national scale.

The steepest decline was registered in the sphere of completed office buildings, down by around 54% to slightly over 105 000 square meters of gross floor area. The decrease in completed industrial buildings stood at 42%, to 202.6 thousand square meters, while commercial buildings registered a decrease by around 13% to around 403 000 square meters.

Completed residential buildings increased by almost 3.5% to slightly less than 825 000 square meters. Completed hotels registered an almost two-fold increase from a rate of 75 000 square meters to 131.4 thousand square meters.

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Tags: construction, property bubble, Eastern Bulgaria
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