Interview with Shtelyan Kalchev, BrokerOwner of RE/MAX Connection, Veliko Tarnovo.

Question: What can the Bulgarian real estate market do to survive the current global financial crisis?

Answer: Bulgaria's economy is part of the world's economy so the financial crisis has and will definitely affect our market. Bulgaria counts a lot on international investments and usually in a crisis what happens first is that international investor companies cut their desire to grow. Investment funds have shrunk considerably in the past few months because of liquidity problems.

Having said that this global crisis is also an opportunity; smart investors are currently searching the Bulgarian market for bargains. Mid-term and long-term investments are still worthwhile, but short term investments are really not a good idea.

To survive the current downturn the key word for the Bulgarian property market should be quality, quality products and services are very important if real estate sector participants want to stay in business.

There is a huge room for improvement on Bulgarian building sites and estate agencies have to increase their level of professionalism, quality will bring back investors and buyers from home and from abroad.

This is a trust crisis; people don't trust the system and don't trust that property prices have reached the bottom. Their expectations are for prices to fall even more, from the levels from 2005/2006, which is not possible in my opinion. Mainly people don't buy because banks have too conservative policies and give ridiculously high interest mortgages.

The Bulgarian people are not sure about tomorrow, they are even scared that they will not be working tomorrow; therefore it is a tough decision to buy a property under these circumstances.

The media in Bulgaria and across the world have talked up the ‘crisis' so much that they have made it worse, they have caused panic in the Bulgarian real estate market and economy in general, because of their love for bad news. Journalists and "experts" should be careful with what they say as they have caused a crisis in people's minds and when one is panicked the risk of uncalculated actions is much higher.

Q: What have you found to be the most and least affected types of property in the current downturn?

A: There are two main sectors in real estate, residential and commercial.

The problems in the residential market relate mainly to panel apartment blocks, which are of a much lower quality than brick built ones. Panels were built in the 1960s and 70s and they are nearing their expiry date. Banks have stopped giving full mortgages for these properties which has caused a large price drop in the whole sector.

One answer could be the destruction of panel blocks with help from government like has happened elsewhere in Europe, this would cause a new boom in the building industry as these blocks will have to be replaced.

Projects in bad neighborhoods and that are constructed from bad quality materials are feeling the downturn more than others. People in the building sector need to think more logically, there are no huge profits anymore, so quality and interior finishing needs to be improved and prices should be more reasonable. They have to understand that they will make less money while expending more energy.

No one is buying apartments before the so called act 14 as it is too risky; people are only looking for finished properties. The least affected are quality luxury real estates.

The commercial sector is close to freezing point. Land prices are dropping and there are too many frozen projects for sale. Hopefully soon at lower prices more people will be willing to buy.

Q: Some vulture funds, such as Appreciating Assets Ltd., an Irish based investment fund have started to move onto the Bulgarian market, do you think they should be encouraged to invest?

A: Bulgaria still has lots of benefits that are underestimated, a great way of life, wonderful location , beautiful nature, NATO and EU membership to name just a few. You only have to take a look at nature we have, the black sea, our mountains and you will realize that Bulgaria will always come through hard times and will always attract people to invest. Clever vulture funds will buy now, sit on their properties while receiving rent and will eventually make a huge profit in the long term.

There is no real crisis in Bulgarian real estate it is rather a cycle, 5 years of boom and now a down turn, but I am sure it will boom again. The unusual thing about this downturn is that it is combined with the credit crunch caused by globalization that everyone has now realized is a fact.

I can't be specific on these vulture funds as I don't have enough information on them. But I do know that several such companies are moving on to the Bulgarian market.

Q: Does the real estate sector in Bulgaria have things that it can improve upon, so as to attract more foreign investment?

A: This is a very general question and deserves a very specific answer. We have to work on quality, a lot of people made easy money and now they will have to work hard for their money, this may be hard to take for some.

Q: What should current investors be looking at when investing in Bulgarian real estate, when do you think the current downturn in the sector will end?

A: I haven't got a crystal ball unfortunately; no one really knows when it will end. All I can say is that I believe it is a good time to sell and buy now as we never know what will happen tomorrow. Investors should define their goals, work out a specific budget and only work with approved companies.

Q: The global crisis has put on hold construction sites valued at over BGN 3 B just in the Bulgarian capital Sofia, is the whole country affected in the same way?

A: It is affecting everywhere in Bulgaria equally, Sofia and the rest, in the same way as it is troubling the whole of Europe and the World. Lots of construction companies are performing poorly and are forced to release capital by selling at cheaper prices. Fear is growing; people are more and more concerned about tomorrow when it comes to big investments such as new home. What they need is valuable and trustworthy information. Then one can see so many opportunities in today's market. It is a great time to buy as prices have significantly fallen and there is a lot of inventory on the market.

Q: Can Russian investors make up for the loss of investors from EU countries; have you seen a rise in Russian interest.

A: Some investors have decided that this is the perfect time. They are thinking; I don't want to wait 6 months and kick myself having missed an opportunity. Prices have dropped 15-20 % nationally, young families therefore have a once in a life time chance to get their dream home.

Russian investors are currently very active on the seaside and with other large projects but they can not make up for the lost EU, mainly UK buyers who spent a large number of normally EUR 25-40 000 sums that contributed hugely to the country.

I am also very concerned about the image of Bulgaria abroad. The ton of bad media coverage can't often qualify as objective and there is more than a little manipulation in this respect. UK buyers are still looking and some of them buying, as there are great bargains on the market. I am sure though that Russian investors won't fill the gap UK investors have left in the market.

Q: Bulgarian Dreams, is being investigated by the City of London Police and Evro Imoti 2007 was fine recently for imitating the brand of a rival company, What can be done to stop illegal real estate practices?

A: I can not make a comment on somebody else's actions as it is not professional. I can say that the Bulgarian real estate sector is in desperate need of regulation not only for brokerages but also for developers and builders. We need a legal ethical code regulated by and supported by the Bulgarian government.

The European wide RICS body regulations should be brought in as soon as possible here. We have waited long enough. These new regulations will clear out people who are here for fat profit, only hard working professionals will be left and the situation will definitely improve.

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