The Bulgaria 2011 Review: Properties

Business » PROPERTIES | Author: Milena Hristova |January 6, 2012, Friday // 17:25
Bulgaria: The Bulgaria 2011 Review: Properties Bulgaria's National Sports Arena was opened in Sofia in the summer of 2011. Photo by BGNES

Bulgaria - No Longer the New Spain

Bulgaria Enters Top 5 UK Property Investors' Nightmares

Bulgaria has been ranked the fourth worst property market to invest in 2011 in a list, compiled to gauge the sentiments of and help Britons make the best investment choice for financial gain.

Bulgaria was once regarded as the 'the new Spain' for overseas investors, but this is no longer the case, Colordarcy consultancy, which carried out the survey, commented.

"Property prices are in freefall and with the exit of British and Irish buyers, Russian investors now dominate the market and their strong bargaining skills result in continued falling prices," it adds.

The report says that for many investors lured into coastal and Bansko ski properties with no exit in sight, the dream came to a sorry end.

Meanwhile the capital Sofia was subject to huge foreign investor interest in 2007, but the ensuing bubble has long since burst.

Ireland is the worst place to buy a second home under the sun for Britons, according to the ranking.

"Once the envy of the world when the property markets boomed between 2000 and 2006, the sheer scale of their downward spiral becomes apparent when one recognizes that apartment prices fuelled by yet another painful 15% fall in 2011 are now down by a massive 60% from their peak," the agency says.

Irish, Bulgarian Housing Markets World's Most Struggling

Ireland and Bulgaria are the countries, whose housing markets saw the sharpest fall in prices during the third quarter this year on an annual basis, a survey by the Global Property Guide shows.

The Irish housing market remains the world's weakest performer. House prices were down 15.61% year-on-year, the steepest decline since 2008.  Quarter-on-quarter, Ireland's house prices slid 4.25%.

Bulgaria registered the world's second-biggest fall in residential property prices from July to September, down by 9.65% year-on-year.

It is one of several European housing markets, which experienced accelerated downturns during the year ending in the third quarter of 2011 - Netherlands (-5.20%), Portugal (-6.77%), Slovak Republic (-7.94%), Warsaw, Poland (-7.95%), Spain (-8.41%).

On a quarterly basis however Bulgaria recorded a slim 0.11% decrease in housing prices.

Putting the House in Order

Bulgaria Outlaws Property Cash Buys

New rules that envisage that all property transactions in Bulgaria must be carried out via bank transfer came into force on July 1.

The requirement will not be applied to deals worth less than BGN 10,000 in a bid to avoid unnecessary complications for the buyers and sellers of land and property in small villages.

There is hope that the new rules will help to reduce property fraud and money laundering.

As well as reducing corruption, it also aims to ensure that all fees and taxes owed to the state are paid, through the creation of a State Depositary Bank which would serve as a guarantee for all payments in the form of the state acting as custodian for deposits.

The legislative changes will require that both the vendor and the buyer specify their bank accounts for conducting a property deal. Alternatively, they could use the account of their notary public.

The conditions for depositing money into bank accounts as part of the deal will be specified by the respective sides in written agreements.

There is also hope that the new laws may inspire more confidence from overseas property buyers.

But, there are risks to this new system, as sellers and buyers may want to avoid the new fee charged by the bank for servicing the transactions.

Deals that Broke Bulgaria Market Monotony

Bernard Investments Acquires Oriflame Center in Bulgaria

Bulgaria's real estate investment trust ERG Capital 1 sold at the beginning of December the Commercial Center Oriflame in the capital Sofia to Bernard Investments after failing to strike a deal with Greece's Bluehouse Capital last year.

The price of the deal is EUR 1.63 M, down from the initial tag of EUR 2.3 M.

The sale makes it possible for ERG Capital 1, majority-owned by the Bulgarian-American Enterprise Fund (BAEF), to terminate its operations this year as planned upon its establishment seven years ago.

Bernard Investments is owned by French businessman Nicolas Rene Colonna Walewski, who came to Bulgaria last year. This is his third acquisition in the capital Sofia.

At the end of March, ERG Capital 1 shed its key asset in Bulgaria - a store of hypermarket chain Praktiker on Tsarigradsko Chausse for EUR 10 M.

The properties of Sofia-based ERG Capital 1 and ERG Capital 2 REITs were put on sale in a EUR 27 M deal in September last year. Greek investment fund Bluehouse Capital declared interest in the deal, but said it was willing to acquire only the retail properties.

That was the reason why the distribution center of the cosmetics company Oriflame, located near the interchange on the Tsarigradsko Chausse boulevard, was taken out of the package deal and put on sale separately.

BenchMark Fails to Sell Sofia Business Center, Bids Too Low

The sale of BenchMark business center on Sofia's Tsarigradsko Shosse Boulevard has failed after the bidders submitted unsatisfactory offers, the owner announced in the middle of November.

BenchMark Fund Estates REIT, one of the biggest property funds on the Bulgarian Stock Exchange, invited a tender for the sale of BenchMark business center in July last year.

"We are not happy with the offers and besides we are not obliged to strike a deal," Veselin Genchev, co-chief executive office of the fund, told Capital daily.

The office center spreads on the 35000 sq. m and the investments made in it have been estimated at EUR 27 M. In a report about its activities in 2009 the fund's management fixed a selling price of EUR 35 M.

Meanwhile it emerged that BenchMark Fund Estates is close to wrapping up the sale of Rakovski Business Center on Rakovski Boulevard in Sofia to the European Commission Representation in Bulgaria.

The impressive futuristic building is expected to obtain a permit for exploitation by the end of the year.

At the end of last year, Benchmark Fund fixed a selling price of EUR 10.65 M for this building. The deal price went down to EUR 8.2 M, to be paid by the European Parliament.

Recent surveys have showed that asking rental and sale rates for office space in the Bulgarian capital Sofia have significantly dropped driven by the large supply and the weaker demand.

Rockefeller Eyes Third Property Deal in Bulgaria

Europa Capital, member of the US real estate company Rockefeller Group, announced it is holding talks for a new property acquisition in Bulgaria, its third in the Balkan country.

"We will have a new deal over the next three months. It will be in Sofia," Chris Bennett, Director-Head of Acquisitions at Europa Capital Emerging fund said at the conference for properties BalREc 2011.

Bennett said the deal price will range between EUR 30-40 M, but refused to disclose the property sector the acquisition belongs to.

Europa Capital entered Bulgaria's market at the beginning of the year by acquiring Retail Park Plovdiv, Plovdiv, from Landmark Property Management. The transaction volume for the investment was EUR 20 M.

In August Europa completed the acquisition of Mall of Sofia, Sofia, Bulgaria, from GE Real Estate and Avestus Capital Partners. This was the fund's second investment in the country.

The acquisition amounted to a transaction volume in excess of EUR 100 M and was financed by the existing lenders OTP Bank and DSK Bank. Mall of Sofia continued to be managed by Avestus Capital Partners with property management provided by MOS Management.

The real estate fund manager Europa Capital declared its interest in the Bulgarian market as early as in 2007, when it said it is looking at a commercial center in Bulgaria.

After the recession set in, the company was forced to postpone its plans, but in March last year announced its determination to make a comeback in Eastern Europe after an absence of more than two years.

RGI's Europa Capital Completes Acquisition of 'Mall of Sofia'

Europa Capital LLP, a member of the Rockefeller Group, completed in the middle of August the acquisition of Mall of Sofia, the first shopping mall in Bulgaria's capital.

"Europa Capital LLP, the fund manager of Europa Fund III and the Europa Emerging Europe Fund, is pleased to announce that it has completed the acquisition of Mall of Sofia, Sofia, Bulgaria, from GE Real Estate and Avestus Capital Partners. This is Europa's second investment in Bulgaria this year and demonstrates its ongoing commitment to the region," Europa Capital said in a statement on its website.

Mall of Sofia is a 23 600 sqm shopping center with 10 400 sqmof offices above, located in the centre of Sofia, the capital of Bulgaria.

"The property has an excellent tenant roster and there is scope to augment the existing income through active asset management," according to the mall's new owner.

The company further announced that the acquisition, which amounts to a transaction volume in excess of EUR 100 M, was financed by the existing lenders OTP Bank and DSK Bank. Mall of Sofia will continue to be managed by Avestus Capital Partners with property management provided by MOS Management.

Europa Capital is a real estate fund management group operating from offices across Europe. Europa Capital is a member of The Rockefeller Group ("RGI"). Europa Capital is currently investing two investment funds for European property investment, being Europa Fund III and Europa Emerging Europe, which invests in Eastern Europe.

In June, The Irish Times reported that the sale of the Mall of Sofia for EUR 100 M generates a gain of more than EUR 20 M to be shared equally by Avestus Capital Partners and Irish GE Real Estate, according to a source close to the Irish property company.

This is Europa Capital's second investment in Bulgaria this year, after it bought Retail Park Plovdiv, a 25,000 sqm retail warehouse park located in Plovdiv, the second largest city in Bulgaria approximately 150 km southeast of Sofia.

Avestus and GE Real Estate had acquired a 50 per cent stake in the shopping center rom Israeli property development firm, AVIV and Israeli cinema operator, CCI, for about EUR 37 M in August 2005.

They purchased the remaining 50 per cent when the centre was built in May 2006, taking their investment to EUR 80 M.

Mall of Sofia, Bulgaria's first ever shopping mall, opened doors in 2006.

New Modern Developments on Sofia Horizon

Sopharma Business Towers Officially Opened in Sofia

Sopharma Business Towers, an office development in Bulgaria's capital Sofia, was officially opened at the beginning of October.

"This is a vast investment that the state's efforts made possible," Bulgarian PM Boyko Borisov said during the official opening ceremony.

"I am glad this is over," Sopharma CEO and owner Ognyan Donev said, adding that it took him 8 years to have his own house build during the transition towards democracy in Bulgaria, which almost made him give up on dealing with construction.

The buildings have been marked as "Class A" - the highest class in office and retail buildings according to European and World classifications. The Class A high-tech office buildings use the energy of the sun, wind, natural temperature of the soil and ground-water.

Sopharma Business Towers has focused on using natural light – which will be available 82% of the working time throughout the year. Even in the event of a cloudy whether, the natural light available inside is 800 lux with 500 lux needed.

Donev recently made it clear that the large Bulgarian pharmaceutical producer is embarking on an ambitious program to expand its sales and presence throughout Eastern Europe, especially the Baltic states, Poland, Belarus, Ukraine, Serbia, and Turkey and possibly Greece.

Sopharma is known as one of the leading pharmaceutical companies in Bulgaria.

State of Art Sports Arena Opens in Sofia

Bulgaria's Prime Minister, Boyko Borisov, officially opened at the end of July the brand-new Sofia sports facility "Armeets Arena.

The Arena has 12 529 seats and the capacity to hold 19 000 people. It was built in 18 months. It can be used, under the contract, for 8 types of sports, but offers possibilities for the practice of 30. It has a special security system that takes pictures of the spectators and recognizes those banned from sports events over hooligan acts.

Breakthrough Victory

Britons Win Property Fraud Case in Bulgaria

A group of 46 Britons, owners of flats in the Bulgarian ski resort of Bansko, threw up a party at the end of November to celebrate their court victory and the regained access to their own properties.

The resolution of the dispute is considered so significant that even Cath­er­ine Bar­ber, Charge d'af­faires (act­ing Head of Mis­sion) of the UK Mis­sion in Sofia, attended the party on Sunday at the All-Seasons leisure complex in the town of Bansko, 120 miles south of the capital Sofia.

Cath­er­ine Bar­ber herself inaugurated officially the building and cut the ribbon, while everyone was welcomed with bread and salt, following Bulgarian traditions.

Seventy-eight Britons bought apartments in the complex, but not all of them managed to come to what they dubbed the Victory Party.

The court saga over the alleged Bulgarian property fraud worth millions of pounds dragged on for over three years.

The Britons invested a total of more than GBP 6 M at a "green" stage on 70 apartments at the All-Seasons complex in the mountains above Bansko, but were defrauded.

The investors accused the Bulgarian real estate company "Zekom" and its director, Roman Romanov, of illicit dealing.

Since "Zekom" has sold the property to a third party, the Britons were denied entry to their flats in All-Seasons for over two years.

In March 2010, 74 British citizens stormed into the Bulgarian apartment complex, saying this is the only way to gain access to their property.

Bansko, 120 miles from the Bulgarian capital Sofia, is a top-class ski resort. British buyers used to flock to Bulgaria but have largely stopped since the country's property bubble burst in 2008.

Exit the Britons, Enter the Russians

Mass Exodus of Brits Looms for Bulgaria, Russians Take Over

Bulgaria's real state market, which used to benefit from large number of UK buyers before 2008, is now said to realy heavily on Russian buyers for its recovery.

Owning a second home abroad was once the preserve of the super-wealthy, but in the past decade a heady combination of TV property shows and cheap mortgages has convinced an estimated half a million Britons to buy their own place in the sun.

The value of UK-owned foreign property investments peaked at GBP 58 B in 2008, up from GBP 10 B in 2000.

Recently however British owners of second homes overseas, including Bulgaria, have been selling up due to falling rental income.

British and Irish property buyers, who purchased resort properties in Bulgaria during the boom years, are now even willing to sell them at a loss to take advantage of the lucrative deals currently offered on the British real estate market.

Instead investors from Russia, Ukraine and Azerbaijan are showing a growing interest in real estates located in Sofia and along the Black Sea coast.

They are looking for already built properties or new construction and refrain from greenfield purchases.

Over 200 000 Russian nationals have bought real estate in Bulgaria in the first month of 2010, the total cost of the properties they acquitted exceeding USD 1 B.

Bulgaria still ranks first in Russia among the countries which attract the most buyers in the middle segment. Last year, real estate prices dropped by 25-30% and these are the levels around which the market will stabilize in 2011.

Bulgaria's Property Market in Figures

Bulgaria's Housing Prices Decrease by 6% September 2011 y/y

Bulgaria's housing market has registered a 6.1% price decrease in September 2011 as compared with the same month of 2010, according to the Knight Frank Global House Price Index.

The Balkan country is now placed 47th among 51 countries researched by Knight Frank and ranked according to their housing market price growth.

Hong Kong tops the ranking with an annual growth of 19.3%, followed by Estonia (14.3%) and India (13.9%).

Cyprus, Ukraine, Russia and Ireland have seen larger decreases than Bulgaria over the last year.

Knight Frank's index, which tracks the performance of the world's mainstream housing markets, showed zero growth in the three months to September. This was the index's weakest performance since Q2 2009 and raises fears that it could enter negative territory by the end of the year.

The index is compiled on a quarterly basis using official government statistics or central bank data where available.

Office Rental Prices in Sofia Hit 'Unseen Lows'

Despite expectations that upbeat sentiments among office occupiers will fuel this sector of the real estate market in the capital Sofia, prices have hit unprecedented lows, a survey shows.

As a result of oversupply of office space and fierce competition between landlords to gain new tenants, asking rental levels continued to decline during the first six months of the year, according to a report by realtor Colliers.

The sharpest decline in rental prices was seen in the suburbs, where they ranged from EUR 7.5-8 per square meter. Rental levels were down to EUR 8-11 per square meter in the wider city center, and EUR 10-15 per square meter in the downtown.

The total area of "modern office space" in Sofia has reached 1.4 million square meters in the first half of 2011, a growth of 5% year-on-year, with many new buildings completed in the outskirts of the city.

About 65% (898 000 square meters) of the office space in Sofia are located in the suburbs, while 21% are in the greater city center, and 14% are in the downtown.

The consultancy's report further reveals that the average office tenant contract period in Sofia remains unchanged – 3 to 5 years.

Relocation remains the main driver of tenants' activity as recent months have seen many tenants of office space in Sofia shifting their location from the greater downtown area to the periphery of the city or moving into a place with more comfortable and suitable conditions.

Office space rental prices in Sofia may continue to decline before stabilizing hopefully in about a year at the earliest.

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