Bulgaria to See 20% Rise in Residential Property Prices in 2008

Business | February 20, 2008, Wednesday // 00:00| Views: | Comments: 46
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Bulgaria: Bulgaria to See 20% Rise in Residential Property Prices in 2008 UniCredit Bulbank presented on Wednesday its analysis of the property market and the prospects for its development up to 2009. Photo by Nadya Kotseva (Sofia Photo Agency)

Named the world's strongest price riser in 2007, Bulgaria's property market is expected to keep up its momentum this year, experts said.

Amidst a global cooling of the property market, residential prices are forecast to grow by up to 20% in 2008, down by an average of 15% last year, Martin Gikov from UniCredit Bulbank projected.

He presented the bank's analysis of the property market and the prospects for its development up to 2009.

In view of the forecast rising prices following the county's accession to the European Union, the sellers on the house market decided to play a wait-and-see game, slowing down supplies and pushing prices up, Gikov explained.

The British and Irish home hunters are pulling out of Bulgaria's property market, unlike the Russians and Scandinavians, who are the most enthusiastic property buyers for the time being.

Mortgage credits grew by 67% in 2007 as compared to the previous year, Levon Hampartzoumian, UniCredit Bulbank CEO commented, denying reports of a speculative bubble in domestic lending.

He ruled out a Bulgarian repeat of the severe credit crunch that the United States faced.
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#46
Robin - 25 Feb 2008 // 09:30:24

I've no idea on how the logic of what you said, but this:

"You don't even need to sell it for a while, and why bother renting? Just let it sit empty for 5 years, then sell at a reasonable return"

would explain why so many new buildings have occupancy rates well below 50%. Although I suspect the "reasonable return" is quite a loose term. If you have 10m leva of "bad money" then turning that into 6m leva of "good money" is surely a bargain.

If you want to buy to live in BG, my experience is buy something at least 5 years old other wise you'll be living in a block all by yourself for some time to come. All the property we looked at that was new or "nearly finished" is still completely empty. Many are still unlivable, a year after the estate agent was saying it will be finished in "May". I'm glad we bought the slightly older flat we did because at least we have real neighbours, not some Mafia trying to launder their money or foreigners popping over once a year to have a big party.

#45
Robin - 25 Feb 2008 // 09:21:02

"One day their will be building laws to follow in this region-even thou now they have temporally ruined it!"

Hmm, these buildings laws are what will make current investment look like a bargain, possibly. Because the amount of property in Bansko will be limited, but the demand will go up, possibly. It's "possibly" really isn't it ;-)

"Their will NEVER be a strong enough demand to make money in these beach hotels- all due to the weather-Spain and the warmer countries u mentioned all have a chance to recover in the long run!"

This is one aspect I never understood about the Boom on the Bulgarian coast. The "guaranteed" warm weather season is at most 4 months (June - Sept). I was in Varna from March till October a few years back and I can tell you it was still cold and windy in May. If you're buying property as a rental investment, I don't think 4 out of 12 months is going to give you a very good yield - especially at current prices. In southern Spain or France you can rent your house out all year round. I've been to the Cote d'Azur in January and had some really nice sunny days and cool evenings. Varna in comparison was like hell had frozen over.

#44
pk - 23 Feb 2008 // 07:23:45

I agree with many things u say CJ except that Im only referring to losing money in Investments since the change, not 50+ years ago. Bulgarians have no concept or experience in analyzing the true risk in an investment.

We both know that most (not everyone) got crushed in the bank crash and this is where they did suffer-greatly...I agree with u

The free for all building is much worse then the other countries that u mentioned/ Just check out todays article about "not being able to stop construction at the Sea.

And your right and wrong about the source of the money for the boom. Yes it is black money with connections, but your wrong that even if they sit empty for 5 years they will be able to sell it-and this is because the whole premise of hotels on the beach is flawed...too short of season and no foreign fund will buy and bail them out, in an over built environment-with stagnant demand.

Believe me, the word is out in the financial community that investing at the beach is a loser except for your own personal use-but still possible in the Bansko area. Bansko reminds me of Aspen Colorado in the early 1960's. In the long run, this whole area has a chance because it has the possibility of 2 seasons. One day their will be building laws to follow in this region-even thou now they have temporally ruined it!

Their will NEVER be a strong enough demand to make money in these beach hotels- all due to the weather-Spain and the warmer countries u mentioned all have a chance to recover in the long run!

Unlike Bg...

#43
CJB - 22 Feb 2008 // 14:32:27

"My point is simply that home ownership in Germany is low because rents are cheap and you are not screwed over by your landlord like in the UK every step of the way. Tennants have far higher protection in Germany than in other countries, especially when it comes to rent increases."

Believe it or not, but until the 1960s most people in the UK rented from private landlords. There was a thing call "rent control" which regulated how much the landlord could increase the rent by. Public social housing provision from the 1950s until the 1980s stripped out a lot of demand for privately owned rented accommodation, because council houses were generally cheaper and better quality.

Thatcher created her "home-owning democracy" in the 1980s by encouraging people to buy their council houses (right to buy); and aboloishing rent controls, making a mortgage cheaper than renting as greedy landlords set whatever they felt was a "market" rent.

Now there's a serious shortage of affordable housing to rent in the UK for those who can't afford to buy. Thanks Thatcher!

#42
CJB - 22 Feb 2008 // 14:20:32

"I would not call a banking/currency crisis a down market or market cycle."

No, it's potentially much more serious.

"The fact is Bulgarians have NEVER seen a real bear market in ANYTHING!"

Maybe in the 1920s/30s? I wasn't there but I assume BG suffered like everyone else.

"And now that they are a member of the western world, their going to learn the very painful feeling of what it feels like to lose money in BAD INVESTMENTS!!"

BG has been part of the "West" economically since around 1991. The economy basically collapsed in 1997, following a banking crisis. Hyper-inflation similar to that experienced by Germany during the Great Depression, or Latin American countries in the 1970s and 80s, rendered savings worthless. There was even no food to be bought, for God's sake!

So I think Bulgarians have already experienced losing money quite recently.

"The have been getting away with these profits these last 7 years no different then what happened in the Nasdaq tech. boom in the late 1990's."

It's different in quite a few respects. Yes, it's a bubble, but it's not being played out on the stock market. One important question is: what are the sources of money fuelling the construction boom in Bulgaria?

"Just add massive corruption with no legal system and this turned every Bulgarian Developer a "Genius"!"

Alternatively, one could say that many, maybe even most Bulgarian property developers are channels for laundering black market money. Consider a scenario where the objective is to turn proceeds from criminal activity into a legitimate business. So, invest in a really expensive speculative development somewhere, make sure your or your relative's company is the contractor so you recycle the cash into a legal business. Maybe even apply for SAPARD cash or similar to reduce your losses.

Result: one property, which will accrue value in the long term; a healthy cashflow for your construction business; friends and business associates on the payroll; maybe even some EU taxpayers' money in the bag too.

You don't even need to sell it for a while, and why bother renting? Just let it sit empty for 5 years, then sell at a reasonable return.

This is why the BG property bubble is different from those in the true "West". But quite similar to the ones in Montenegro, Croatia, Turkey, Greece, Spain...

#41
NC - 22 Feb 2008 // 13:52:16

Don,

I also think we're on the same page. Just a few more comments.

"I do not think this is based on fact or knowledge. Maybe the quality is not the same as in Germany, but then what is?"

I fully admit that my view is based on anecdotal evidence while I lived in Bulgaria, so you might be right. What I can tell you is that I did see some buildings that I wouldn't live in even if someone paid me to do so.

"The down side to the speculation (in BG and the rest of the world) is that it drives the prices up for the folks who are just looking for affordable housing."
Exactly. But there could also be a down-side if average quality also goes down. A foreign investor looking to capitalize on house price increases won't really be able (or care) to assess the quality as someone buying on-the-spot. I think it's natural to expect some constructors will try to take advantage of this. I believe this is true for such speculative rushes fueled by foreign investment everywhere, not just Bulgaria.

#40
viking - 22 Feb 2008 // 13:34:08

NC,

I think we are "on the same page" and agree, except when you say "many of the new buildings are also dangerous". I do not think this is based on fact or knowledge. Maybe the quality is not the same as in Germany, but then what is?
I was at a fair in Germany years ago and saw some builder's displays. The quality was like nothing I had ever seen before! Very well made, but it cost 5 times what was being built in the USA. You get what you pay for in life and buildings are no different!
As for the "real-estate gold rush"
Anyone who buys anything to make a profit takes a chance and real estate is no different. The down side to the speculation (in BG and the rest of the world) is that it drives the prices up for the folks who are just looking for affordable housing.
We can complain all we want, but the market has to correct itself and that does not mean prices will fall below normal inflation. I was told the average property (home) increases in value about $10K a year during normal markets. If that is true, it means you should not save $6 a year to buy something in the future!

Don

#39
NC - 22 Feb 2008 // 13:06:53

viking,

"I think the newer buildings are of a much higher quality than the old poured cement flats and even the brick flats with gaps you could put your hand through!
The buildings put up in the commie days with poured cement walls had a 40 year guarantee and guess what? They were built in the 60's and the 40 years is up!"

My point that you quoted, was just that many of the new buildings are also dangerous. Smoke and mirrors, for the most part. I absolutely agree that some of the older buildings are in dire need of replacement, but this real-estate gold rush isn't the best for the long-term, in my opinion.

#38
pk - 22 Feb 2008 // 10:57:18

I would not call a banking/currency crisis a down market or market cycle.

The fact is Bulgarians have NEVER seen a real bear market in ANYTHING! And now that they are a member of the western world, their going to learn the very painful feeling of what it feels like to lose money in BAD INVESTMENTS!!

The have been getting away with these profits these last 7 years no different then what happened in the Nasdaq tech. boom in the late 1990's.

Just add massive corruption with no legal system and this turned every Bulgarian Developer a "Genius"!

#37
Robin - 22 Feb 2008 // 09:39:01

resipsaloquitur,

My comments weren't entirely serious. But, I was born in Germany and lived there for 25 years until 7 years ago, so I know what I am talking about.

Of course there is no direct rent control. But there is something called the "Mietspiegel" and if you're rent exceeds this by too much you can and will get your rent lowered. This means landlords can't just increase the rents as much as they want in order to cover mortgage costs. Further, rents ARE effectively subsidised through the significant tax breaks you get for buying properties.

Maybe be Berlin is like what you say with empty shops. Darmstadt (where I grew up) and the West in general is not. When I was renting in central Darmstadt I paid 750DM (=750lv) a month "Warm", ie including all heating and electric bills for a 2 room flat. That was 7 years ago. A flat of that quality here in Plovdiv will cost at least 400lv once you've added the bills onto it. My guess is in Sofia it will be higher still. And my work colleagues from outside of Darmstadt were complaining about how high rents were in Darmstadt. It is amongst the highest in Germany, far higher than Berlin (a poor city actually). They were saying in Koeln rents were a third less. Whereas I thought I was on a bargain because my mates in London were paying that for a room in a crappy shared house.

My point is simply that home ownership in Germany is low because rents are cheap and you are not screwed over by your landlord like in the UK every step of the way. Tennants have far higher protection in Germany than in other countries, especially when it comes to rent increases.

#36
viking - 21 Feb 2008 // 20:17:50

lawmerchant,

There was a gator down here looking for you the other day!
Did you say you visited the Everglades? LMAO!

Only someone stuck in Germany would call Miami, Orlando,Tampa, the Keys and the rest "boring"!
I have never been "bored" one minute in my life!

#35
George Zheliazkov - 21 Feb 2008 // 19:52:26

Viking,

Bulgaria will be the place after few years, that’s where we will be moving. I don’t see myself moving my business to Florida. The business is industrial technologies (process automation, robotics etc.) and I don’t think there is much of this stuff in Florida. The other major reason is my wife who happens to be French Canadian and does not really want to move to the US. Like I said it will be Bulgaria few years from now with possibility for retirement and/or business.

Thanks for the suggestion/invitation anyways.

#34
resipsaloquitur - 21 Feb 2008 // 19:46:22

Do not send George to Florida...such a dreary,boring place!

#33
resipsaloquitur - 21 Feb 2008 // 19:42:51

Hello Robin,
how i se you are fantasizing...rents in Germany are NOT CONTROLLED by the Government...
you lived in Germany probably 25 years ago.

I live in Germany since 1971 and i should know better as I study all the time the German laws.

Intil the unification there was a rent control ONLY in WEST BERLIN...not West Germany.

The rents are not low... may be in very old houses,built in the 19 th century...but then the heating costs are very high.

That is what i hear from many clients,who are sueing their landlords for not doing repairs in the flats.

The majority of the Germans can not ecen dream tpo buy an apartment...you must have CASH(bares Geld) at least 20-30% of the purchasing price.

Forget it...most people here are making ONLY 800-900 € per month.

Now is the third week of the month and the shops in Berlin are EMPTY...even the Post Office.
Ask yourself why... Most people finished their money and are waiting for the next salary check.

#32
viking - 21 Feb 2008 // 19:29:44

George,

That thing sits on a 7 1/2 foot lot!!
It does have two parking spots and parking spots are selling for $100K(maybe even more) in Manhattan!

Like I said, Geo, your goal should be to move to Florida. I played cards the other night and the 3 people at the table with me were all Canadians! They made the mistake of not being naturalized years ago and are having a very hard time with the INS (homeland security). One has spent $500 and spent 6 months just trying to change her name!

Don

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