Bulgarian Property Prices drop further still in 2011.

According to the National Statistical Institute, prices of property across the nation dropped by 6.1% on average throughout 2011.

Amongst the most severally effected districts were:  -6.9% in Pernik (just outside of Sofia), -8.3% in Motnana (north of Sofia) and -4.9% in Yambol (Southeast Bulgaria).

As a whole, the average per sqm prices in the major urban areas are now:

Sofia:                     745 Eur / sqm

Varna:                   747 Eur /sqm

Bourgas:              597 Eur /sqm

Data relevant to foreign owners of property in tourist areas of Sunny Beach and Bansko are less clear, however these are expect to as follows:

Sunny Beach:     475 Eur /sqm

Bansko:             330 Eur / sqm

So how is Bulgaria’s property market faring by comparison to other European nations?

• Netherlands -5.20%
• Portugal -6.77%
• Slovak Republic -7.94%,
• Warsaw, Poland -7.95%
• Spain -8.41%

Prices are expected to decrease further still in 2012. Foreign owners can expect the same level of Russian buyers to prop up demand along the coast. However, the volume of competition / new vendors shows no signs of slowing, thus the chances of selling decrease as the volume of supply, stock and desperate vendors continues to climb.

2012- most likely another very difficult year for Bulgarian property market.

When the economic crisis started in 2008 most of the economists predicted a sharp decline of the economic activities for 2-3 years followed by a boom in the property investment.  

Here we are at the end of 2011 with no a slightest sign of recovery in the Bulgarian property market. Over the last 3 years we witnessed almost a total annihilation of property agents, property developers, mortgage advisors and so on. The property companies that survived were the once that managed somehow to reorganize themselves and continued to operate on the Russian market. Bearing in mind, though, that the Russians  presented no more than 30% of the Bulgarian property investors in 2008 and that the number of the Russian buyers also decreased by almost 50% over the last 5 years, we can quite accurately suggest that Bulgarian property industry shrank to about 10% of its best time.

According to New Estate Bulgaria 2012 is not promising to be any better than 2011. Furthermore, the agency is predicting a further decline in the Bulgarian property prices by between 5-10% in Sofia and 10-15% in the seaside properties. As for the properties in the ski regions their prices have already reached the bottom and no further decrease in the price would bring more hope for sales.

As a very broad calculation the average property prices in Sofia would fall from 700 EUR per sq. m to around 600-650 EUR per sq. m and the properties in the sea resort would be around 450-550 EUR per sq. m.

This trend is really discouraging and is very likely to lead to even more British and Irish vendors realizing that waiting in a hope of economic recovery is proving not productive at all, accepting quite substantial loses and selling their Bulgarian properties for what the market can currently offer.  

NewEstate Bulgaria reaches its 2011 target early and increases its portfolio to 7 million Euros of managed properties in Sofia.

It is thought a combination of factors have contributed to the quicker than expected growth; as well as the predicted impact of an aggressive marketing strategy backed by extra investment, the surprising element has been the repeated closure of small competitors who have left the property management market altogether. In many cases long standing landlords of multiple Sofia properties have had to revisit the marketplace for the first time in several years, which has been a catalyst for NewEstate Bulgaria’s opportunity to attract a ‘new business’ in this sector.

NewEstate continues to see the current opportunity in the middle market for new properties renting to young professionals. With less than half the number of ‘expats’ residing in Sofia by comparison to three years ago, the luxury market remains in decline with fewer tenants willing to pay high prices for the top end properties. 

Sell property in Sunny Beach. Dynamics of prices and demand for first half of 2011

Over the years of property bonanza many investors decided to try to profit from the so called emerging property markets such as Bulgaria, Turkey Egypt and so on. In the Bulgarian case it was the holiday complex Sunny Beach, which was amongst the most desired investment hot spots. It had all the ingredients necessary for a profitable investment; well known brand, relatively good infrastructure, fantastic beaches, international airport and etc. According to a research conducted by NewEstate in 2008, approximately 40 000 apartments were sold to British and Irish investors in Sunny beach alone. According to the same research the average price per sq, m in the pick time reached 1000 EUR. Unfortunately due to the credit crisis the capital flows towards such exotic property destinations suddenly dried off and left many investors with properties that they never intended to use or keep for a long time.  

So what is the situation now? A quick review on the dynamics of the Sunny beach property market in the first half of 2011 suggests tow major trends: The property prices have dropped down by 30-50% and the limited demand for properties in Sunny Beach comes almost exclusively from Russian buyers.

The average price per sq. m for the first half of 2011 is about 500 EUR. Some properties on the first line with good sea view and quality finishing can achieve 650-700 EUR per sq. m. The bottom offers are at 350-400 EUR per sq. m. In terms of the type of properties, the prices above mean that a spacious one bedroom apartment in a complex with good location can be acquired for 35 000-40 000 EUR, studio for below 20 000 EUR and two bedroom for about 55000 EUR. These prices are typically significantly lower than the prices the properties were purchased at. For example, a two bed room apartment with a decent sea view and 100 m from the beach that was bought for 120 000 EUR in 2008 is now on the market for 55 000 EUR.

As mentioned the buyers for Sunny Beach properties are currently predominantly Russians. The typical Russian buyer, interested in Sunny Beach has a budget of between 20 000 -50 000 EUR and are typically looking for one or two bedroom apartment within walking distance from the sea. The Russians are life style buyers and as such they pay a lot more attention to details than the British and Irish investors.  Any off-plan properties or unfinished properties do not stand a chance to attract the attention of the Russian buyers. The properties that are not close to the beach are also a very hard sale.

As a conclusion we may say that the outlook for the property market in Sunny Beach is not very promising. Although the Russian demand seems to be relatively stable the numbers of Russian buyers is not so great as to absorb the massive supply generated by Irish and British investors who are trying to sell and developers who are offering still unsold apartments.  We predict that the current levels of supply and demand will result in further drop of the Sunny Beach property prices by at least 15 % by the end of 2011 and the balance will be established at average of 400 EUR per sq. m for fully furnished and finished apartments.

Looking to sell your Bulgarian Property to a Russian? Is the Russian demand real, what are they buying and how much longer will the wave last?

Everyone connected to or interested in the Bulgarian property market has heard of the elusive Russian buyers, who are said to be acquiring swathes of top end property. From comprehensive first-hand experience, this article allays the myths and offers the direct honest truths of the Russian demand; why it exists, what is keeping it going and how long it might last. If you own property or are considering selling, this article will help inform you of the current market conditions, movements, trends and catalysts behind this property bubble.

First and foremost, the wave of Russian interest in Bulgarian coastal properties is not marketing hype, it is absolutely real and currently the only positive movement propping up the Bulgarian holiday property market. Sadly it is not true for all areas, only the Black Sea region and some rural parts inland from the coast are in demand. Although many sales agencies will conveniently stretch this truth to also cover Sofia, the ski resorts and rural villages to encourage vendors to buy their advertising services, it is actually not the case as only 5-10% of Russian enquiries are for areas away from the coastline.

Quick overview of demand shift and price movements:

Bansko is an unfortunate example of what happens when steady demand suddenly leaves a property market and is not replaced, prices plummet and regardless of extremely low values it can be impossible to sell as there are simply no buyers. The coastal areas of Sunny Beach, Varna, Bourgas, Byala etc have all experienced the same sudden exodus of British and Irish interest. However, the Russian demand has replaced much of it and whilst prices are down they are not rock bottom as they are in the ski areas. The key fact to consider and accept is that whilst property losses feel bad for all of us, it is at least still possible to sell coastal property and collect a return. Ultimately, the situation would be calamitous if Russian demand hadn’t suddenly swept in and saved the day, at least in part anyway. This shouldn’t be taken for granted; if you are looking to sell anytime soon it is worth considering your losses now could be minor by comparison to the potentially greater losses in the near future if the Russian demand fades too.

For a fuller understanding, it is worth noting the critical differences between the bygone era of British and Irish demand by comparison to the new wave from Russian buyers: 1) they are in significantly lower numbers, approximately a third at the very most 2) the demand is almost entirely for coastal finished properties, nothing off plan or semi complete 3) the market now hosts foreign private vendors (for the first time) in their thousands eagerly competing to sell at lower prices than ever before.

All of these factors have led to a typical ‘buyer’s market’ where prices are low and anyone with the money and intention will find themselves a choice of bargains. Furthermore, we have seen the rate of new properties coming to market at consistently lower values increase month on month from the start of 2011. The volume of private British and Irish vendors is so vast that it actually acts as a market catalyst; the constant flow of cheaper properties continuously replenishes the marketplace encouraging more Russian agents to sell less expensive properties, subsequently more is invested in advertising, more Russians become aware they too can afford a cheap sunshine property and hence the demand bubble expands.

Normally when demand increases there is a lag and prices soon follow, not in this case as the supply (property stock) is excessive and thus massively disproportionate to the demand. Furthermore, the bulk of foreign owners are predominantly driven to sell at any price due to financial constraints in their country of residence. This inescapable macro level motivation has impacted owners and their families on a nationwide scale, as such what started as a trickle of vendors has become a torrent. The end results is that the real transaction prices come down across the board (not just in one or two cases), as ‘distressed vendors’ come to the marketplace in bulk and take whatever they can get to offload their overseas asset and fulfil their financial priorities back home. The overall impact is increased market movement, an escalation in the volume of sales and thus an improved opportunity for vendors to sell, but no increase in actual values.

To put it in the favoured terms of British newspapers; only those distressed vendors willing to sell at ‘below market value’ will succeed in finding a buyer at this time, those holding out for ‘market value’ or for what they originally paid will still be holding out for possibly years to come. The simple reality is that in Bulgaria today the real market price is the ‘below market value’ and actually if you have a property in Sunny Beach you are not giving away a bargain at 500 Eur / sqm, you are selling at the highest achievable market value today. If this is no enough for you, keep it, rent it and forget selling for the time being.

Future for the Russian demand:

Whilst there is no exact science for predicting these market movements, any active agent, owner or vendor would be foolish to think that it will carry on indefinitely. Much of the industry believes that 2011 will see the peak of Russian demand (and thus the best opportunity for vendors), whereas very few believe 2012 will produce the same influx of buyers and thus a level of decline is expected.

Like any growth curve of any product; we first see the pioneers who trigger interests and start trends, then the masses follow in bulk creating a boom or bubble, which is typically followed by numbers falling away and plateauing to a sustainable constant level or dropping and ending the product life cycle. If anyone could accurately predict this with complete certainty we would all be millionaires, but by following some general models, lessons from experiences and carrying out analysis of current market data we can come to a general conclusion. NewEstate believes that this year is likely to be the best opportunity to sell as the demand for the coming 4-6 months is almost certainly the highest it has been since 2007, whereas anything heading into next year is uncertain and at best suspected to be less. In addition, for UK owners the currency rate will play an essential role in your financial return, see below.

Currency exchange and the impact of the Pound on your Euros property.

Accompanied by the uncertainty of future demand we must also consider the currency variation for owners who have bought in Euros and will sell back into Pounds. To take a classic example; in 2006 a 2 bedroom property in Sunny Beach was purchased for 75,000 Eur which was then £50,000 as the rate of exchange was 1.5 Euros to the Pound. Today the price of this same property is now 55,000 Eur following the drop in the market, however the exchange rate has dropped too. The rate is currently 1.1 Euros to the Pound, which means that if this apartment is sold for 55,000 Euros today then it would return £50,000 to the owner’s bank account, thus no actual value loss in encountered.

The above is true when the Pound is weak against the Euro, as it has been for the past six months or so. Whilst currency traders could speculate forever over ‘true value’ the general feeling is that the Pound is worth 1.2 – 1.25 to the Euro, let us assume this is true for the purpose of this example. If Bank of England increases interest rates before the end of 2011 (which speculators agree is likely) then the Pound will become a more attractive investment, its value will increase and it will again become stronger against the Euro. If we assume it reaches 1.25 to the Pound (as it was just 12 months ago) then this same apartment will still sell for 55,000 Euros (the market sets the price, not the chosen currency of the owner), which will only return £44,000. This is a 12% loss on the original investment and has nothing to do with the property market, this is exclusively down to currency rates and macro scale economies, yet the impact is absolutely on an individual scale and in this example shows that you could be 12% (£6,000) better off by selling this summer by comparison to next year when the Pound is reckoned to be stronger.

Conclusion:

In this buyer’s market the phrase ‘your property is only worth what someone else will pay for it’ couldn’t be more true. The Russians are prepared to pay the current market price, it is up to each owner to decide 1)if this is enough for them to part ways with their property 2) if they can afford not to resell and review in 4-5years from now 3) if they would like to gamble on the Russian interest lasting until next Summer or the Summer after etc  4) if they would prefer to wait for their property to be worth 10% more when the market does recover, but risk potentially getting 20% less than toady’s rates in Pounds.

Bogus online agencies target Irish owners of Bulgarian property with heavy listing fees.

Recent months have seen a wave of Irish owners look to resell their Bulgarian properties. This has had the unfortunate knock-on effect of inspiring numerous phony online agencies to charge outrageous listing fees under the false promise of high value sales.

Given the current state of the Irish economy, it is clear that many Irish owners are understandably looking to release funds from their overseas investments. Newestate.biz has been contacted by more than 250 Irish owners since the start of 2011, many of whom sought professional help to resell their property having fallen victim to online scammers, who have cost them an average of 300-1000 Euros / property.

Certain ‘website only companies’ have quickly developed considerable internet presence in order to deliver their false promises to owners. Slick salesmen assure vendors they can resell their property at a higher value than is actually achievable, naturally it is easier to believe as it is what owners want to hear. In order to be listed and have a chance of achieving such a high price you must pay a listing fee, which can be as much as 1,000+ Euros / property.

Unfortunately, this is all sales talk as these agencies are nothing more than superficial web pages designed to appear as the right people to help sell your property. In many cases, newestate.biz has found these sites to have no connection with the real estate market in Bulgaria at all, no affiliations, no local offices and no staff on the ground. In reality, such companies could not sell a Bulgarian property even if a buyer knocked on the door.

Whilst these companies seem above board, the truth is that their listing fee will only buy a slot on their website and not access to buyers. Properties are unlikely to be professionally marketed to real estate agencies and almost certainly will never reach Russian buyers, who are currently the only active audience. These companies benefit from renewal fees and price amendment fees, as such it is not in their interests for any property to actually sell, they would much rather owners keep ‘advertising’ it.

As a rule of thumb, owners are best advised to stick to agencies who sell first and collect a commission upon completion by way of remuneration. The right resale price is more than enough to motivate any professional in this particular industry.  Any company wanting to charge upfront fees is only in business to sell slots on websites and not your property in Bulgatria.   

Selling property in Bulgaria-January 2011 price levels.

It is not going to be a surprise if we report that over the past 3 years the value of the Bulgarian properties has dropped down significantly. Different reports suggest that the decrease of the prices ranges between 10 and 45 %.  According to the statistic of Newestate.biz the biggest drop in prices is registered for the ski resorts properties. Sales for apartments in Pamporovo are completing at 350-450 EUR per sq. m. At such price level standard one bed room apartment with 65 sq. m of living area sells at about 21000 to 27 000 EUR.  Similar levels are registered for properties in Bansko.

Generally, the seaside properties are performing better mainly due to the interest by Russian buyers.  However, significant decrease in selling prices is registered there as well.  In Sunny Beach for instance, it is almost impossible to sell at price higher than 500 EUR per sq. m.  Very rarely some first line properties or properties in the 5 star apartment complexes can be sold at 600-650 EUR per sq. m. In other words a standard one bed room property in sunny Beach sells at about 32 000 to 35 000 EUR.

The most resilient property segment of the Bulgarian property market expectedly is Sofia. The driving force behind the Sofia market is the local buyers. The capital of Bulgaria is a traditionally the most desired place for purchasing properties amongst the Bulgarians and is attracting not only people who live in the capital but also customers from the smaller towns who regards the properties in Sofia as a safer place to invest.  The property deals in Sofia are concluded at levels around 800 EUR per sq. m. Bearing in mind that the pre-crisis level in Sofia were in the range of 900-1200 EUR per sq. m  the registered drop is between 10-20%.

The above figures are very far from encouraging for the owners who would like to sell property in Bulgaria. In most of the cases the vendors choose to hold on to their investments and wait for the market to recover.   

NewEstate expands rapidly into the Sofia Lettings Agency market.

The past 9 months have seen exponential growth for NewEstate.biz following a strategic decision to become market leader for foreign landlords in Bulgaria’s capital, Sofia. Total investment has topped 75,000 Euros, however the portfolio of properties that are let and under management has grown by 800%, thus repaying the initial investment within the first 6 months of operation.

NewEstate.biz has grown this venture by not only offering professional service at low prices, but also by offering free furniture to landlords, then recouping its cost from the subsequent rental income. No other company offers such a product and as such landlords have been keen to sign up. Unlike rival companies, NewEstate.biz is not interested in charging for marketing or the listing properties; the fundamental philosophy is that the owner has paid for the property, now the property should pay for itself.  Tenants are sourced at the market price though the lettings division, placed, then the rental income pays off any repairs, furniture, kitchen etc. The alternative is for the owner / landlord to invest thousands of euros in the purchase of such items to make their apartment rentable, a risk that few are willing to take given the current economic climate and percentage of negative equity that most find themselves in.

NewEstate.biz is able to mitigate this risk by having both a lettings company and a furniture importing company within the New Estate Group, thus providing a low cost supply at high economy of scale as well as a direct source of paying tenants.

The rental option seems to be the first choice for the owners that are still not inclined to sell their proeprty in Bulgaria.

Bulgarian Property owners need to take care of their Annual Property Tax:

Every property owner must pay their annual Bulgarian property tax to the local municipality. The amount is calculated against the value stated on your title deed and as such varies considerably. Some rural villas are billed as little as 15 Euros / year, other regular size apartments will typically be 120-150+ Euros / year.

This is separate from any income tax that you might have to pay, you are simply billed by the local authorities as the registered owner of the property - much like council tax in the UK. This tax is charged to cover rubbish collection, street cleaning, road maintenance etc. Opting not to pay results in interest being added daily, the government will log the debt against the property and it cannot be sold or transferred until the tax is paid in full.

Nearly half of all Irish and British owners plan to sell their Bulgarian property.

Although recent macroeconomic data suggests that the financial crisis is subsiding, the increasing number of enquiries from British and Irish owners seeking advice on selling properties in Bulgaria shows that the process of offloading assets is still very much in full swing.

A survey amongst the Bulgarian property owners conducted by NewEstate.biz indicates that approximately 45% of British and Irish Bulgarian properties owners are seriously considering selling their properties in Bulgaria within the next 12-18 months. The types of properties NewEstate.biz is commissioned to sell cover the entire property spectrum; from studios of just a few thousand Euros in Sunny beach up to multi million euro investment projects in Sofia.  Understandably, the majority of vendors are put-off by the true sale prices available from the few serious buyers active in the current market, thus many decide to continue their ownership and wait for better times. However, approximately 10-15% of these vendors represent classic signs of being ‘distressed’ and are prepared to exit their Bulgarian investments as soon as possible, which inevitably causes them to accept and absorb serious losses.

The expressed reasons for divesting their assets at low values typically relate to domestic financial constraints; unemployment, mortgage repayments on primary dwelling, divorce etc. Any Bulgarian overseas holiday home or investment naturally becomes surplus to requirements, if liquidated it makes for a sensible and logical source of financial breathing space.

This is of course great news for any active buyers, but not so good for Bulgarian developers and the construction industry as a whole. We expect that in the areas of concentrated British and Irish ownership such as Sunny Beach, Golden Sands, Balchik, Bansko etc, 40-50% of the actual property transactions will be from distressed vendors rather than sales made by developers of newly built property. In effect, this market will be impacted dramatically by the low value of resale property supplied by desperate vendors, a situation that will inevitably add further pressure to property prices; if it does not result in further decreases it will certainly curb, hinder and stall any price recovery.    

The conclusion of our survey is that the long awaited recovery for holiday properties will definitely not happen in 2011. We expect to experience another year of Bulgarian property market depression, which will continue until we see the supply of low priced property from distressed vendors decrease substantially, thereafter recovery will have a chance to begin.