Issue 45-46, June-July 2010
by Gergana Manolova
Now that the economic crisis has dealt a heavy blow to the Bulgarian property market, it is time to take an unbiased look at the picture. Plenty of foreign investors, worried by bleak forecasts, have already sold off their property. Some of them had acquired it precisely for the purpose of turning their asset into cash in such a situation, while others needed to service bank loans. But the buying fever, which turned into a selling fever, created unrealistic prices in both directions – too high in former and too low in the latter.
Did the sellers act rashly, pulling out of the country in haste? Perhaps they did. At the moment, opinions on Bulgaria's economic future are divided. According to some analysts, Bulgaria may become one of the most stable countries in the region, surpassing even some Western European states, and foreign investment may start flowing back shortly. Others take the view that it will share the fate of Greece and Romania, who are relying on outside loans to prop up their economies. The second prediction won't help the real estate sector, especially that part which deals with tourism.
The future of the Bulgarian resorts is uncertain at the moment, so don't look there if you are thinking of investing in property. Interest in them has melted away and only the bigger investors can still afford to fund developments there. At the moment supply by far outdoes demand, especially in the area of holiday apartments. The building frenzy has disappointed those who hoped for rental income from tourists. This type of property is flooding the market and is still changing hands, but it is not yet clear who will be on the winning side and whether the hope some have of turning the crisis into an opportunity is grounded in reality.
You would be better off following the crowds to the cities. The promise of historically low property prices in the big cities has tempted those who had money to invest. Since the expected drop did not fully materialise, demand is still stable for both residential property and office and retail space. In the long term, demand for quality living space in the cities can only go up. At the same time, albeit at a slower pace, there is still an influx of foreign companies whose anti-crisis measures include expanding their markets. They need office, storage and retail space as well. In the larger cities location preferences are changing with the evolving infrastructure – an example of this is the increased interest in areas around the newly-opened branch of the Sofia underground, as well as around those sections still under construction.
In order to find your way around the property labyrinth in Bulgaria, enlist the help of consultants. The changing face of the market in times of crisis may confound you, especially if you are not familiar with all the ins and outs. Consultants can be your intermediaries, negotiate on your behalf and interpret the peculiarities of the local market.
Do not buy off-plan property. Make this an iron rule and ignore the tempting offers. A huge number of building projects are either frozen or have been completely abandoned, with little chance that the investors will get any compensation. Be careful also when you buy an older building, especially in a village – the renovations may turn out to cost more than you can afford.
Research the state of the property and the technical documentation in detail. Compare the documents to the real condition and make up your mind in person. In Bulgaria, new buildings that conform to all the regulations are, unfortunately, a pipe dream in many cases and entrepreneurs are often in a hurry to get rid of the building before the defects start to show. In this case, getting consultants to check quality of the build for you is an important and useful step.
Consider carefully how you plan to gain from your investment. Do not count on a short-term return, since the market situation is so fluid. Think of various strategies to maximise the property if your main idea doesn't come to fruition. To be as prudent as possible, do not buy a property you wouldn't like to live in yourself – or else you might find yourself coming again and again to Bulgaria for your summer holiday just to have some use out of your apartment… when in reality you wanted to go to Thailand.