Recently, disturbing analyses have appeared in Bulgarian real estate journals and websites about prices at the Black Sea coast plummeting. These articles related stories of frustrated, gullible foreigners who had bought hotel apartments or residences, duped by the misleading information that they would get 10 percent annual investment return.
Not only did these foreigners not receive their "guaranteed" 10 percent, the stories went on, but the value of their properties was decreasing so rapidly that they were forced to sell apartments for less than the purchase price. The reason for this unfortunate situation was explained: due to low rental demand, half of the hotels on the Black Sea coast were empty and some property owners were not making any rental income at all.
All these analyses had three things in common. First, more often than not they quoted anonymous or unnamed sources. Second, they claimed that "the truth about Black Sea prices plummeting" was the best-kept secret in the Bulgarian real estate industry, which nobody had dared to divulge for fear of upsetting the interests of certain mysterious, powerful economic groups. Third, they provided inconsistent information, one source claiming one month that the "Bulgarian holiday property market is growing rapidly, prices are stable", and the next that "Prices for Black Sea properties are plummeting dramatically".
Without jumping to conspiracy theory conclusions, is it possible that prices could drop overnight? The truth is that nobody can tell for sure whether the average price for Black Sea holiday properties is plummeting or rocketing.
Despite continuous efforts in the right direction, the Bulgarian property market is still not as transparent as we would like it to be. There is no representative data to enable experts to produce statistically valid conclusions. Judging by personal observation, we can only say that prices for some Black Sea properties increased, some remained stable and some decreased, depending on the property type. But does it mean that investors are withdrawing from the Black Sea? Not at all, only that they are more selective about the properties they purchase.
A few facts can help clarify the situation. There are two types of holiday properties at the Black Sea: those built to European standards and properly managed, and then all the rest.
If you buy the first property type you have nothing to worry about. The problem is that sales managers and real estate agents will try to sell you properties using the mantra "built in accordance with European standards", when in fact they do not really know what this means. Properties worth investing in are buildings which meet all the standards and requirements of European tour operators, from mattresses to emergency exits. European tour operators cooperate primarily with these hotels and residences and this, in turn, guarantees higher, or at least stable, investment return.
Before investing in property at the Black Sea you should make sure that the purchase contract you sign is correct. If sales managers tell you that you will get five or 10 percent rental income annually, that should be clearly stated in the contract. Then you should get a fixed amount of money each year, no matter whether the hotel is fully-booked from May to October or empty throughout the entire holiday season.
If your plans are to buy a holiday home and keep it for a longer period, you will need a good property management contract. Some companies sell apartments but do not undertake any property management responsibilities. Property management does not mean merely maintenance, but also doing everything necessary to ensure that an apartment does not sit empty. Even if you purchase an apartment in the best hotel on the beach, you will never make any investment return if you have to take care of fi nding tenants yourself.
Only time will tell if apartments without proper contracts for property management and that are not in accordance with all European standards will turn out to be a bad investment. The fact that they haven't brought in fast rental income does not mean that these investments will never pay off. To sum up, the Bulgarian Black Sea region is still a very attractive place to invest in so long as you carry out proper research.
Four Questions To Ask Your Sales Manager
• How did you ensure, or will you ensure that my property meets European standards? (Do not accept vague explanations, ask them to name the evaluation procedure they used).
• What are three of the biggest international tour operators you work with?
• What kind of property management do you offer?
• Do you know if there are plans to build other hotels in front of (or behind) the property I want to buy? (If you have decided to purchase an apartment in a hotel because of the beautiful view, you will certainly not welcome the fact that soon that view may be history. If your sales manager is not willing to provide information, ask around).
A Matter of Management
Ordinary property management, or OPM, means that the hotel management either undertakes the duty of finding tenants for your property or takes care of the tenants you have found yourself. This property management type does not guarantee full occupancy.
Guaranteed property management, or GPM, leases your property for a certain period (usually five to 10 years) and you receive all your rental income in advance. Only very good properties are eligible for GPM.
Flat or Land?
More and more foreign investors prefer to buy plots of land at the Black Sea coast rather than apartments. Land in the region is still relatively cheap and prices are rising faster than those for buildings.
Did you know that...
If you buy a plot of land, you need to make sure it is not located in a "red zone" as building is forbidden in these zones. There are a large number of red zones at the Black Sea coast.