PROPERTY IN TIMES OF CRISIS

The Chinese character for "crisis" means both "danger" and "opportunity". Bulgarian real estate agents are trying to make us believe that the potentially disastrous economic situation holds out great opportunities for a profitable investment – but beware.

They promise prices have hit rock bottom and the only way is up, so now is the time to buy. But agents have been promoting two conflicting theories. They swore that prices for high quality or new properties would never drop, but they are also saying that we should ride the crisis wave and purchase such properties now because they are cheaper. Often enough these two viewpoints can be heard from one and the same professional, depending on who their client is.

The truth lies somewhere in the middle. One can indeed take advantage of the lower prices and get a decent apartment or office for a bargain price these days. On the other hand, price levels have not dropped that dramatically, at least not in the segments worth investing in. According to a survey of the National Institute of Statistics, mid-price residential buildings are now only 12.4 percent cheaper than at the end of 2008. There is no official data about price levels in the high quality end of the market but unofficial statistics suggest the two segments are comparable.

It can be a good moment to invest in all types of properties (if you can afford to), not so much for the lower prices but because of the major shift in focus in the market. It is no longer the sellers but the buyers who call the shots. The crisis has undermined the rule that "a property costs as much as the seller says" – now "it costs as much as the buyer is prepared to pay." The question here is what traps to avoid.

Too cheap is too risky

"Cheapest must be best" is a hazardous rule to follow when shopping for real estate. Prices may have dropped but if a property is too cheap it probably means extremely poor workmanship, so will hardly be a good deal. Apartments or offices on offer for less then 1,300–1,400 euros per sq. m in the centre of Sofia and 800 euros per sq. m in the suburbs are a definite risk.

In Varna, 1,200 euros per sq. m in the centre and 600 on the outskirts are reasonable minimal levels. In Burgas and Plovdiv, do not be tempted by offers less than 1,100–600 euros per sq. m respectively.

Know what you are buying

Now, more then ever, it is essential that you request a report on the technical aspects of your property of choice. This should indicate how it was built, what materials were used, whether all elements of the construction comply with state requirements, the energy efficiency class, and so on. If you do not understand the technical terms, get an expert to translate them. Right now the market offers properties of varying quality for roughly the same price. Why not get the best your budget allows?

Do not hesitate to bargain

Negotiating some 15–20 percent off the initial price has become a regular practice nowadays. If it is off-plan, the "correction" may even be up to 30 percent. Many Bulgarians believe haggling over the price too assertively is a vulgar display of bad Balkan taste. That should not stop you from exercising your bargaining power as a buyer.

This is good not only for your bank balance, but for the market as well. If your property agent refuses to discuss discounts, just find another who will. The other option is to contact the construction company yourself and have a consultation with the experts (brokers, lawyers, architects) once you have reached a discount agreement.

Avoid buying off-plan

This applies even if the price reduction you are offered sounds amazing. Unless the developers have a spotless reputation and can prove one hundred percent that the project will be completed, walk away. It is highly unlikely you will get your money back in the event of bankruptcy, so be sure to check the company in the Registry of construction companies. You will find this on the Bulgarian Construction Chamber website at www.ksb.bg.

Think twice about payment plans

An increasing number of developers are being forced to function as banks, too, now that getting a loan is so problematic. Usually, buyers pay from five to 60 percent of the property price to the company and are given possession. The rest of the amount is to be paid over the next two to 15 years, according to individual payment plans.

Of course, there is interest added to the overall price, usually 7.5–10 percent. The advantages are that, unlike banks, no additional taxes are required and the interest rate counter starts ticking only after the building is officially certified with a final permit, formerly known as Act 16.

This has worked well so far but it is a new development, so nobody can be sure that problems won't crop up in the future. A potential risk is that most companies only offer official ownership after the full amount has been paid.

Make sure you can get the credit you are looking for

If you are buying with a loan, never pay any kind of initial fee or instalment before you are sure the bank has approved your application. Lured by temptingly low prices, eight percent of all buyers this year lost substantial amounts of money by paying reservation and other fees in advance and then having their loan applications turned down.

Most of these unfortunate cases are with off-plan properties but it can happen even with new, class A buildings. Nowadays, nobody can be too confident about their credit rating.

Bear in mind that the crisis may be nearing its end. If you are planning to invest in property, don't miss the boat.