A second home in Bulgaria?
Around 23 000 new-built apartments South of Sunny beach are looking for buyers. This showed data of the ...
Posted by Yanko on 2008-04-01
Misconception:
Investing in Bulgarian property is the best way to generate huge buy-to-sell profit. Agents promise buyers at least 30% annual profit. They also promise guaranteed rental income.
Reality:
The Bulgarian vacation property market is stagnating, with the price boom already showing signs of slowing down. Investment returns from Bulgarian properties fell from 116% in 2005 to about 35% in 2006. The interim statement from 25 September 2007 of Bulgarian Land Development PLC, a Bulgarian property developer listed on the London Stock Exchange, mentions that “official statistics showed a decline in the rate of increase in residential property prices. A 9% increase in 2007 Q1 was followed by 5.5% for 2007 Q2.”
The authoritative British property investment advisory group Assetz maintains a property investment tracker which provides analysis of the investment performance of property in 16 different countries over the last 12 months. Property prices, mortgage rates, deposits required, legal costs, and recent capital gains are all calculated into the overall forecast for returns. The latest release of the tracker became available in October 2007. It predicts that despite the current 84-percent total returns rate on cash invested, returns in Bulgaria are likely to lower significantly. Together with Florida, Bulgaria is the only location of the 16 surveyed that holds such gloomy prospects for the future. Moreover, the net rental profit on cash invested is on the negative scale with -2.9%, showing that rental income is never guaranteed. This holds especially true for the vacation property market, as opposed to the big cities like Sofia and Varna where property is relatively easier to rent out.
Forecasts by Bulgarian property analysts confirm the conclusions arrived at by the Assestz consultants. In an interview for the Bulgarian daily “Standart News”, Orlin Vladikov, manager of one of the big property agencies in Bulgaria, says that property in Bulgaria is 10 times overestimated and expects that in 2008 the prices will drop by at least 25%. The average prices have long exceeded (1) the normal 1:3 proportion between the sale price and the income of population, meaning that with their average annual income people should be able to pay off their property in three years – this proportion is much higher for Bulgaria, and (2) the normal 1:10 proportion between the annual rental return and the property’s price, meaning that annual rental income should be a tenth of the property’s value – this proportion is also much higher for Bulgaria. This conclusion was also confirmed by the specialized U.S. media Howe Street.
The overall stagnation forecasted for the Bulgarian property market was already evident in certain places as early as this summer. An investigation undertaken by the regional newspaper Struma in September 2007 uncovered startling numbers for Bansko, the hailed Bulgarian ski resort – the sixty-something real estate agencies based in the mountain resort didn’t report even a single sale in the previous four months. According to brokers, the property market in Bansko is facing a total meltdown and tearing hotels down is just a matter of time. The serious investors are withdrawing from Bulgaria’s largest ski resort because of the poor infrastructure and the construction chaos. The whole article available online here, for a translated version please click here.
Infrastructure on the Black Sea coast and in over-developed winter resorts such as Bansko is in shambles. There are no asphalt streets, there are constant problems with electricity and water supply, mud is everywhere. At the Black Sea coast, even if you think that your property is closest to the sea as possible, there is no guarantee that next year you won’t already be lagging behind on second line after somebody paid a bigger bribe and got a permit to build even closer to the sea, thus blocking your beautiful view. Your property is not attractive anymore and you won’t be able to sell it on favorable terms. Last but not least, many of the new super hotels are an apotheosis of ugliness, tastelessness and kitch – all these are factors contributing to the diminishing attractiveness of Bulgarian vacation property.
Media Highlights:
The English Financial Times warns that “many holiday home buyers have taken equity out of their primary residences to invest in second or third homes abroad. As a result, they are even more exposed if prices stop rising and if central banks tighten interest rates further.”
In May 2007, The Times wrote: “A potential glut looms even more alarmingly in Bulgaria, the most enthusiastically hyped of all the emerging markets. Although the country is placed third in the Knight Frank index – with prices up an annual 22.6% in the first quarter of this year – experts predict a spate of distress sales as speculators find they are unable to “flip” on their properties, while those hoping to rent them out struggle to find enough tenants to pay the mortgage.” link
In an article about the Bulgarian Black Sea coast vacation property market entitled “Bulgaria? Beware”, the Sunday Times cooled off the enthusiasm of British investors who are led to believe they will get magnificent returns on their investment in vacation homes: “Research by The Sunday Times suggests that for most people, net returns are more likely to be in the 3%-4% range at best, that six to eight weeks’ rental is optimistic, that £277 is a realistic rate for a two-bed apartment and that just a few people, with truly exceptional properties, will achieve 12 weeks’ rent. With local interest rates of about 7%, this means that far from being self-supporting, some Bulgarian properties can start costing their buyers money from the start.” These problems, the Sunday Times says, are not restricted to the coastline but hold true for Bulgaria’s ski resorts as well.