Quest Bulgaria takes a look at the reality of re-sales of property in Bulgaria and how much your property might be worth.
Knight Frank, one of the UK’s most respected residential and commercial property consultancies, recently published a report stating that high increases in residential property prices placed Bulgaria in second place in a world table highlighting property price increases during the second quarter of 2007. The report stated prices increased by 27.1%. Does this mean my house is now worth around £44,000 more than it was when I put it on the market at the start of the year? Should I be increasing the price in line with market trends?
A report by another reputable company, real estate consultants, Colliers, reported similar trends in Bulgarian property. He focused more on the fact that it was the number of buildings constructed. The mountain resorts showed 50% increases and the Black Sea coast 39%. It is easy to read this statement in relation to prices increasing rather than that of the rate of build. It is even easier to neglect the part of Colliers report which states that overall sales prices have “remained unchanged for the past half year as supply continues to outpace demand.”
The reality of the situation is that most reports measure Bulgaria’s property market success in terms of price increases or build rates. They neglect the fact that in Bulgaria, the real estate market is unregulated. They also don’t consider that the seller puts the price tag on their property. The valuation process goes something like this, “Ivan across the road has advertised his house for sale at 20,000 euro. My house must be worth 30,000 euro because it is bigger.”
Another form of valuation has resulted from towns and in particular villages adopting unofficial rates. All it takes is a professional developer to move into the area. Once they set the price they charge for their properties, usually a cost per square meter, it will usually become the official standard.
The village of Rogachevo on the Northern Black Sea coast is a prime example. Let’s consider the Bulgarian Land Development Plc, a newly incorporated company now listed on the AIM stock market. They have started the construction of a six million euro apartment and villa complex just outside of the village. The price of the property in the development ranges from between 750 to 1,200 euro per sq.m. The conclusion? Among people wishing to resell properties in the village is, “my property is now worth at least 750 euros a square meter.” The fact that property up for resale may not have the same scenic outlook, modern facilities or luxurious design is irrelevant to the sellers. Bulgarian sellers have little experience of the property market because. Why? Until a few years ago, there was little demand. Consequently, they are unused to working to the laws of supply and demand. Many British sellers, who hail from a mature property market, are lost without the skills of a valuer. Because of this, they stamp a price on their resale based on the following equation:
original cost + renovation costs + local market rates +desired profit =resale price
Yet, as everyone who emigrated here on the lure of cheap property and a fast buck now knows, the resale market is slow and underdeveloped. Apartment blocks are shooting up at a rapid pace giving new buyers lots of choice in both price and design. Renovated houses are two a penny and who wants to buy a renovated traditional build in the middle of nowhere? Especially when they have so many well-designed new builds to choose from? At the moment, it is safe to say, that in Bulgaria, supply far exceeds demand in terms of land and property.
How is the outlook?
The picture is not one of doom and gloom, but of caution rather than crash. The market is far from a crash. If it was, you would not see UK currency speculator Joe Lewis, investing 70 million pounds in the Bulgarian property market. And he is not alone. Israeli construction and investment company BSR Europe recently bought around 80,000 sq.m of land in Bulgaria for 37 million euro. Gardens Group is investing 400 million euro in a 600,000 sq.m development Lozen, a village close to Sofia.
A source from Raiffeisen real estates said that most sales over the last 2 years are from re-sale clients. Most of theses people bought land or property, sat on it for at least three years and are now re-selling for profits between 20 and 50%. This is easy to achieve when looking at properties at the low end of the market. Recently Raiffeisen sold a property in which the client bought for 10,000 euro and sold for 15,000. However, the demand for rural renovation projects has declined. Land re-sales are lucrative if the location is good. Apparently, there is good demand for regulated land, close to the coast. Again, patience is the key. Raiffeisen has dealt with re-sellers who bought land in 2004 at 10 euro per sq.m and sold it in October 2007 for 25 euro per sq.m.
British buyers have a “rising property” mentality. They expect property to increase dramatically in value as it has done over the last seven years in the UK. In this sense, they are not in tune with the rest of Europe. Most of mainland Europe look at their property as their home, whereas the British view their property as a way to make money. Their foray into the Bulgarian property market has left many disappointed. Why? Mainly because they have been lead on by media hype. They expected the market to earn them vast profits in a short space of time as had happened in the UK. The lack of regulation in the Bulgarian real estate market has meant that the seller is in charge of valuing their own property and often they choose an inflated sales figure rather than checking actual market rates for re-sales.
Property prices have increased in the last two years. Belinda Knowles (42), a trainee solicitor from Dulwich, bought her one-bedroom apartment in Golden Sands resort off-plan for 40,000 euro. It took two years to complete the project and she has just spent her first summer enjoying the fruits of her investment. A one bed roomed apartment in her block now costs 60,000 euro – a staggering growth of 50% – if she could sell her own. “I think the market is inflated by unscrupulous real estate agents. I’m certain that if I put my apartment up for sale at this price I would be left disappointed for two reasons. Why would someone buy my apartment when they can by a brand new one for the same price? And if the demand is so great, why haven’t all of the apartments been sold?”
Fortunately, Belinda bought her apartment as a long-term investment. “I have two teenage children and package holidays abroad were becoming ridiculously expensive. The children are also getting to the age where they would prefer to come on holiday with their friends rather than with me. I wanted to save money in the long-term by having a place abroad that the whole family could use. I wanted to be sure that it would be a safe place for my children to stay alone with their friends. Golden Sands is ideal. We get cheap flights with Wizz and British Airways from Gatwick which means we can come over more regularly. The nightclubs here are not filled with drug-taking louts, so I have no qualms about letting my kids go out.” She also knows that by the time they have out-grown Bulgaria, the apartment will yield a good return on her investment.
Good Things Come to an End
“In ten years time, when my children have their own lives and means of support, they may not want to spend their leisure time here. I’m sure that with the rate of investment going into the country at the moment, my apartment will sell at a higher rate than I paid for it. I will have saved money in the long run by not having to fork out for package holiday fees.”