Review of the Bulgarian property market in 2005
Jan 10, 2006 - Ivan Vatahov, SofiaECHO
With constantly rising prices, Bulgaria's real estate market has in recent years turned into one of the most attractive investment destinations for people from all over the world.
Although experts believe that the supply of residential and commercial properties in this country, especially in some areas, has already outrun demand, the future does look brighter as the market is increasingly open to foreign buyers.
Brokers and clients have found that properties near the Black Sea coast, in the mountain resorts, in the capital Sofia and other major cities, are securing a high return on investment in the form of rental or resale.
The popularity of Bulgaria among expatriates as a place to buy real estate is not fading, but signs that excessive construction at the seaside and mountain resorts will lower prices are a deterrent to developers and brokers.
Throughout 2005, Bulgaria continued to be one of the cheapest options in Europe for foreigners wanting to buy a second home abroad. Furthermore, so far, Bulgaria has been the only state accessible for the mass buyer interested in winter resorts.
While challenged by strong competition from established destinations like Spain and Cyprus or newly emerging ones like Turkey and Croatia (in the coastal property market), Bulgaria's mountain regions continued to attract clients through low prices. This factor applied to the holiday market as well as the real estate market. Most Europeans already know the resorts of Bansko and Borovets, as well as Pamporovo and nearby Chepelare, where serious construction work was started in the past year.
Meanwhile, brokers selling Bulgarian property said that although a certain slow-down was being observed on the market, compared to last year, competitive prices would keep sales at good levels.
A constantly rising supply of residential and office real estate was registered by Colliers International in its report, released in mid-September, on the Bulgarian property market in the first half of 2005.
The report said that the supply of new residential developments in the middle and high-end market continued in the first half of 2005. The increase in sales prices had stabilized in the high-end and middle market segments, Colliers said.
Rental levels continued to decrease, especially in the middle and upper-middle market. Colliers also found a decreasing gap between the high-end and middle class market prices, which was because of the emerging middle class that had been taking shape in Sofia in recent years.
The first half of 2005 was marked by a constantly increasing supply of new residential developments both in the middle and in the high-end market, a continuation of the trend from 2004. While demand was the dominant market driver in 2004, supply caught up in the first half of 2005.
As a result, Colliers said, the market reached a situation approximating equilibrium between supply and demand. This trend resulted in stabilization of market prices in the high-end and middle market segments.
In the first half of 2005, demand continued to grow, though at a more moderate rate. The boosting levers for the increasing demand include improved economic conditions as well as the psychological effect of the country's forthcoming EU accession and the expectation of rising prices associated with it.
"Bulgaria, together with Romania, holds significant potential in the commercial and holiday real estate sectors, where it is joined by Croatia. These will be the most promising sectors for the next three years," Deyan Kavrakov, head of Bulgaria's leading full-service real estate company ADIS, was quoted as saying at a Vienna real-estate forum in November.
Analysts forecast that price growth in the residential sector would slow to about 15 per cent in 2006.
The Real Estate and Investment Forum (RINFOR), held in Sofia in early November, found that investment in real estate transactions and property development in Bulgaria was expected to reach a billion euro by the end of 2005.
Participants told the forum that foreign direct investment (FDI) in the real estate sector would be about 25 per cent of all FDI expected to flow into the country by the end of 2005.
The volume of investments in real estate projects, including land purchases, construction works and transactions, totaled about 900 million euro in the first nine months of 2005.
There were also some pessimistic appraisals of the situation in Bulgaria's real estate sector in 2005. Mainly because of the dropping return on investment level, which could drive away some potential large investors, they were also a result of the excessive construction at some of Bulgaria's holiday resorts in the past two years.
The 2005 summer season was proof of how excessive construction, accompanied by noise and dirt, can force some holidaymakers to change the destination for their vacation. German tourists, a traditional portion of foreign visitors to Bulgaria, were seen switching to other countries.
Another sign of crisis was the fact that the market had been flooded by offers for sales of hotels and other holiday properties, but had not seen a significant number of deals being signed. Supply was several times higher than demand, and the situation worsened after the end of the summer season when newly built hotels appeared on the market. Realtors ascribed the lack of deals to the enormously high prices and the constantly increasing number of offers.
Most properties on the market were small- and medium-scale hotels in Black Sea resorts and lower-altitude mountain resorts. Leading reasons for the owner to want to get out of their properties were miscalculated investments, poor infrastructure and bad design.