While for a couple of years the Bulgarian property market could do no wrong, it was attracting investors from all areas of the world, investment was up and they literally could not build enough properties to fulfil demand. But now…..it looks as though the market is set for a new low with news that foreign and local investors are selling their properties at literally any price but buyers are staying put and showing little or no interest. So what has gone wrong? Is there a sinister move behind the fall?
Property in Bulgaria
Bulgaria is your standard boom and bust new age market which caught the eye of many investors when economies were holding up, finance was readily available to anyone and the Bulgarian government literally bent over backwards to accommodate foreign investors bringing new money into the country. Investors all knew that prices could not continue to rise and rise with no consolidation period at best, but they still kept pushing prices higher and higher until everything went wrong at the same time.
While many people will blame the credit crunch for each and every collapsing economy in the world, all it really did was highlight those that had over extended themselves and ensured that they paid the price for ‘over exuberance’ in the past. For those who dismiss these suggestions, how is it that the countries where mortgages finance is low and personal debt is low have managed to escape the worst of the falls?
Bulgaria is a point in question, a property market where prices literally went up and up with people losing sight of their base value, their true value. But what does the future hold?
The immediate future of the Bulgarian property market is not good, investors are fighting to liquidate as many of their Bulgarian assets as possible, the cost of local mortgage finance has increased and the tourists have stopped visiting. Bulgaria is a country which has relied heavily on UK, Irish, Russian and Spanish investors all of which are suffering heavily at home. So what next?
Unfortunately for those who acquired Bulgarian properties at the top of the market the vibes are not good for the short term. The price of some properties in the more popular winter skiing resorts have fallen by nearly 50% as developers join the rush to reduce their exposure as quickly as possible at literally whatever price the market will take. But there are even more worrying factors behind the fall in winter resort properties.
Slowly but surely we have seen a number of UK tour operators cut back on areas of the world where demand has waned and revert to those where there will always be a core income, where numbers may fluctuate but numbers will always remain relatively high compared to new markets. This is what has a happened in Bulgaria, with many UK tour operators suspending flights to the region as they themselves look to reduce their exposure to the more risky markets of the world and reduce their costs.
When will foreign investors return?
This double whammy of a fall in property prices and a fall in tourist numbers to Bulgaria is a self fulfilling prophecy which many expect to pushe prices substantially lower in the short term. The longer the tourist market suffers the lower demand for properties and the likelihood of prices drifting and drifting until they find a level where the potential for growth is higher than the risk of further bad news.
However, there are other factors to consider such as the local issues which many international property investors are facing back home. Until these issues are cleared there is little or no chance of a marked rise in many of the newer property markets of the world – these are the markets which still depend upon foreign investment to supply the demand and local business and the workforce to supply the properties.
Lack of local investors
While many Bulgarian investors have made good money in the property market over the last couple of years, the vast majority did not know when to pull out as like many they thought the market was very much at an early stage and there was more growth to come. Many came from a background where there was little financial wealth and they took risks when the economy started to turn up with foreign companies and foreign aid flooding into the country.
As finance costs continue to edge higher, due in the main to higher lending costs in the worldwide money markets, we are seeing a crunch whereby incomes are moving lower but property finance costs are moving higher. Local investors, along with foreign investors, are now being forced to liquidate their assets to ensure they can crystallise their financial position and try to retrieve as much money from a situation which is literally going from bad to worse.
This falling financial status for Bulgarian locals not only impacts upon the property sector but the economy as well with less disposable income to support what was a growing economy. As much of the investment in the growing business arena was built on debt, this is putting more and more pressure on business to seek more sales at lower prices, something which is turning into a downward spiral.
The talk in the industry is that the Bulgarian property market has much further to fall as the foreign investor base on which it was formed has been pulled away from underneath. This has impacted upon demand which has seen prices come crashing down and pushed many local investors to the brink of financial ruin.
Property developers are trying to talk the market up but new projects are being mothballed with some likely never to reappear. However, Bulgaria is not dead and is still a very important part of the European Union going forward. This alone will ensure that the country both benefits from the ongoing rescue package in due course as well as further funding should the country fall into a serious downward economic spiral.
While now may not be the time to invest into Bulgarian property there may well be some interesting medium to long term opportunities over the coming months for those with finance and brave enough to take the plunge!