Summertime blues?

when developers are having hard time selling main residences, are there still people on the market looking to purchase holiday homes? Yes, there are! More demanding than ever, meet the 2009 second home buyer

Mladen Petrov

Six days. This is how many days off Bulgarians have been given in May for the two major national holidays. Exhausted by work? Maybe. In an attempt to boost the tourism sector, which is already feeling the squeeze of the credit crunch, the Bulgarian government decided to splurge by sending Bulgarian citizens on what might be termed ‘the greatest present from the government ever’. With the number of tourists visiting Bulgaria down by 20 pct according to the latest data, the government is hoping that Bulgarians may make up for the losses, heading for the seaside and mountain resorts at the beginning of May. Employers are not particularly happy with such a long break, but the government believes that tourist destinations could use some more visitors. For what is worth, it is right.

Thunder É

At the end of 2007, the first clear signals of the worsening condition of the Bulgarian holiday homes market became evident, at least in terms of supply. The second half of 2007 saw a slowdown in the supply of holiday homes. According to data from Colliers International Bulgaria, the increase in supply of holiday homes in H2 2007 was 16 pct, which should be seen in the context of an annual increase in supply (H2 2006 to H2 2007) of 170 pct in the mountain resorts and 65 pct in the coastal resorts respectively. The range of sales prices narrowed in the second half of 2007, with an average asking price of EUR 1,210-1,420 per sqm in the mountain resorts, while the lowest average sales prices on the Black Sea were between EUR 1,000 and EUR 1,425 – still not bad.

The good mood didn’t last for long, though. Oversupply, troubled UK and Irish-based buyers, abandoned projects and soaring prices – 2008 certainly wasn’t an easy year for the holiday homes market, which for a few years in a row enjoyed a steady growth in prices. Now that the prices have gone downhill, one of the Irish newspapers called all the buyers of residential property in Bulgaria during the boom period – who have now found themselves in a difficult situation due to the significantly curbs on financing – stupid. And then the vulture funds gathered, ready to alight upon any carcasses.

Éand the storm

 In 2008, according to data from the Bulgarian Properties real estate agency and consultancy, there were 80 pct less sales in the mountain resorts of Bansko, Pamporovo and Borovec that were once flooded by buyers. Bansko, a town of 9,000 residents, became a symbol of the great expectations that developers had. Today, the town is reminiscent of a large abandoned construction plot, with the majority of the 120 real estate agencies having already gone bankrupt. Now the bargain-basement times have arrived: sales of finished flats, once priced well over EUR 1,000, can now find an owner for even as low as EUR 250-300 per sqm. Quite a deal for a property in an EU country, both developers and real estate agents insist. Developers are not eager to discuss the economic sense of such transactions, but as market observers put it “this is one of the last desperate attempts to survive”.

The cutting of margins to 10-30 pct, obviously, is also a common practice in this new environment. The crisis has also forced developers to work closely together. One example is the transfer of pre-sold flats from a project which will not be completed, to an advanced project nearby. Thus, the buyers receive the flat they have paid for and the developer secures more much-needed tenants. “A large number of investors were lured by the opportunity for fast cash. They started bad projects, without thorough due diligence, believing that the boom would last forever. There are lots of unfinished projects on the market for which completion might take up to 3-4 years,” estimates Svetoslav Mladenov, CEO of Prime Property BG REIT. Troubled developers are not the only sellers on the market – a large number of British and Irish property owners are also trying to sell their assets as soon as possible due to an inability to cover the mortgage back home. As real estate agents suggest, they are not in a bargaining mood, being eager to go easily below the asking price.

Bargain times

The properties on the Black Sea were more resilient to the declining interest and purchasing power of buyers with a recorded 30 pct drop of the transactions. The average prices of new holiday homes sold in 2008 were EUR 66,000 in Bansko, EUR 77,000 in Pamporovo, EUR 82,000 in estates south of Burgas and around EUR 110,000 in Golden Sands and the other upmarket resorts on the northern coast. The good news for buyers? In a bear market those who are interested can afford to be very picky in their choices. Developers, on the other hand, have to reduce prices and put on hold plans for new projects. “There has clearly been a price correction. We are now back to 2006/2007 price levels,” claims Mihail Chobanov, CEO of Bulgarian Properties. “We are seeing transactions of less than EUR 1,000 per sqm in prime locations, right next to the beach and with excellent views. It looks like the next few months are the right time to buy.” In the opinion of Mr. Chobanov, there are already encouraging signs that the declining trend is about to turn. “There are still buyers on the market – buyers with cash. In fact, in March 2009 we saw a higher level of deposits than a year ago.”

British buyers still account for 30 pct of Bulgarian Properties’ real estate deals with foreign buyers. The remainder of the foreign clients are of different nationalities: Russian, Greek, Dutch, German, Turkish, Polish, Romanian and Norwegian. The interest of the Russian clients, who constitute around 40 pct of the property buyers, is evenly distributed between Bansko and the seaside resorts. Over the last six years the share of Bulgarian buyers has also risen significantly to around 20 pct. The average price levels of the completed deals since the beginning of 2009 are 20 pct lower than in 2008. The significant difference is that now buyers are getting better deals and already have outfitted and even furnished 2-room apartments at a price that a year ago could only get them a one-bedroom flat.

Lots of empty rooms

Yet a large number of flats remain empty. Has Bansko become another ghost town? Not really. “I do believe in the potential of Bansko and the town has a good period coming up. This is also true for the Black Sea resorts. Bulgaria has enormous potential for attracting foreign visitors due to its natural beauty and prices remain very attractive,” comments Svetoslav Mladenov. The company is involved in two projects on the Black sea: the