Levon Hampartsumyan, CEO of Unicredit Bulbank:We support the sector although more selectively

It all depends on to what extent our economy will continue its stable expansion and whether demand will evoke real estate development in all segments

Levon Hampartsumyan is CEO of Unicredit Bulbank, the largest bank in Bulgaria, and is also the Chairman of the Association of Commercial Banks. He answered the questions of the Bulgarian Property Index magazine on the effects of the global financial market crisis on Bulgarian real estate sector, at a press conference, on which Unicredit Bulbank announced that there was no potential risk for the local property markets. Nevertheless, Mr. Hampartsumyan does not rule out the possibility that certain investors and developers, mostly involved in holiday homes business, might be affected.

Mr. Hampartsumyan, has last summer's global financial crisis influenced Bulgarian real estate market?
- In any case a revaluation of strategies and approach to projects is under way. What we first see is a stratification of asking prices of properties. In addition, it is probably the construction industry and the developers that have to soften the first blow by decreasing their projects profitability, which is still quite good, compared to the international levels. As financing will become more expensive it is likely that marginal players will be affected, which would make them abandon the market.

Does this mean that we have stable market fundamentals which could be resilient to more expensive financing?
- Yes. When we speak of more expensive financing, we mean a maximum of 50-100 basis points (100bps make one percentage point), which should not affect the projects’ profitability.
But investors might become somewhat disappointed and there are already such people. The response of the British market is indicative.

This concerns second homes, but what about commercial and investment properties?
- There we still see growth potential.

While in 2006 and 2007 the hot topic amongst investors seemed to be yield compression in 2007 and 2008 the keyword is credit. What do you expect by the end of this year and in the first half of 2009?
- The approach towards risk in the whole real estate sector is being revalued. Quality projects will be supported, if they are developed by reliable and financially stable companies. All in all, we can anticipate successful implementation of projects, which have underlying fundamental value. As nowadays people seem more cautious than they used to be a year ago, where some necessary factors are not in place, the projects probably will not be completed.

What is the feel in the financial sector? Will the support for the real estate industry continue with the same pace?
- Yes, it will, although we will be more selective. Having said that, Unicredit Bulbank's approach has always been slightly more conservative than the wider market, so it does not make much difference to us anyway. To say it simpler, more aggressive players will have to reconsider their strategies in order to avoid areas where risk is significantly higher.

Is it possible to see net decrease of capital flowing in the sector?
- Yes, it is possible. Everything depends on to what extent our economy will continue its stable expansion and whether demand will evoke real estate development in all segments. While holiday properties have reached a saturation point, industrial and logistic infrastructure, and retail real estate still require great investment in order to catch up with the average European indicators.

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