Lachezar Bogdanov, economic analyst, Industry Watch: Reforms to facilitate investment have to continue

Almost all competent economists know that one of the two reasons for the current crisis is the state’s intervention regarding non–market stimuli for residential property demand in the US. Nevertheless, one should not ignore the soft monetary policy of the Federal Reserve and the European Central Bank. It is quite obvious that it is not possible to heal poisoning by using more poison. In Bulgaria, we have not seen any special state support for real estate investments but the business sector and households have somehow taken advantage of the easy lending in the past 3 years.
That is why we have to differentiate between demand and solvent demand – as the first one is quite abundant, the problem is how to meet all needs and requirements by means of financial resources. Most of the Bulgarian households probably wish to live in larger homes of better quality but the question is whether they have the necessary income to acquire such properties. If the economy grows, then income will grow too plus solvent residential demand. Therefore, I do not assume that we have to do anything whatsoever in order to stimulate housing demand. Other real estate segments have to be examined in a similar way too. The market cannot be and should not be "overleapt", in other words, projects should cease in the moment the market has met its needs. Provided the state interferes by means of financing these projects, it actually creates a bubble that will inevitably burst as it will use taxpayers’ money to finance activities, which would otherwise shrink.
Reforms aiming to facilitate and accelerate investment processes have to continue. Every single administrative barrier is an additional expense for real estate developers and would-be buyers and the higher transaction costs are, the larger the gap between demand and supply that has to be filled is.

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