From boom to bust

The market rapidly moved from a state of intoxication to a state of sobering

The Bulgarian holiday homes market has developed like a tidal wave. It rose quickly, swept away a number of developers and buyers,rose with a lightning speed then crashed deafeningly. It left behind the broken dreams and broken promises of many investors, yet it also left a ray of hope that a positive outcome might occur.

Bulgaria was spotted on the world investment map just four or five years ago. Back then, the country was described as a cheap but quality and beautiful equivalent of Spain, Portugal and Dubai and powerfully attracted investors who were looking where to invest their money. Thousands of foreign people, at first English and Irish and later Scandinavians and east Europeans, rushed into buying their second homes in Bulgaria. Complexes sold off-plan, while developers were revolving the development of the next ‘large and impressive project’.
But most of the people who bought these properties either perceived them as investments hoping that prices would rise, or as second homes that would later on be let to tenants. Their hopes were largely misleading. Mass construction put some pressure on prices, while abundant supply of hotel rooms and suites reflected on rental incomes.
It took only half a year (2006, 2007) for the number of holiday homes to rise by 50% while prices ranged between 800 and 1,600 euro per sq m, sometimes even 2,000 euro. By the middle of 2007, mass construction had lead to some 70,000 new units entering the market - either built or not, says a research made by Colliers International. Many of these properties came back on the secondary market as investors wanted to profit from re-sales.

The crucial 2007


In the meantime, mortgage lending in Europe shrunk and reflected on demand for property. Interest in Bulgaria on the part of British and Irish clients declined. "In 2007, we felt the first slowdown, fewer deals closed. The market came to a standstill but registered no decline", Luxury Estates’ Nikola Stoyanov commented.
Meanwhile, the British buyers were replaced by Russians or residents of some former Soviet republics. They had higher requirements which damaged the businesses of some developers, who couldn’t respond to the changes. Then, it was the first time that people started speaking about unsold apartments, not because of the lack of buyers, but because of unsuccessful concepts. "Russian clients prefer properties on the very beach along the Black Sea Coast. At home they have enough winter holiday optionsbut no summer ones. So the situation required a shift of emphasis - the entire Bulgarian Black Sea Coast came to substitute the winter resort of Bansko", IvoKovachev, commercial director of construction and investment company "AMK – Bild" commented.
Asking prices of holiday homes, however, maintained high levels and prices such as 2,500-3,000 euro were no surprise.

"By September 2008, Bulgaria registered the best year of the Russian market", Nikola Stoyanov said. "Hadn’t the crisis started in 2007-2008, we would have witnessed a second boom, this time on the part of Russian customers", he added.

Frozen


Projects, prices, sales ... The first months of 2007 paralyzed the holiday homes market. Mr. Stoyanov assumes the market players didn’t expect such a great stagnation despite the common slowdown. Real estate agents started to speak about declining prices, although the decline was ascribed to the poor quality of properties.
"It was clear to everyone in the sector that this can’t go on forever and we expected some stagnation", Mr. Kovachev said. "The processes show that properties of better quality are becoming more important, the rest just don’t fit in."
Deals are still closing, typically involving Russian clients, but they also involve lower prices.  
"There is still demand, but asking price levels seem to have changed. Russians are the predominant group of buyers; they have small budgets and use cash", said Iliya Komitov, marketing manager of Fairplay Properties’ Santa Marina holiday village project.
"Buyers have the capital but they prefer to waiting and see what will happen", explained Nikola Stoyanov. He assumes that English investors will soon return to the market as now they have the opportunity to get 70% off the properties.  

What to expect?


"Forecasting the future of the sector is like trying to predict the exact date of the end of the crisis", says Ivo Kovachev.
It is clear that the abundant supply will put some pressure on the market for quite some time. Iliya Komitov noted that "it is vital to remember that the first holiday home buyers in Bulgaria were British and Irish speculators, who now have to sell the properties because they are forced to do so by their lenders. The secondary market will be driven by this group of vendors (former speculative buyers)and will sort of prevent prices from rising.  

Or, just like developer Plamen Andreev puts it: "We now speak more of surviving than growing – not only as far as holiday homes are concerned, but real estate properties on the whole."