Crisis creates lucrative opportunities

Negative expectations have made the market abate

With the financial crisis rapidly spreading, hardly anyone wouldn't know that now the time is not right to undertake new ventures. It is better to keep your cash safe than invest it long-term. Yet, these are the times when smart investors come to the fore. As markets soften, opportunities to purchase high-grade properties are multiplying and competition is low. But which exactly are these properties and where could they be found?
"Currently, no one makes deals," said Nikola Stoyanov, Managing Director of Lux Imoti, the real estate agency. "The main problem is a psychological one - the unpredictable future," he added.
Real estate is a long-term investment. Yet, there are investors who try to trade with it. In the last three years, a number of foreigners and foreign-sponsored funds acquired homes in projects, mostly located in Sofia. Some of them are now selling - on completion, in accordance to their strategies, because they don't expect further growth or simply need cash.
Agents say this trend has been rapidly developing in the past year. "There are many foreigners, who have bought 2-3 apartments and now put them up for sale," says Vesela Ilieva, General Manager of Unique Estates, a property agent.
But many of these homes are located in neighborhoods like Sofia’s Manastirski Livadi and do not offer anything more than the standard quality. They are sold at average asking prices of EUR 1,200-1,300 per sq m. Agents alarm that not only are these properties far from luxury, but they are threatened of price corrections due to abundant supply.
As credit lending has not penetrated Bulgaria's economy as it has Europe's and that a number of purchases have been financed with cash, other buyers might not be forced to decrease prices.
Levels of EUR 6,250 per sq m - the price of 240-sq-m apartment located on the fourth floor of a building viewing the monument of the Soviet Army - would find it hard to find buyers. "If clients want to sell, the price (in the prime area of the Doctor’s Monument) should not exceed EUR 5,000 per sq m," Vesela Ilieva said. But they now tend to be more prone to negotiate provided they see buyers are serious.
Nikola Stoyanov said that in old and poorly maintained buildings in the city center prices are half that - EUR 2,500-3,000 per sq m. And the range of abatements is quite narrow too. "Luxury property vendors are now more prone to negotiate prices than before, but they would not sell at any price," Stoyanov said.
Yet, for some developers, it is a different story and they are more willing to negotiate anything from rebates through additional extras and finishing works or flexible payment schemes. The reason is they have to sell properties within certain deadlines to be able to repay their loans. Recently, a foreign investment fund decided to put off a project in the area of Malinova Dolina, just next to the Business Park Sofia, although it had already started to market it. It aimed to avoid risking sales in a falling market.
Prices of apartments in the area, which vary between EUR 1,200-1,400 per sq m, will remain under pressure for some time, owing to ubiquitous strong supply. The situation similar is similar in some neighborhoods like Manastirski Livadi, Vitosha and Krastova Vada. A 106-sq-m two-bedroom apartment on the fifth floor in a residential complex in Vitosha costs slightly more than EUR 130,000. Its extras include common outdoor heated swimming pool, gym and sauna, 24-hour security, property management and maintenance. Yet, a 172-sq-m two-bedroom apartment in a nearby complex commands almost EUR 360,000, a price that also includes two parking spaces and storage space.
But Mrs. Ilieva believes that certain investments will yet turn to be profitable - for example real estate located in prestigious areas like the city center or established projects in other locations. Taking this into consideration, a price of EUR 1,600 per sq m for completed 114-sq-m flat in a gated community developed on Simeonovsko Shose Bldv. might not be that high.