Real Estate Prices Holding Steady

Wednesday, May 13th, 2009

Hello again everybody,

I have been pleased, although I must admit, not all that surprised, at recent developments in the Bulgarian Black Sea coast real estate prices. They are holding steady, for the most part. And “holding steady” means just that, they are not dropping – not rising either, but more importantly for those who are holding real estate, not dropping.

“Why is that” you ask? Well, I’ve written about my sense of the Bulgarian market before, and a lot of this will be repetition, but here’s the reasoning:

  • First of all, Bulgaria as a country is not suffering as badly from the world economic crisis as many more speculative real estate havens, Spain for example, are suffering. Bulgaria is not prospering in the face of the crisis, but it’s not suffering all that much either.
  • Next, much of the vacation real estate that is new and complete (finished, more or less ready to move into) was financed by internal money, not bank loans or similar mortgages. This means that the builders are not going to die because they have to pay extraordinary mortgage interest rate payments and risk losing everything if they don’t meet the payment schedule.
  • There is a continuing market for finished units and more expensive villas from the Eastern European non-EU countries – this is not all that much, I expect only around 5% of the total market of 3 years ago, but it is helping to keep the market from collapsing completely.
  • What little construction is continuing – and this is almost nil – is doing so at much lower fuel and energy and material and labour prices than 2-3 years ago.
  • Finally, I sorry to say, there are still the vultures there, ready to snap up a real bargain. This “bargain” is typically a vacation apartment unit that was bought (complete, probably furnished) 18-24 months ago by a non-Bulgarian, and the new owner thought that s/he could use rental fees to make the payments on the 85% or higher mortgage. When this person ran into financial problems at home, the first thought was to “unload” the non-critical real estate costs – i.e. the Bulgarian vacation property. The only problem was, that there were probably thousands of people in the same boat, and as a result of falling vacation rentals (both the prices and the number of vacationers were falling), no apartments were selling either. The only solution for the owner is a panic sale – and that’s where the vultures come out of hiding. There are one or two other scenarios you could make up that would also describe the situation in some detail, but the result is the same – the vultures are always there.

What does that leave us with? Lots of empty completed or very nearly completed apartments. Still “reasonably” priced, compared to prices 1-2 years ago. However, many of the units that were just being started last year have now been abandoned, for all practical purposes. These were “stop-loss” actions to keep from putting good money in after bad. In addition, there are units – new or nearly completed – in some areas that may never be sold, due to the problems with the infrastructure in some areas, and in others with design and/or construction weaknesses in the buildings themselves. Potentially, some or even most of these will be scrapped, rather than completed within the next three to five years. Quality is showing its value!

What does that all add up to? Well, to make it short, the prices for good quality apartments in the Black Sea vacation areas are holding steady. Units lacking significant construction progress, having poor infrastructure, or having design/construction weaknesses are continuing to lose value.

Back-up for this assessment takes the form of firm prices that are being experienced for older “massive-built” homes and buildings and well-built modern buildings in the non-vacation areas in Bulgaria. In comparison to this, the 10-25 year-old buildings tend to be losing value.

I hope you are all having a good spring, and I’m looking forward to seeing you on the Bulgarian Black Sea Coast this summer! :-)

Ciao for now,

Craig

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Welcome Mighty Fine 2009 !!

Sunday, January 4th, 2009

Hi there everybody!

I want to wish a belated Happy New Year to all our readers – as we wrote up above, a Mighty Fine 2009! Our company name already indicates that we are an optimistic organisation, so our saying for this year fits right in.

You might wonder why someone or some organisation that is dealing with Bulgarian Black Sea Shore real estate has reason to be optimistic. Well, I will tell you why. I believe that this world economic crisis that has everybody all stirred up is ultimately going to be a good thing, not only in other places, but also right here at home in Bulgaria. Why? Because I believe that it is going to separate out the flakey operators and thieves and crooks who have given our industry a bad name in the past few years from all the rest of the honest, hard-working people in the business.

Why will they be separated from the rest? Some already have been. They were looking for the quick buck (Dollar, Euro, Lev, Pound, you name it), and now that the fast money in our business and our area has disappeared, they disappeared along with it. Good riddance! The same is true for the flakey developers who were reputedly selling the same property 2 and 3 and 4 times – when there are almost no buyers, it’s difficult enough to sell a piece of property once, much less a number of times! The same for the thieves – although it is admittedly more difficult to get rid of them.

What I expect to emerge from this period of economic unrest is a more stable and more mature real estate business – the days of the fast money are most likely gone, but I truely believe that there are still opportunities – even today, no, especially today – for the investor who looks at the medium to long term – 3-5 years and more. Why? The basics that made the so-called “Bulgarian Bubble” were not false! Only the bubble was wrong. The Bulgarian Black Sea shore is still beautiful. The Black Sea is still clear and untainted in most areas of our shore line. There are beautiful natural beaches up and down the coastline – many of them still isolated and undeveloped. There are still trustworthy and capable construction people and companies in Bulgaria who have invested many years and many Leva in their own operations, and who want to continue to do that. There are still many people – foreigners as well as Bulgarians – who agree with what I just wrote, and who would like nothing more than to own their own small piece of the Bulgarian heaven on earth.

Will the Bulgarian real estate business recover from this crisis? Of course. And it is not even a crisis in many locations, where the foreign buyers and the foreign bank owners are not there to call the shots. Bulgaria – the real, rural, “natural” Bulgaria – is not in crisis. Houses and apartments are still being bought and sold (remember, it takes one buyer and one seller to make a deal, and each deal is both a purchase and a sale). Bulgarians have a desire to own their own home, and a revulsion about owing money to other people, particularly on their home. That has kept the local business healthy, even today.

The quick money, the new-rich people, the fly-by-night investors without sufficient financial backup, these are the ones who are being hurt. Somehow, I don’t see that as a particular problem, maybe more as “paying their dues?”

What do you think?

Bye for now,

Craig

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