For sellers

Selling Bulgarian Property – What’s it worth? What owners should know, ignore and accept before attempting to resell.

Despite negative mumblings from journalists in the overseas property media, it is possible to sell Bulgarian property in the current climate in the majority of places. Due to the international nature of banking and the continued appeal for affordable sunshine properties, we are now seeing spurs of recovery in parts of the domestic and foreign owner markets. If you are looking to resell your Bulgarian property the below information will help explain why the value is not what it once was, the currently key market facts and what you are likely to accept before finding a buyer for your property.

Where sells – in brief:

If you have purchased in Sofia the news is good and you will surely find a buyer within an immediate to reasonable timeframe. If you own anything newly built or well renovated within close proximity to the Black Sea coast you can certainly sell, but it is most likely that you will need a summer season to achieve it. If you have bought in a ski resort then unfortunately your chances of reselling are substantially reduced, but it is still possible; it requires a determined agent, plenty of advertising and some luck to find you a buyer in the slowest area of the market for re-sales.

Bulgarian Mortgages and their impact on re-sales:

Every market is a circuit of capital and every circuit needs a source. In the case of the Bulgarian property market, funds from foreign buyers have typically been raised by individuals through the re-mortgaging their UK / Irish homes to purchase a holiday home or overseas investment. Secondary to this source has been the taking out of new mortgages from banks operating in Bulgaria levied against Bulgarian acquisitions. Both these keys sources of funds have been dramatically hit by the recession, some sources suggest that UK banks have reduced re-mortgaging for the purpose of overseas investment by as much as 85% since mid 2007. During 2007 there were twelve lending banks in Bulgaria that a foreigner could apply to for funds for an offplan or completed property purchase.  By mid 2009 there were none. Today there is one mortgage product available to Europeans and two to Russians, all are expensive and none offer interest rates that nominally cost less than or equal to typical gross monthly rental income.

Without appropriate financing available, interested buyers can only rely on their cash savings and personal loans. This generally results in buyers only having budgets of 20,000- 60,000 Euros and rarely more. If financing was available they would use these funds as a deposit to fund most of the purchase and then borrow the rest. However, without options for such lending these active buyers are limited to only spending what they have in the bank.

Bulgarian Property Market Values:

Combine the above factors with a market packed with distressed vendors and soon supply meets demand to produce transactions at ‘below market value’ prices, very quickly these become the norm and average prices are reset. Buyers can only afford to pay with what they have available to them and the most desperate vendors will accept these amounts regardless of their personal net loss. This is the fundamental reason why owners are currently unable to sell at or near to their original purchase price, or even their reconsidered lower ‘recession’ target price.

To take a real world example; we are currently representing ten apartments for sale in a frontline position in one coastal complex. Penthouses with panoramic views are available for 500 Euros /sqm (60% less than the original sale price in 2006) whilst ground floor one bedroom apartments in the same building are still listed at nearly three times the price (1400 Euros / sqm). Why? Simply put, some owners are realistic about what rates are in-line with the actual current demand, meanwhile other owners mistakenly believe that a property is valued according to what ‘it owes them’ or what they ‘need to sell it for’. Unfortunately, the marketplace and the demand it holds are utterly disconnected from any individual’s personal finances and as such a true valuation can only be suggested once local recently completed transactions are considered as ‘comparables’. Any ‘value’ that is conjured by the owner because of personal desires or finances, opinions, goals, aims, existing debts, money spent to date or previous purchase price is purely a personal ideal and not at all market value.

Internet portals as a guide to values:

The situation is catalysed by information on the Bulgarian market largely being available to individuals only via the internet, the vast majority of which is simply advertising and seldom factual. Unlike in the UK, you cannot use property portals to gain a reasonably accurate reflection of current market conditions or gauge current values. Portals equivalent to rightmove or findaproperty can be useful tools when considering highly developed fluid market such as in the UK; sufficient market demand means that transactions are frequent after brief research a ballpark figure can be concluded. However, this is only possible when the proportion of active buyers far outstrips the supply, as in the UK (even in a recession), attractive prices always sell thus enabling a databank of sufficient ‘comparables’ to help produce preliminary valuations.

The Bulgarian property market is very different; there are tens of thousands of properties for sale online, almost all advertised at the desired price according to the owner. No company stands to profit from the production or publishing from real sales data in this climate, as such nationwide established and trusted portals (as in the UK) do not yet exist. Without data on actual sales being commonly available the desired / advertised prices form the basis of many owners research and thus they are misled into false hopes.

When considering the resale of a property many owners mirror the salesperson that convinced them to buy years before; the facts about the quality of materials, its superior position, views, furniture, unique shape, size of bathroom, onsite facilities etc all become the forefront of the argument as to why their apartment is better than the rest and thus should be worth more than ‘x’ amount. Unfortunately, in this recession climate a property’s unique competitive advantages are rendered almost insignificant by comparison to the price offered by fellow owners who are competing against you. Having completed the 2010 sales season we can wholeheartedly conclude that the only fact that matters is if you are the most distressed seller in your complex, building or area. If you are not, you will have to wait until whoever is more desperate to sell and leave the marketplace before it becomes your turn. By then, it is likely that someone else would  have been been pushed that bit harder by their own personal finances back home and thus would have lowered their price further to become the primary focus of your agent and their buyers. Naturally, this varies from area to area; it is not so true in the cities of Sofia or Varna, but absolutely the case in Sunny Beach and even more extreme in Bansko.

Having considered all of the above, the question for many owners of holiday property is actually not ‘do you want to resell’, but ‘are you prepared to sell at a low value’? If not, it is unlikely to be possible to sell soon and as such you should best prepare yourself to keep the property for some time and make the necessary efforts to achieve the maximum possible rental income.