Article in Financial Times

Bulgaria booms despite credit crisis

Home owners in many parts of the world have reason to worry about the implications of the international credit crunch. In Bulgaria they do not. Bulgaria’s residential property market is showing unexpected resilience to the impact of the crisis thanks to investment by east Europeans and increasing numbers of local buyers.

nterest from foreign investors remains high as they are aware that Bulgaria still has the lowest property prices in the European Union, says Michail Chobanov, chief executive of Sofia-based Bulgarian Properties.

Investors from Russia and Romania have started to replace the British and Irish buyers who were the first to put the Black Sea coast and Bansko, a ski resort south of the capital Sofia, on the international second-home map.

“The credit squeeze has had an impact mainly in the US and the UK, while the market in the past six months has been driven predominantly by investors from Russia, Romania, Poland and Ukraine,” says Rossen Dimov of Rockarch Estates, a London-based property consultancy.

Russians and other east Europeans, who filled Bulgaria’s Black Sea resort hotels in the communist era, are returning as buyers of holiday homes. While no official statistics are available, local estate agents say sales to east Europeans, whether of low-priced apartments or high-end villas in gated developments, have shown a significant increase this year.

“I chose Bulgaria because it’s close enough to drive to if I want, and I feel at home – all the older people speak Russian. And it was affordable, unlike the prices here,” says Pavel Sinelnikov, a businessman in St Petersburg who bought a two-bedroom apartment at Golden Sands, the second-largest Black Sea resort.

Georgi Kirov of Colliers Bulgaria, the property consultants, says prices at big resorts on the Black Sea coast had doubled within a few years before starting to decline even before the credit squeeze, because of an oversupply of apartments and the slow pace of local infrastructure improvements.

Other market segments have not been affected, however.

“The credit squeeze accelerated this trend regarding seaside apartments, but high-end coastal developments and residential property in Sofia are doing well,” he says.

Bulgaria’s strong economic growth in the run-up to EU membership, averaging more than 5 per cent annually, has pushed up incomes for private sector workers. Mortgages are widely available from the Bulgarian subsidiaries of Italian, Greek and Austrian banks.

According to the Bulgarian central bank, property purchases in the first eight months amounted to ?1.16bn ($1.7bn, ?808m), equivalent to about 35 per cent of total foreign direct investment since Bulgaria joined the EU last January.

Bulgaria’s property boom was initially driven by investors from the UK and Ireland, attracted by cheap prices for newly built second homes and one of the lowest costs of living in Europe.

The capital Sofia, along with the port of Varna on the Black Sea coast, is seeing steady population growth as skilled workers migrate from provincial cities. The supply of residential properties is growing fast, but demand is still stronger. Prices have risen 13-18 per cent this year, according to Myles Summerfield, chief executive of LS Property, a Sofia-based company that focuses on retail and commercial developments in the Balkan region.

“This market looks strong as prices are still 20-30 per cent less than other comparable east European cities, and there is a growing local market looking to buy in better areas, in developments with more facilities,” he says.

by Financial Times