Bloomberg interviews NewEstate: Is the Bulgarian property market entering a new bubble?

Live this evening, Christophe Gater of NewEstate Ltd was interviewed by Dimitar Vulchev on Bloomberg’s evening business talk show.

 

 

Transcript:

 

Vuchev: We are here this evening with the one of the partners of NewEstate, Christophe Gater. Good evening Mr Gater. So, what price trends are you currently seeing, what can you say about the market?

 

Gater: Of course it depends upon which part of the market one is focussing on, every area has a different dynamic, but generally it is good news. If we take Sofia for example and follow the national statistics, these suggest that we have had a 6% rise in the past year, this year does not suggest anything different, in reality in some specific areas we have actually seen increases up to 20% and even slightly more. We as a company have experiences specific cases we are actually selling property, not just advertising it, not just talking about it, real sales in some parts as up by as much as that. But in other areas, unfortunately in rural areas that’s a very different market and a completely different case.

Vuchev: And what about the holiday market?

 

Gater: The Holiday market is really very different.

 

Vulchev: A different segment?

 

Gater: Yes, it is, it is not driven by domestic demand. If we look at the Sofia market, Plovidiv, Varna, these are largely domestic markets, but then we look at areas such as Sunny beach, which is almost entirely foreign money and therefore is effected by different influences. There we have a more complicated structure whereby there are a lot of Russian owners, who mostly bought between 4-5 years ago, purchasing in Roubles which are now half the value of what they were, and therefore their Euros investment has effective doubled. That doubling of their invested value means that they can now afford to sell at an enormous profit, which enables them to perhaps undertake Bulgarian owners, British owners who are also looking to sell. So, the holiday market is a very different one, it is also more difficult, prices there are not increasing, we actually have many examples across the board of the opposite of that.

 

Vuchev: Is the Property market really getting better, as everyone thinks?

 

Gater: I genuinely believe that it is getting better, but of course it depends which perspective you are coming from: if you are consumer looking to buy a property I think you are going to find a lot more choice now by comparison to previously. Right now I think that 80-90% of stock available is top floor, ground floor, damaged or of poor layout, unsellable, unliveable, poor quality, which are largely overpriced. Now that prices are up, certainly in the domestic market, let us take again Sofia for example, this is where developers can profit again, not quite to the extent of 7-8-9 years ago, they can now profit, That means that new planned projects are coming to the market, they are fortunately, I see from my experience much more functional, liveable properties at more reasonable prices and this is a huge improvement for the market and certainly for property buyers, not just those seeking buy-to-let investment property, but for real homes, residences, and that is fundamental for any property market.

 

Vuchev: So, why should someone invest in Bulgaria?

 

Gater: It’s a question we’re often asked and there isn’t any brilliant answer expect to say that Bulgaria still has amongst the very lowest barriers to entry and this is a huge appeal factor. There isn’t really anywhere else that you can realistically say, with strong governance, within the European Union, that is politically stable, relatively speaking, globally speaking.

 

Vulchev: What about the corruption!?

Gater: Of course the corruption plays a role in people’s decision making, but when you are looking on a global scale and you have 25,000 Euros to invest, I think you’ll find it very difficult to find a place to invest that kind of money where you are going to get at 10% gross rental yield, and a 5% net return, from that level of investment. You will have other options of course, gold, shares etc, but property is tangible, something owners can use, so if you are in the market at this level, Bulgaria is still one of the best options. So, from a barriers to entry perspective it I still think that is one of its key strong points

Vuchev: What about the distortion by foreign investor that everyone is talking about?

 

Gater: I don’t think there is enough of them to distort the market . Foreign Direct Investment in property is massively reduced from what it once was. However, as with the example that I gave earlier, with Russian investment and currency fluctuation, that is certainly causing distortion. What I would say, where there is substantial change and growth in the market is in the rental sector, where for example we have foreign money coming into the country pushing new products, particularly in the shared economy, where you now have websites such as airbnb, representing 190 countries providing a new way of renting your property, which is opening opportunity to a lot of people or other websites such as Arendoo.com offering similar service in Bulgaria specifically, which is something that allows Bulgarian to actually utilise their properties, which is perhaps not being used, to gain an income from it. And also, it is allowing people to go on holiday, take a city break or weekend stay  much more affordable for them. So the foreign money that we see being involved in the market isn’t necessarily in bricks and mortar, there is actually a lot more going into cyberspace investment than meets the eye.

Vuchev: How about the interest rates in the market, how are they effecting the market?

 

Gater: Unmistakably huge difference. We saw a 7 month period after the collapse of KTB bank, and particularly when the government paid out the guaranteed amounts to depositors, we felt this was a bubble because we could see the same repetition of buyers using cash, which was always previously the main purchasing power for the Bulgarian market, but now I would say, 12 months on, that’s not the case. 80-75% of our buyers are young professionals, buying with mortgage backed purchasing power and with interest rates now below 5% the average employed person, we are seeing that across our thousands of tenants that we deal with, those tenants are less interested in renewing their rental contracts and more interested in actually looking at mortgage options to buy a property  from us. So, those interest rates are a major factor.

 

Vulchev: So, we are not in a bubble?

 

Gater: I don’t think we are in a bubble. I think the demand is now sustainable, highly sustainable, I don’t believe that foreign money is a major driving factor. The developers are making now normal profits, we are not seeing anyone making 300-400% gains, that was always an artificial business, from which developers benefited a lot, of course no one is against making profit, but on those gross levels it was always unstainable, especially when being sold on false rental returns, largely to foreigners. Now we are looking at young, educated, professional Bulgarians taking loans from Bulgarian banks, to buy their first homes, sometimes with family help, sometimes without, but importantly this is a new demand that will be here for the foreseeable future. These people have already decided they are not going abroad, its Bulgarian money, invested into Bulgarian properties, so it is sustainable.

 

Vuchev: one final question, what about the future?

 

Gater: Well, its truly the million dollar question! We are still here, we still believe in it, of course we are not just invested in the Bulgarian market, but I still think that the Bulgarian market has plenty to give. Prices are certainly not all they once were, and you could say that they gives hope, there is still a chance to get there again  and even if that isn’t possible we are still looking at a profitable market, which I would prefer to see based on much more sustainable terms. I think the Bulgarian market has plenty to offer, which may not be for the classic international investor, maybe not for international funds, but on a domestic level there is money to be made and its for the long-term, it is not a flash in a pan.

Vuchev: Christophe Gater, partner at New Estate, thank you very much