Market turmoil as Russian vendors set record low prices.

Russian owners who purchased prior to the invasion of Crimea have effectively doubled the value of their Bulgarian investment in Roubles. Although property values in Euros have stayed approximately the same, the collapse of the Rouble against the Euro has resulted in colossal gains for Russian owners. In summer 2013, 1 Euro was worth 40 Roubles, today it is 76 Roubles.   For those who purchased a Sunny Beach studio in 2013 for 20,000 Euros spending 800,000 Roubles, today they can sell for 1.52 million Roubles. Naturally the temptation to offload any asset at nearly 100% profit inside of 18 months is immensely appealing, professional property investors worldwide are in constant pursuit of such gains and in an entire career might never experience it.

Bulgaria’s holiday property market is again in complete upheaval for the second time in a decade. Whilst record profits for Rouble earners might be a considerable gain for them, the subsequent downsides impact the rest of the market.

'the market is now stagnating'

Firstly we can consider the shift in demand: Russians continue to be the majority of buyers by far, yet few are willing to pay ‘double prices’. The volume of demand has slumped dramatically as a result, sales have now dropped by more than 50%. This gravity of the situation cannot be overstated, the market is now stagnating, all vendors should consider planning their continued ownership as properties are expected to fall in value and stay on the market considerably longer.

'record low prices'

On the supply front we have witnessed unprecedented changes: an influx of unprompted downward price changes to record lows. Russian vendors are willingly discounting their offers in order to cash-in and make a quick and comfortable 50-75% Rouble return. On this basis, their asking prices are effectively reduced by up to 25%, thus setting a new market low.

'rebalance of prices at a lower level is now imminent if not already established'

To take example: this week the below St Vlas studio sold for 14,500 Euros, a price never seen before. The owner purchased from NewEstate in 2010 for 17,000 Euros costing 629,000 Roubles at the time, now sold for a 2,500 Euro loss, but still making almost half a million Roubles profit.

Panorama Bay 2: Studio, St Vlas

Conservatively estimated, there are at least 70,000+ holiday properties owned by Russians, which we can consider as having ‘doubled in value’. The threat to all other vendors in the marketplace is abundantly clear: cheaper offers will dominate the market and a rebalance of prices at a lower level is now imminent if not already established.

Whilst we in the west disdain paying ever increasing petrol prices at the pumps, the reality is that these higher rates maintained the Russian economy at growth while oil soared to a record $145 barrel and maintained $100-120 / barrel for the past four years. Now at $47 / barrel, the Russia economy is firmly in recession having been hit simultaneously by Western economic sanctions over Russia’s involvement in Ukraine, as well as Saudi Arabia’s refusal to reduce oil supplies which has suppressed global oil prices in order to destabilise America’s shale viability. The simple economics are that whilst your petrol and textiles might be Pounds cheaper at home, your Bulgarian property asset has devalued by thousands more for purely geopolitical reasons.

Solution: simultaneously rent whilst marketing to find a buyer

We advise all vendors to structure themselves to sustain continued ownership for the long-haul. Of course many will successfully sell, selling  properties remains our absolute priority, but probably more than half will not manage to within the coming 9-12 months given current market conditions, as such it is wise to prepare accordingly.

NewEstate’s solution is to offer simultaneous rental and resale services: with both managed by the same party one will not exclude the other. Therefore, any vendor seeking to market their property for sale can now do so at any price they decide, whilst maintaining rental income from holidaymakers without preventing access to potential buyers. Naturally if rental is dealt with by a third party no access will be permitted during the critical summer months. In an already difficult market there is no sense in obstructing viewing buyers when the same or more rental income can be achieved at without this risk.

NewEstate concluded 2014 with more than 40,000 rented nights. If you are currently selling with us and would like rent too, please contact us for further details.