Russian invasion of Crimea set to lower Bulgarian Property Values.

With the snap referendum in Crimea now concluded with 97% voting in favour of re-joining Russia, the Russian Rubel continues to devalue causing Russian buyers of property in Bulgaria an effective 20% price increase.

Buyers who had a budget of 1 million Rubels and were seeking a 1 bedroom apartment for 25,000 Euros, will now only be able to buy 20,000 Euros with their same amount of Rubels, which is sufficient only to purchase a studio. Generally buyers throughout March have been telling us that this is not want they want and will not proceed to purchase. Should this continue into the Summer 2014 we can only expect sufficient volumes of vendors (who are keen to sell) to reduce their asking prices down to a level more affordable to the only active buyers (the Russians), thus kick starting another wave of price decreases. We saw this very clearly in 2010, the steady dropping of asking prices until the only available demand bought, without any considerable diversity in the buying demand this is very likely to happen again, this market is at the mercy of Russia’s prosperity and Russian middle class affordability.

For clients in the UK the news is mitigated by a more favourable Euro to Pound rate of 1.19, thus the Euros are buying more Pounds than earlier this year. However, for our Irish vendors this slight advantage is not there, but then again nor is the additional currency risk. It is always swings and roundabouts when two currency markets are played during the sale of a single asset.

For as long as the Russian state rhetoric continues to antagonise Europe and The West over Crimea and the rest of the Ukraine, the Russian Rubel will continue to remain comparatively devalued. Despite the Russian Federation spending a record 17 Billion US Dollar of their cash reserves in a single day to prop up their failing currency, this is of course all part of the acceptable and predetermined price tag for their acquisition of the Crimea. Without The West regaining confidence in Russian investments, Russian bonds and the stability of Putin’s regime, we foresee a sustained duration of devalued currency and thus reduced Foreign Direct investment coming out of Russia into Bulgaria.

There is now no doubt that on a micro scale the initial impact of an unsettled Ukraine has reduced the volume of buyers for Bulgarian property from this market of 45 million, but now also on a much wider and much more detrimental macro scale. The invasion of the Crimea has sent ripples through global financial markets, effectively reducing the spending power of the Rubel and thus the affordability level of those spending it, given that Rubel spending Russians represent almost the entire demand for holiday properties in Bulgaria the reduction in their achievable values appears inevitable.

Even with de-escalation of Russian aggression, should the Ukrainian situation not dramatically resolve in favour of The West and its financial markets, we cannot see how Russian buyers will be able to acquire more Euros to spend in the coming 6-12 months, certainly they will not simply pay 20% more than they had to some months ago. Our best advice to vendors is to expect a fall in the achievable market price within 6 months and to seriously consider any close offer that is achieved in the near future.