Despite concerns that Bulgaria is suffering from the economic fallout affecting the whole world there are signs that the property market in the country has seen domestic demand take up some of the slack from the general worldwide property market fallout. Recent figures from the rental market indicate growth of 12% in the first three quarters of 2008 which is certainly at odds with other markets in the region and the worldwide property market in general. This has prompted suggestions that the country will bounce back quicker than many had expected although Bulgaria is by no means out of the woods yet.
General property market
Bulgaria was something of a hotspot prior to the credit crunch and worldwide recession although the dramatic fall in overseas property investment around the world has stubbed out what was a very lucrative property market. However, while there is still demand on the domestic front this is by no means anywhere near that from overseas investors over the last two years. As you would expect from any slowdown in Bulgaria, the four largest cities have been hit hardest with Sofia, Plovdiv, Varna and Bourgas in the headlines.
The country has also been hit by a slowdown in tourist numbers which has affected the skiing resorts of the region which are very much in their infancy. However, there has been a marked switch from property purchases to property rental with an overall 12% increase in the rental market across the board in 2008 so far.
It would be foolish to suggest that the lack of overseas property investors has not had an impact although strong domestic demand has surprised many in what is still a fairly early stage property market. Whether this domestic demand will continue if the worldwide recession were to be more prolonged and start to impact more heavily upon the region remains to be seen.
Bulgarian finance market
While initially there were concerns that the Bulgarian financial sector was on the verge of collapse these appear to be fairly wide of the mark and reports from the region suggest there is still liquidity and available finance in the region. Those who follow the Bulgarian financial markets believe this is the one factor which places the country head and shoulders above similar emerging markets as investors will have a stronger belief that finance will be readily available as and when they decide to return to the market.
However, one possible concern is the fact that banks in the region appear to be more dependent than ever on domestic sources of money supply and there are fears that this may falter if the worldwide recession was to drag on for some length of time. While it would be foolish to suggest any similarities with the Icelandic financial collapse, we are seeing ever growing rates of interest on offer for savers as the banks attempt to attract as much domestic finance as possible.
As the rates on offer to savers continue to rise it seems inevitable that there will be an increase in the rates available to lenders which if left unchecked for sometime could start to impact on the local property market. At the moment while all around them seem to be falling into recession Bulgaria looks as though it will report positive growth for this year even though it will be down on earlier expectations.
Rogue property deals
Those investing in Bulgaria need to do their homework and ensure that they are transacting with businesses which have a high reputation in the area. The recent story about a UK investor who lost tens of thousands of pounds in a ski resort property should be an example to everybody looking at markets in which they possibly do not fully understand. While this story is perhaps a little out of the norm, it appears that two property developers who were working on a ski resort project fell out amid claims that funds were being taken from the company illegally.
It is alleged that the UK investor in question had been promised a refund on numerous occasions only to be told they would need to visit Bulgaria in person to claim this. Upon visiting the region the investor was made aware that the business address was actually home to 6 other companies and the alarm bells started to ring. After “breaking in” to the offices in question it is alleged that a fight ensued and there are claims of violence against the UK investor.
The property investor in question is now under a witness protection scheme after allegations that one of the property developers was murdered by their counterparty and the case is set to go to court. While this is a rather extreme case of rogue property developers it does highlight the point that even in these troubled times anyone investing overseas needs to ensure they have the fullest protection available and a representative on the ground to look after their interests.
Outlook for Bulgaria
So far so good for the Bulgarian property market and economy, with more and more observers of the opinion that the country is well placed to benefit as and when international property investment starts to pick up again. However, it would be foolish to suggest that the country can fight against the worldwide economic slowdown forever as no one country is immune from the current situation.
On the plus side it is obvious that Bulgaria has a number of attractions for overseas investors and overseas businesses with the skiing industry becoming more and more influential as time goes by. There appears to be ongoing investment in this sector which should reposition Bulgarian ski resorts higher up the tourist food chain when demand starts to seep back into the market.
Summary
Many people will be surprised to learn that Bulgaria is fairing better than the vast majority of countries in the region and while this is good news investors should be aware that it cannot last forever if the worldwide recession gets any worse. However, it does look as though the country is well positioned for the future and is likely to see a quicker return of international property investors than most countries in the region.
The economy, tourism and property markets are still very much in their infancy even after their latest phase of development. While the wider market concerns have affected growth rates somewhat the prospects for Bulgaria still appear fairly upbeat at this moment in time.