Bulgarian real estates

Construction companies in Bulgaria maintained the trend to push and finish infrastructure projects throughout June.

According to today’s report of the National statistics agency (NSI), the registered decrease of production in the real estate construction business is 14,9%, while the civil construction (infrastructure construction of roads, bridges, pipes, electricity lines, etc.) increased with 6,0% compared to June 2008.

The finished construction in June 2009 decreased with 8,6% compared to the same month of the previous year.

Compared to the previous month however, finished real estates in Bulgaria increased by 10,6%.

The real estate construction is a relatively large share (64,9%) from the total production in the business and the registered growth is 9,6%. The civil/engineering construction increased by 12,4%, but due to it’s relatively smaller share of the total construction it does not affect the overall production significantly.

The market of business real estates in Bulgaria is a function of the economy development. During the second quarter of 2009, uncertainty is dominant over the long-term development of the economy and business in particular. This also lead to uncertainty in the development of numerous investment projects.

According to the consultants from Forton International, the tenants from all business sectors are waiting, while numerous projects are under revision. The company published it’s regular reports for the second quarter of 2009.

The market for building plots with future development as a goal is practically non-existent. Transactions are made one by one due to the lack of free money, high interest rates, restrictive behavior of banks to investments in real estates and the saturation of the market in some of the sectors.

Despite that, the prices that owners demand are far below what the solvent buyers motivated to make deals can pay. Experts predict further drop of the prices of land over the next two quarters of the year.

Office grounds

After office tenants decide on the development of their business – expansion, keeping the current positions or shrinking, we expect their follow up decisions on the best location for the respective business, commented Sergei Koinov, chief executive of Forton International.

Strategic business decisions, the need for optimization of expenses and the existing variety on the office market will probably lead to serious deals until the end of 2009. Local businessmen seek stability of the existing business and don’t think about expansion, while several international companies, mostly in the lower price segment, take up the profitable positions at new locations to ensure successful business in the long term. The demand for industrial grounds is constant, despite at lower prices, summarized Koinov.

The office ground offers for the first half of 2009 were centered around the ring road of Sofia, a location where the percentage of free grounds remains high, and the rent price levels are relatively low (9,50 euro per square meter/month).

The construction of the first wave office projects that comply to all international standards is still underway. They are expected to be finished in the second or third quarter of 2010, when an additional of 100 000 sq.m. high-quality office grounds will be available in Sofia, commented Ralf Holand, partner of Forton International.

Even though all tenants pay a lot of attention to expenses, leading local and international companies report a stable growth of personnel. At the same time, many of them realize the oversupply of offices and think over moving to a second-rate building, but at a better location for the particular business, adds Holand.

According to AT Kearney’s Global Services Location Index (GSLI) Bulgaria is 13th among the preferred outsourcing destinations in the world. This makes the country a leader among the countries from Central and Eastern Europe and creates significant opportunities for Bulgaria to attract foreign investors. This process can affect positively the office ground investors in a moment of fierce competition and comparatively lower level of consummerism.

Trade grounds

The second quarter of 2009 was a hard time for the trade grounds market in Bulgaria. The demand and rent prices in shops in the city center and the main shopping streets weren’t the only thing to lower – the income of shopkeepers also decreased, which has it’s negative impact on the expectations for the future for the main players in the business.

We can’t report a significant dynamics on that market during the last quarter, admitted Pavlina Nikova, manager of Trading grounds and partner of Forton International.

Shopkeepers remain passive and cautious. We’re seeing a decrease of sales, which is most notable in the sector for expensive goods – about 40% compared to the capitals in 2008. Brands from the low and average quality segment are among the few that are active in negotiations. The preliminary negotiations for rent prices is already a part of the daily routine of many owners and investors. The market is entering the phase of conscious demand and adequate supply, added Nikova.

Though construction of the several started shopping malls continues, some investors are slowing down their projects by 4 to 6 months. There are more and more empty shops on the main shopping streets and changing of tenants. Because of this, the levels of financial return from the main shopping streets increased to 8% from 6,75% in the end of 2008.

Industrial grounds

Despite the negative business tendencies, the levels of financial return from industrial estates remains stable – about 13%. This is due to the low level of offering of completed projects in this sector.

This is probably the only branch of the business that lacks oversupply and unjustified expectations. The sector still has potential for development of the right product on the right place, commented Alexander Tanev, manager of Industrial grounds in Forton International.

The lowering of rent levels did not pass up this sector as well, creating a vacuum between the prices of supply and demand. Under the pressure of the crisis, despite the factual lack of quality grounds, the customers are not content with paying rent on the level from the end of 2008. Investors however know about the limited competition and lack of supply and aim to keep their offers high. This way deals are made at levels 15-20% lower than the owner’s demands, adds Tanev.

Bulgaria is still the most popular country for Russians that purchase foreign real estates.

Nearly 28,7% of the Russians wanted information on the real estate market in Bulgaria, according to the research of the website Prian.ru for the month of July.

Germany is a distant second with 9,13%, and Spain is third with 6,7% of the searches.

Compared to June, the real estates in the Czech Republic have grown in popularity among Russians. At the same time, the interest in real estate markets in Finland and the US is decreasing for a second consecutive month.

Turkey and Egypt, which are favorite destinations for Russians lately, take the end of the top 10 destinations for real estate purchases abroad – 9th and 10th place respectively.

Destinations like Croatia, the United Kingdom, Hungary and Australia remain outside the top 10 of the Russian interest.

The total number of foreign real estates purchased by Russians is over 17 thousand.

At the moment, the supply of business areas in Bulgaria is larger than the demand, and this will definitely lead to lower rent prices, prognosticated Marin Zgurev – manager of the project “Varna Towers”. The financial situation is normal, since bigger cities with at least one major trade center have several new centers on the way. A new awakening of the demand in the sector can be expected when banks begin crediting smaller businesses properly. This will happen within 3 to 5 years, stated he.

The average rent price in malls in Sofia will decrease to levels of 20-25 euro per square meter, prognosticated Zgurev. For the trade centers in Varna, the price levels will be about 20 euro per square meter, and in the smaller cities like Ruse and Stara Zagora the price will be about 18 euro per sq.m., added the businessman.

The prognosis for the price of business grounds in Bulgaria of Ozgur Yavuz, board member of the International Council of Shopping Centers (ICSC) in Europe and representative of Bulgaria in the organization, was more optimistic. According to him, the market of Europe is lively once again, and this will be beneficial to Bulgaria.

During the second quarter of 2009, the registered profits in this business sector is 13 billion EUR,marking a 12% growth in comparison to the 11,6 billion in the first quarter of the year. It is no coincidence that shopping centers with a total area of 660 000 square meters are constructed in Bulgaria right now, and are expected to open within two years. It should be noted that for each 1000 Bulgarian citizens there’s only 30 sq.m. of mall ground, which is ten times less than the ratio in Western Europe, added Yavuz.

According to ICSC, the Bulgarian economic will have a minimal, and in the worst case – negative growth, but despite that the market for rent space will continue to develop in a positive direction due to the stable supply and demand of high quality business grounds. The international organization states that both investors and leaseholders can only benefit from well-planned and executed investments.

By the end of the year, one of the biggest trade center projects in Bulgaria – “Varna towers” – should be completed in the the seaside capital of the country. 30 000 square meters will be dedicated to shopping grounds and 17 000 sq.m. – to “A” class offices. The owners of the mall will offer flexible plans to attract the highest possible number of leaseholders. For the first year of the contract, the rent will be a percentage of the income. For the food stores it will be 2-3%, for tech stores – 3,5 – 4%, for fashion stores – 7-8%, and for shops with more expensive goods – 12-15%. These plans will not be offered to restaurants, mobile centers, etc. – they are reserved for respectable foreign companies.

The investment and consultation company Arco Real Estate prognosticated that if the temp of construction from the first quarter of 2009 is kept, the average decrease of newly built real estates in Bulgaria for this year compared to 2008 will be 25%. Precisely, the decrease in Sofia will be 38%, in Varna – 32%, in Burgas – 14%, and in Plovdiv – 31%.

Compared to the quick rise of permissions for construction in the period 2005 – 2007 and their gradual decrease in 2008, the number of permissions for construction in 2009 is drastically lower. The biggest decrease was reported in Burgas, where the number of permissions for the first quarter of 2009 were only 896. Many of the construction companies are intentionally stalling the construction of new estates they have permission for, because the return of investment is not guaranteed. Their stalling can lead to a vacuum and lack of constructed estates in 2010, predicts the agency. According to data from Arco Real Estate, the demand for new homes isn’t slowing down significantly, especially ones with permissions for use. Their number at the moment is insufficient to cover the needs of candidate-buyers.

There is no risk when purchasing real estates in Bulgaria like these, and their purchase is fit for crediting by banks. Because of this, the prices of newly finished apartments with permission for use haven’t dropped significantly, as was expected early this year. Another reason for the stable prices is the client withdrawal from estates finished before 2002, mainly because of the lack of strict quality control. The latter, of course, lead to natural drop of prices of these estates and the re-orientation of customers.

Russians are currently the major buyers of apartments in the villa zone “Santa Marina” near Bulgaria’s Sozopol, announced the company-investor “Fairplay Properties” ADSIC. During the first half of the year, the union with special investment goal (ADSIC) has signed preliminary sale contracts worth 13,8 million leva, 10,6 million leva of which came from the period between April and June. Just within June, the signed contracts were worth 6 million leva.

“The growth is due to our success in the Russian market”, stated Maneu Moravenov, chief executive of the union. The profits and income of “Fairplay properties” for the first half of the year, however, suffered. The income from sales is 11,67 million leva, which is 36% less on a yearly basis, and the profit is 1,4 million leva, which is 67% less in comparison to the same period of 2008.

According to Moravenov, the sales of apartments that are still under construction guarantee stable income for the next few years. Until the end of this year, the company expects another 6,6 million leva profits from sales of contracts that are not yet concluded. The prognosis for the upcoming periods is for 4,6 million leva income from sales.

“Fairplay properties” also noted that in late June, “Santa Marina” won the award for the “Best seaside project” of the international competition “Best project 2009″, organized by the company “Euro design” EOOD and “Corporation BEST” as part of the Year of Bulgaria in Russia.

A mere 8,5% or 313 983 estates in Bulgaria are insured against earthquakes, and a little over 10% – from floods. The data comes from the analysis of the Commission for financial supervision. “These levels are extremely low. In the rest of the European Union, 60% of the real estates are insured from similar risks, and in the US – 87%”, commented Krasimir Stankov, insurer and member of the union for management of catastrophe risks.

Insurance against natural disasters is not mandatory in Bulgaria, despite the attempts of the insurance business to make people purchase such policies every year. “In mid September we will present this matter to the financial minister once again”, said Stankov.

The real estate insurance are among the cheapest products on the market, insist insurers. The financial supervision compared the premium that the client pays on a yearly basis for flood and earthquake protection of an insured property worth 60 000 leva. The insurance against earthquakes depends mostly on the location of the real estate in relation to the four earthquake zones. Usually this risk is not included in the main insurance against disasters and it’s paid for separately.

An apartment worth 60 000 leva in the riskiest zone, which includes Pazardzhik, Stara Zagora and Ihtiman, can be insured for the significant sum of 114 – 240 leva. The furniture insurance costs between 57 and 137 leva. A home in Sofia can be protected for a price between 49 and 132 leva per year. The insurance in Varna, Burgas, Dobrich and Kardzhali is the cheapest – between 6 and 18 leva per year, with additional 3-12 leva for furniture. Usually the older and taller buildings require additional payment. If the apartment is above the 6th floor, the sum increases by 5-10%. If the building is over 20 years old, the additional payment is between 5 and 15%.

The price of the basic insurance “Fire and natural disasters”, which also includes floods, varies between 12 and 24 leva per year in the various companies. Only one of the companies offers the package for 143 leva. If the flood is not included in the main risks, it usually requires an additional payment between 3 and 48 leva. If a citizen wants to insure his furniture as well, he has to pay another sum, ranging between 4 and 66 leva.

The rent for apartments with one or two rooms in Varna dropped by nearly 30% for the last twelve months. The data comes from the statistics of the real estate website imoti.net. The biggest drop of price – 42% – was reported for the rents of one-room apartments. The two-room apartments are 40% cheaper compared to last year. The minimum price offers have also lowered – with 14% for one-room apartments and 27% for two-room apartments.

The number of offers has dropped along with the prices. According to the website, a handful of one-room apartments in Varna seek tenants for prices ranging between 300 and 350 leva. The offers for two-room apartments are ten, ranging between 330 leva and 300 EUR. An apartment with no furniture in the district “Mladost” is the cheapest. A furnished apartment near the bus station is the most expensive one.

The offers for apartments in Burgas are also less, with only one offer for a one-room apartment up on imoti.net, and a handful for two-room apartments. The price of the latter varies between 250 lv. and 250 euro. The highest offer is for a furnished estate in the district “Vazrajdane”, and the lowest – for an empty apartment in the district “Bratia Miladinovi”.

A dozen one-room apartments are rental offers in Plovdiv. The most expensive offer is 400 leva for a furnished apartment of 45 square m. in the district “Vastanicheski”. The cheapest offer is 100 euro for a furnished apartment in the district “Komatevo”. The offers for two-room apartments in Plovdiv are numerous and range between 280 and 600 leva.

The prices of one-room apartments in Ruse are less varied, ranging between 200 and 250 leva. The cheapest offer is for an apartment in “Zdravets-Iztok”, and the most expensive one – an apartment in “Zdravets-Sever”. Two-room apartments in the riverside city are offered in the range 150 leva – 250 euro. The cheapest two-room apartment is in the district “Drujba-2″, and the most expensive one – in the district “Vazrajdane”.

Furnished housing is in demand

Apartments have a greater chance of finding tenants if they are already furnished. People already looking for cheap rent rarely have extra money to spare for furniture and appliances.

Landlords with apartments near public transport stops can ask for higher rent, according to brokers. Apartments near large chain stores are also preferred. Naturally, families with little children prefer housing that is near a kindergarten or school.

Because of the specific construction of blocks of flats, the apartments at the corners of the building are less liked because they are colder in the winter and hotter during the summer. The same goes for floors – apartments on the first and last floors are rented only as a last resort. During the crisis, the tenants also have a better chance to bargain for the rent price.

The offered rent prices for small shops in Burgas are 36% lower compared to August of last year, according to the real estate website imoti.net. The offers are greatly varied now, ranging between 150 and 1000 euro. The cheapest offer is for a newly constructed shop on the ground floor of a new apartment house in the district “Meden rudnik”. The most expensive offer is for a 40 sq. m. area with a parking lot, located in a luxurious building in the prestigious district “Lazur”.

The biggest drop of rent prices for small shops within the last year – 52% – was reported in Bulgaria’s Ruse. The offers in the riverside city now vary between 180 leva and 1400 euro. For the least amount of money, one can rent a 20 sq.m. shop in the center of the city. Over 15,5 times it’s price – for 1400 euro – you can rent a 40 sq. m. shop located near the hotel “Danube”.

According to brokers, the reason for the drop of prices is the significantly lower demand for renting a shop in the province. Because of the outburst of construction over the last few years, the number of offers stays high. At the same time, some cities in Bulgaria report an increase of the average rent prices, but this is due to the emptied shops in the prestigious parts of the cities, which now hit the market. Cities where such trends occur include Varna, Veliko Tarnovo and Stara Zagora.

At the same time Pleven, where last year offers were more costly than their counterparts in the center of Sofia, reports a price drop of 30%. The lowest rent – 100 leva – is for a 30 sq.m. shop on the second floor of a shopping mall. The highest offer is 31 times this price, even though the size is the same – another shop in a mall costs 1350 euro.

The reported drop of prices for small shops in Plovdiv for the last 12 months is 17%. The offers vary between 75 and 1500 euro. The cheapest shop is just 16 sq.m. and is located in the district “Vastanicheski”. The most expensive offer is for an industrial goods shop in the center of Plovdiv.

According to statistics, Blagoevgrad is the only bigger regional center with rent offers for shops up to 50 sq. m. below the level of 10 euro per square meter. The cheapest offer – 128 euro – is for a 20 sq.m. shop in a new apartment house in the district “Alen mak”. The most expensive offer is 500 euro for a 38 sq. m. shop in the center, near the bus station.

Pleven has the most offers

Pleven holds the biggest number of rent offers of shops up to 50 sq. m., according to the website imoti.net. Sixty such estates are offered in the city, with only four of them in the center. Plovdiv takes the second place with 50 offers. More than half of them – 30 – are located in the center of the second biggest Bulgarian city.

The offers in Varna are very few, with only four offers for shops up to 50 sq. m., all of which are located in the center of the seaside capital of the country. The other big city by the Black Sea coast – Burgas – has a dozen offers, of which four are in the center of the city.

According to statistics, the offers in Ruse are much more – fifty small shops still seek their tenants. A large part of them – 37 to be precise – are located in the center of the city. Cities like Blagoevgrad and Stara Zagora have between 6 and 7 shops up for rent.

The Law for management of storey property was adopted first by the administration of Bulgaria’s Burgas. It’s application begins today.

In respect to that a small book, printed in 2 000 copies, will be distributed among all house managers of buildings with many apartments. The books contain explanations about the basics of the new law. Citizens that want to familiarize themselves with the contents of the book can receive a copy in the office of the ombudsman Tanio Atanasov or in the territorial departments of the municipality of Burgas.

The mayor Dimitar Nikolov stated that the application of the Law for management of storey property will define the regulations and give carte-blanche to the municipality of Burgas to begin improvements of the civil buildings of the city. Much of the current issues of the municipality administration are related to problems within larger civil buildings and co-operative living.

Most of the citizens of Burgas live in large civil buildings, like blocks of flats. The municipality has nearly 1300 such buildings registered.

Most of these buildings in Bulgaria’s Burgas are old and worn, some even potentially dangerous. Despite that, many people refuse to assist in their restoration, even though complete renovation can only take place with everyone’s help. On top of that, some real estate owners take actions that harm the real estate of their neighbors. The mayor and the ombudsman were resolute that in this case, the responsibility should be solely the violator’s – not shared between neighbors.

The law will allow the municipality of Burgas to get involved with urgent repairs. Afterwards, the invested money will be collected from the real estate owners.

The mayor of Burgas also announced his intention to suggest to the local parliament an increase of the taxation for garbage for the careless real estate owners that throw away their refuse in prohibited places – through the window or in the lawn in front of the block of flats, for example.