Bulgarian Power of Attorney is necessary if you are planning to sell Bulgarian property without being present yourself during the conveyancing in bulgaria or at the point of exchange and completion. All vendors must be very careful when signing such documents, the PoA legally entitles a third party to act independently on your behalf. It is a misconception that the empowered party requires the express and written consent in advance of acting for the owner, for the purpose of a sale the vendor is providing this authority by signing in the PoA first place and no additional consent is required before completion. In order to best protect yourself, do not sign unlimited power of a attorneys, be sure the figures you agreed to sell to are stated clearly in the agreement, thus if these funds do not reach you then it is a case of property fraud and or theft, which is a criminal action with a clear recourse.
Russian demand for Bulgarian property shows no signs of slowing, in some areas there even good signs of increase. Optimists like to assume this is due to the growing appeal of Bulgaria amongst Russians, but in reality the catalyst continues be the ever dropping prices offered by British and Irish vendors. Speculative reports suggesting that ‘market recovery has begun are overly enthusiastic’ says NewEstate, a professional Bulgarian property consultancy. It is misleading to think that because more Russians want to buy cheaper property, that Bulgarian property will suddenly become more expensive. The demand pattern is entirely down to the low price and truly disconnected from the raw value of land, rental returns or potential profit available from property related investment etc. Much like the Christmas sales, people will buy more when stock is available ‘cheap’, when the price goes back up the demand slows and normal spending returns. Pockets of Bulgaria’s holiday property market are in such a ‘sale’ right now, with British and Irish owners offering ever lower prices as they compete for attention from a limited number of buyers, the trouble is that it is on a macro scale and could last years rather than seasons.
In this buyer’s market, it is apparent that the wide spectrum of Russian property media are concurrently and heavily promoting the availability of Sunny Beach region property at entry prices; studios at 10-15,000 Euros, one bedroom apartments at 25,000 Euros and two bedrooms from 35,000 Euros. As with any marketing it only exists to cause commercial impact, however with sky high Moscow and St Petersburg prices and growth rates still heading upward the new appeal of these very low cost, low risk second homes in the sunshine is considerable. Forget the tales of the multimillionaire oligarchs, Bulgarian property is selling to the middle classes on budgets and they represent the only demand for Bulgaria’s holiday property market. Responsive to the media coverage they enquire collectively and repeatedly for property options at these price levels only, anything much more expensive, inland, unfinished or away from the water simply doesn’t fit the current demand and it unlikely to sell. Agencies relay requirements from their few active buyers to the British and Irish vendors, who in turn are educated on how much bigger the supply is than the demand, asking prices are dropped by the most keen vendors, offers from the buyers result and only the lowest price vendors win.
One might argue that if the above is true then all that needs to happen is for the media to report higher values or for the agents to demand higher prices, but that doesn’t put available cash into the bank accounts of would-be buyers. You can’t sell a 10 Euro note for 11 Euros whilst your neighbour’s are selling them for 9 Euros, no matter which agencies tries or how hard they market its availability. Any property is only worth as much as someone else is willing to pay for it and right now that is Russians willing to pay small amounts only, whereas seemingly no one else is prepared to pay anything at all.
Market shifts show that 80% of property transactions in the Sunny Beach region are now below 40,000 Euros. Anything grand, impressive or more expensive will be within the minority of deals above 55,000 Euros, which is seemingly the revised ceiling price for ‘bigger spenders’. Above 55,000-60,000 Euros the chances of selling are unfortunately minimal, even if your property is ‘worth’ that much by todays’ lower rates its nominal value puts your property in the scope of less than 15% of buyer’s affordability. By far the bulk of deals are between 15-33,000 Euros which covers the greatest spectrum of available studios and 1 beds in a range of locations throughout the Sunny Beach area.
For those who blame the bulgarian property agents for pushing prices down it is worth casting minds back to approximately 36-48 months ago; property stock was the same, asking prices were 30% higher, demand was inconsistent and few sales resulted, all in all vendors stayed as owners willingly or not, a stagnant market for everyone. Today the asking prices have come down to meet the level at which the buyers are willing to pay, demand has thus become consistent and stabilised. As vendors succeed to sell agencies can strive to profit, thus enabling them to spend on advertising, reinvest in the marketplace and promote the availability of property to make more sales happen. Without transactions no one can benefit and like any capitalist circuit this is essential for a market to exist. The rural areas and the ski resorts are perfect examples of what happens when transactions stop, agencies leave, advertising collapses and no exit is possible for owners who wish to sell.
The question on everyone’s lips is ‘when will prices go back up’? Without a crystal ball there is no accurate suggestion, however what can be said with certainty is that without the volume of vendors slowing and without supply starting to be restricted, there is no way for prices to head upward. Since the recession started in 2008 vendors have waited for recovery, it hasn’t come and every month more and more decide to give in waiting for a higher price and sell for less. This constant fuelling of the market keeps the spiraling prices in a downward pattern and this must stop before real recovery has any chance. How long will that take? The truth is that with more than 100,000 properties for sale along Bulgaria’s Black Sea coast and with 100 vendors for every one buyer, it could take 5-10years at best. Anyone hoping for a change sooner is best advised to think again.
The plans for the third tube line in Sofia have cleared up a bit more as the Sofia City council gave final approval to one of the third possible routes. It is now confirmed that the metro will run from Kniajevo Distrikt to Levski district. The third line will cross the second metro line at the NDK metro station and first metro line at the Sofia University metro station. The line will be 20 km long.
As far as the Sofia property prices are concerned the news had an immediate impact on the residential property process and the plots of land along the new metro route. According the analysis of New Estate Bulgaria the properties in the districts covered by the new metro line will go up in value by at least 15-20%.
“It was the case with the properties along the first and the second metro line so we don’t see why the third line would not have a similar effect” says Gorian Varbanov one of the directors of the New Estate Bulgaria.
Sofia is the capital of Bulgaria and as such during the property boom time over the last 5 years it attracted a significant number of international investors looking to profit from the so called emerging Eastern Europe property market. The strategy of most of the people who did invest in Sofia was to buy off-plan and then sell the property as soon as it is completed at a 50% higher price. Unfortunately this was not to be the case
One of the regions that felt the credit crisis the most was Eastern Europe. After the collapse of Leman Brothers the golden rain that was pouring over Eastern Europe suddenly stopped and left many investors with properties in Sofia that could not be flipped as originally planned.
This article is intending to give a broad idea about the current prices and demand and their implication on the international properties investors.
The good news is that the liquidity of the Sofia property market returned. In other words, every property can be sold at the right price. The bad news is that the prices have dropped up to 35% since the crisis started in 2009. The average price per sq. m dropped from 1000 EUR to 750 EUR. It terms of the type of the properties the later prices mean that an average size one bedroom apartment can be bought at 40000-45 000 EUR and two bedrooms for 55000-65000 EUR.
The demand for Sofia properties is mainly driven almost exclusively by first time buyers as in more than in 60% of the cases they are using mortgage financing. The types of properties that are in demand are one bedroom apartments with 60-75 sq. m living space in the well developed part of Sofia.
The above figures can be only disappointing for most of the international investors. Considering the fact that the international buyers were and still are subject to higher estate agency commissions and solicitors fees when buying, divesting their property assets at the prices mentioned above means nearly pure loss of 50%.
As a conclusion it is important to be pointed out that although, there are some signs of recovery of the property market in Sofia the overall picture is bleak. The bank system is still under pressure and the mortgage financing is seriously restricted. Survey conducted by Newestate, one of the leading Bulgarian estate agents reveals, that the buyers who are indenting to buy property over the next 5 years are still more willing to wait rather than spend. These facts simply add to the expectations that the full recovery of the Sofia property market would not materialize very soon and the investors who have alternative investment opportunities should seriously consider getting out of the investment as soon as possible and trying to recover their losses elsewhere.
Everyone connected to or interested in the Bulgarian property market has heard of the elusive Russian buyers, who are said to be acquiring swathes of top end property. From comprehensive first-hand experience, this article allays the myths and offers the direct honest truths of the Russian demand; why it exists, what is keeping it going and how long it might last. If you own property or are considering selling, this article will help inform you of the current market conditions, movements, trends and catalysts behind this property bubble.
First and foremost, the wave of Russian interest in Bulgarian coastal properties is not marketing hype, it is absolutely real and currently the only positive movement propping up the Bulgarian holiday property market. Sadly it is not true for all areas, only the Black Sea region and some rural parts inland from the coast are in demand. Although many sales agencies will conveniently stretch this truth to also cover Sofia, the ski resorts and rural villages to encourage vendors to buy their advertising services, it is actually not the case as only 5-10% of Russian enquiries are for areas away from the coastline.
Quick overview of demand shift and price movements:
Bansko is an unfortunate example of what happens when steady demand suddenly leaves a property market and is not replaced, prices plummet and regardless of extremely low values it can be impossible to sell as there are simply no buyers. The coastal areas of Sunny Beach, Varna, Bourgas, Byala etc have all experienced the same sudden exodus of British and Irish interest. However, the Russian demand has replaced much of it and whilst prices are down they are not rock bottom as they are in the ski areas. The key fact to consider and accept is that whilst property losses feel bad for all of us, it is at least still possible to sell coastal property and collect a return. Ultimately, the situation would be calamitous if Russian demand hadn’t suddenly swept in and saved the day, at least in part anyway. This shouldn’t be taken for granted; if you are looking to sell anytime soon it is worth considering your losses now could be minor by comparison to the potentially greater losses in the near future if the Russian demand fades too.
For a fuller understanding, it is worth noting the critical differences between the bygone era of British and Irish demand by comparison to the new wave from Russia buyers of Bulgartian properties: 1) they are in significantly lower numbers, approximately a third at the very most 2) the demand is almost entirely for coastal finished properties, nothing off plan or semi complete 3) the market now hosts foreign private vendors (for the first time) in their thousands eagerly competing to sell at lower prices than ever before.
All of these factors have led to a typical ‘buyer’s market’ where prices are low and anyone with the money and intention will find themselves a choice of bargains. Furthermore, we have seen the rate of new properties coming to market at consistently lower values increase month on month from the start of 2011. The volume of private British and Irish vendors is so vast that it actually acts as a market catalyst; the constant flow of cheaper properties continuously replenishes the marketplace encouraging more Russian agents to sell less expensive properties, subsequently more is invested in advertising, more Russians become aware they too can afford a cheap sunshine property and hence the demand bubble expands.
Normally when demand increases there is a lag and prices soon follow, not in this case as the supply (property stock) is excessive and thus massively disproportionate to the demand. Furthermore, the bulk of foreign owners are predominantly driven to sell at any price due to financial constraints in their country of residence. This inescapable macro level motivation has impacted owners and their families on a nationwide scale, as such what started as a trickle of vendors has become a torrent. The end results is that the real transaction prices come down across the board (not just in one or two cases), as ‘distressed vendors’ come to the marketplace in bulk and take whatever they can get to offload their overseas asset and fulfil their financial priorities back home. The overall impact is increased market movement, an escalation in the volume of sales and thus an improved opportunity for vendors to sell, but no increase in actual values.
To put it in the favoured terms of British newspapers; only those distressed vendors willing to sell at ‘below market value’ will succeed in finding a buyer at this time, those holding out for ‘market value’ or for what they originally paid will still be holding out for possibly years to come. The simple reality is that in Bulgaria today the real market price is the ‘below market value’ and actually if you have a property in Sunny Beach you are not giving away a bargain at 500 Eur / sqm, you are selling at the highest achievable market value today. If this is no enough for you, keep it, rent it and forget selling for the time being.
Future for the Russian demand:
Whilst there is no exact science for predicting these market movements, any active agent, owner or vendor would be foolish to think that it will carry on indefinitely. Much of the industry believes that 2011 will see the peak of Russian demand (and thus the best opportunity for vendors), whereas very few believe 2012 will produce the same influx of buyers and thus a level of decline is expected.
Like any growth curve of any product; we first see the pioneers who trigger interests and start trends, then the masses follow in bulk creating a boom or bubble, which is typically followed by numbers falling away and plateauing to a sustainable constant level or dropping and ending the product life cycle. If anyone could accurately predict this with complete certainty we would all be millionaires, but by following some general models, lessons from experiences and carrying out analysis of current market data we can come to a general conclusion. NewEstate believes that this year is likely to be the best opportunity to sell as the demand for the coming 4-6 months is almost certainly the highest it has been since 2007, whereas anything heading into next year is uncertain and at best suspected to be less. In addition, for UK owners the currency rate will play an essential role in your financial return, see below.
Currency exchange and the impact of the Pound on your Euros property.
Accompanied by the uncertainty of future demand we must also consider the currency variation for owners who have bought in Euros and will sell back into Pounds. To take a classic example; in 2006 a 2 bedroom property in Sunny Beach was purchased for 75,000 Eur which was then ?50,000 as the rate of exchange was 1.5 Euros to the Pound. Today the price of this same property is now 55,000 Eur following the drop in the market, however the exchange rate has dropped too. The rate is currently 1.1 Euros to the Pound, which means that if this apartment is sold for 55,000 Euros today then it would return ?50,000 to the owner’s bank account, thus no actual value loss in encountered.
The above is true when the Pound is weak against the Euro, as it has been for the past six months or so. Whilst currency traders could speculate forever over ‘true value’ the general feeling is that the Pound is worth 1.2 – 1.25 to the Euro, let us assume this is true for the purpose of this example. If Bank of England increases interest rates before the end of 2011 (which speculators agree is likely) then the Pound will become a more attractive investment, its value will increase and it will again become stronger against the Euro. If we assume it reaches 1.25 to the Pound (as it was just 12 months ago) then this same apartment will still sell for 55,000 Euros (the market sets the price, not the chosen currency of the owner), which will only return ?44,000. This is a 12% loss on the original investment and has nothing to do with the property market, this is exclusively down to currency rates and macro scale economies, yet the impact is absolutely on an individual scale and in this example shows that you could be 12% (?6,000) better off by selling this summer by comparison to next year when the Pound is reckoned to be stronger.
Conclusion:
In this buyer’s market the phrase ‘your property is only worth what someone else will pay for it’ couldn’t be more true. The Russians are prepared to pay the current market price, it is up to each owner to decide 1)if this is enough for them to part ways with their property 2) if they can afford not to resell and review in 4-5years from now 3) if they would like to gamble on the Russian interest lasting until next Summer or the Summer after etc 4) if they would prefer to wait for their property to be worth 10% more when the market does recover, but risk potentially getting 20% less than toady’s rates in Pounds.
This article has been produced by NewEstate for the purpose of public information, for any questions relating to the content please contact the author, Christophe Gater atwww.newestatebg.com .