The Bulgarian market

The world crisis impacted severely the worldwide real estate market. However, there have been several economies and property markets which were less negatively influenced by the crisis. Some of those particular real estate markets are the ones of any Eastern European countries which recently entered the EU. Such real estates markets are those of Romania and Bulgaria. The explanations behind the lower crisis impact are 3 main facts:

1.that those real estate markets have not yet had the chance to develop themselves to the point which had reached the other “older” Eastern European countries such as Czech Republic, Hungary and Poland. The real estates markets in those “older” countries had their development peak in the first 3-4 years after joining the EU and then they reached the point even break. Therefore, the markets had the time to regulate themselves automatically following the basic economic rules of supply meeting the demand. A significant role on those real estate markets played the direct foreign investments (FDI) which had also the chance to follow their natural course of development before getting impacted by any severe international factors and trends. The foreign investments in the countries of Bulgaria and Romania had the time of only 3 years before being harshly negatively influenced by the internationally started economy crisis. It is well known that the real estate offers and markets are majorly influenced by the fresh capital which flows into a country’s economy, mostly driven by foreign investments. If the more wealthy foreign investors lose their confidence in the economy and reduce the amounts which they incest, then it is a natural process that the real estate market sluggish comes immediately.

The Bulgarian market bubble started to grow immediately after joining the EU in January 2007 with growth rates which were absolutely unnatural. The average annual growth of the prices started from 10-20% p.a. in 2005-2006 and reached 30-40% annually in 2007 and 2008. To any competent expert on the field of real estate’s was more than clear that this could not last forever. The demand on the real estate market, of course, drove the increase of the price levels and triggered a massive boom in the construction industry. Many, many construction and building companies were established within a very short period of time following the increased demand for their product and services. Many building materials companies experienced a true boom in their sales and reached enormous levels of profit. And then, of course, came the big crash when the real estate bubble in the Bulgarian market blew up. All quick wins and huge profit decreased to levels like 3-4 years ago. Many construction companies had to go bankrupt, so did a lot of servicing and building materials supplying enterprises.

The crash was much quicker and apparent to feel than the previous growth. Nowadays, the demand quickly dropped as a result of the decreased mortgages and other reduced credit granting on part of the banking sector. Actually to many real market analysts the root cause for the bubble burst lies in the imported from abroad financial impact rather than anything else. The Bulgarian banking sector is to 80-90% owned by foreign banks, so immediately after having to decrease their international financial resources, the banks , naturally, had to decrease their domestic credits supply within Bulgaria. The Bulgarian economy is also not among the strongest and most independent ones within EU, so the quick and painful impact on the real estate market was immediately there. The banks stopped to give credits or suddenly made the credit requirements a hell of a lot more difficult than previously. The interest rates rose immediately, so there was a double negative impact to the credit takers. They stopped looking for crediting opportunities or started to have difficulties to pay the interest rates of already taken credits. Therefore, the demand on the real estate market dropped suddenly. Hence the price levels followed the demand and had also to drop immediately since there was all of a sudden a supply significantly exceeding the demand. They started buildings and constructions were stopped and many projects were frozen. Nobody wanted to buy real estate’s anymore, even more so nobody from abroad wanted to buy and real estate in Bulgaria anymore.

As a natural consequence the price levels of the real estate’s dropped just as they had previously increased – rapidly and unexpectedly. Nowadays the levels reached the real estate market levels from 2006-2007. This means indeed that the decrease for the last 1,5 years has been between 15 and 30 %.

All in all, the real estate bubble exploded with great impact but left fortunately one segment of the real estate’s market nearly untouched – the premium real estate’s segment.