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The Russians came

01.07.2008
Author: Peter CHERNOV
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Over the past two years, the share of British among buyers of Bulgarian resort real estate has decreased from 80% to 20%. The holy place is never empty: the same 80% today is occupied by investors from the former socialist camp, among whom the leading positions belong to Russians. Meanwhile, the outflow of the British and Irish has led to a general drop in demand, which in principle can lead to a halt in price growth and even to a decrease. But any competent investor knows: you need to buy what is getting more expensive, and sell what is getting cheaper. Are the Russians trying to board a sinking ship that is already being abandoned by more experienced players?
Bulgaria has confidently taken the first place in the popularity rating among Russian buyers of foreign real estate. To assess the growing interest of Russians in Bulgaria, it is enough to look at such an important indicator as the number of Internet requests. Just two years ago, Bulgaria was in third place, slightly behind Spain and Ukraine, or rather Crimea. By February 2008, Bulgaria had already come out on top: the number of requests for this country had increased almost fivefold. Spain was in second place with a significant gap, and Turkey and Montenegro rushed into the race for the leader.
At first glance, the reason for the surge in Russian interest in Bulgaria is obvious. Real estate in Russia itself has risen in price so much during this time that the sale of extra "squares" in their homeland allowed new buyers to enter the foreign real estate market. Since most of them do not have large resources, they rushed to buy the cheapest in the first place.
Of course, Bulgaria has already risen significantly in price in recent years. The growth rate of house prices in the last two years has been among the highest in the world. However, it still remains one of the cheapest countries with resort potential. According to Vladislav Kharitonov, sales director of the Moscow office of Bulgarian Property Advisors, "in Bulgaria, prices even for expensive properties end where, for example, in Montenegro they only begin – if you compare real estate of the same level.

Where did the circus go?
But the British suddenly cooled down to the market, which until recently was considered very promising. Two years ago, the British bought apartments in the mountain and seaside resorts of Bulgaria, and today they have switched to more exotic destinations – Thailand, Egypt and even South American countries. The share of English-speaking buyers has decreased from 80% to 20% in two years, and their place has been taken by Russians, Czechs, Poles, Greeks and Bulgarians themselves, with the largest piece of the pie, apparently, going to buyers from Russia.
At the same time, it is not yet possible to completely replace the British and Irish: the number of transactions in the primary market has significantly decreased. This is especially noticeable in some resorts: for example, 500 apartments were sold in Bansko per month and now there are only about 30.
"The British invested so actively in Bulgarian real estate due to its low cost, and also because banks easily provided long–term cheap loans," said Alexey Melkhanov, managing director of Big Sofia. – In addition, realtors promised that an apartment in Bulgaria can be rented for the same money as in Spain, providing fantastic profitability. Only a few bought for the soul, because in Bulgaria it is fun, there are no strictures and alcohol is cheap. Now the British have begun to buy much less, because banks have made it more difficult to issue loans. Some sell their property, but not massively, so there is no reason to talk about a "burst bubble".
The British are also different, believes Vladislav Kharitonov. "At one time, it got ridiculous – they bought up useless junk in remote villages, hoping to get rich quickly in a growing market," he says. "But land is a long–term investment, and today's market pullback, in my opinion, is largely due to the disappointments of those who thought that by buying a hut with land for 5,000 euros, they would soon be able to sell it for a million."
It would be wrong to speculate who is "right" – an Englishman who withdraws money from the Bulgarian market, or a Russian who has just decided to buy a dream house for himself. The typical motivation is very different. She has one thing in common – the desire to take a break from the dank climate of her homeland at all costs. But at the same time, the British are looking for growing markets that are at a low start in order to "recapture" mortgage costs. Russians, who, with rare exceptions, play for their own, strive to fulfill two conditions: "so that it is enough" and "so that by the sea". For many of them, Bulgaria has become almost the only embodiment of this magical formula.

A cat in a bag for cheap
Bulgaria remains an attractive destination for private investment, although now the buyer needs to be more selective and careful, experts say. The most massive category of buyers from Russia is ready to invest 30,000-50,000 euros, which simply cannot be bought in Russia. At the same time, Alexey Melkhanov assures that now there are even more serious investors who are ready to invest amounts from 500,000 euros in the purchase of several apartments at wholesale prices or in commercial projects than a couple of years ago.
"We usually promise large investors a profit of 20% per annum," says Alexey Melkhanov, "although in practice it often comes out twice as much. In general, it is necessary to invest in worthwhile projects, of which no more than 15-20%. The rest have dubious prospects for price growth. But the first line with a beach and good infrastructure is an absolutely win–win option. Two years ago, such a property cost 1300 euros per 1 sq. m, now it costs 1800-2000 euros. However, such offers are becoming increasingly rare."
Vladislav Kharitonov agrees that capital gains of about 15-20% per year on the first line are a sure thing, but adds that such profitability is possible not only there and not only in the upper price segment – it all depends on the quality of a particular project. Moreover, the high price of an object, in his opinion, is not always a guarantee of its high quality!
Well, the choice of budget options is exceptionally wide, but the quality of the project and the true value are not always obvious, in fact, cats are sold in bags. In order not to stay at the broken trough, you should not trust beautiful computer graphics, and not be too lazy to personally familiarize yourself with the object. If the object is located in a seaside resort, then the main point is easy access to the beach. It also happens that the sea is just around the corner, and the equipped beach is a few kilometers away.

Investors are resting
Although recreation and investment are two motives for buying, which most buyers go hand in hand, experts still advise you to determine your priorities. There is no need to talk about serious earnings on renting in Bulgaria, although many realtors continue to promise it. The abundance of empty apartments does not allow you to count on a serious income, so most owners simply relax themselves or rent their property to friends. It is possible to make quick money on resale, but you need to carefully choose an object: you can't count on the overall growth of the market right now. However, Vladislav Kharitonov said that one of their clients bought an apartment six months ago and is already selling it, because prices have increased, although the complex has not even been completed yet. But this is not typical.
The construction phase is currently not a factor that can add much to the price. Moreover, as Alexey Melkhanov assures, the opposite often happens: "A few years ago, construction was in the best places, but each subsequent construction site is located, with rare exceptions, on a less attractive site. I can name a number of projects, the price of which is now at the initial stage higher than that of completed complexes with a much better location. Judge for yourself – do such projects have the potential for value growth?"

Scarcity is the engine of the market
The experts of Bulgarian Property Advisors are convinced that the first line from the sea will inevitably become more expensive at a faster pace. The fact is that now the authorities have seriously limited the development in this area: only those projects where at least a pit has been dug are being completed, and the construction permit is revoked for the rest of the facilities. Of course, these measures, designed to limit the density of buildings on the coast, lead to a shortage of supply on the first line, which pushes prices up. This is the most profitable purchase in terms of short-term profitability, although not everyone can afford to buy such facilities. And among the mountain resorts, Borovets and especially Panichishche are now more interesting for investors.
Alexey Melkhanov urges buyers to look at things realistically: "If a person has only 50,000 euros or even less, then there is no need to talk about the selection criteria," he says. – Rather, there is a criterion, but only one – the price. Everything else disappears due to unavailability." But what if the buyer simply does not have the coveted amount to enjoy the wealth of choice? Are buyers of cheap properties in Bulgaria making a fatal mistake?
Vladislav Kharitonov is convinced that no: Bulgaria remains an excellent place for a budget buyer. And today's situation gives additional bonuses – yes, the infrastructure and service in Bulgaria are not yet up to world standards everywhere, so the internal "stuffing" of the complex is of great importance. But this is something to compare with! Neither in the Moscow region, nor in Sochi, nor in the Crimea, you will no longer buy anything good, even for amounts several times larger, and it is better not to remember about the level of service there. So Bulgaria is increasingly turning into an inexpensive foreign country house for many Russians.
If Bulgaria has become our most popular destination, then this is serious: every year in Russia there is more and more "extra" money that simply has nowhere to invest inside the country: oil, corruption, real estate income – everything is growing by leaps and bounds. And what the hell is not joking – you see, thanks to the influx of Russian buyers, the Bulgarian real estate market will get a second wind, and prices will jump to a new level. Then let the British bite their elbows, who sold their apartments and houses to us cheaply inBulgaria. After all, why should they always take the cream off the foreign real estate markets?!

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