Bulgaria

Re: Why Bulgaria?

Ivan D. said:
This brings me to the second point: for the truly patient investors (with free cash available, Martin) my recommendation would be to think about purchasing land. You would not need to worry about rent, rather work out a concept whether to hire a construction company and build (to let, sell, whatever), or just not bother, sit and wait for the appreciation. Obviously, this will eliminate the multitude of negative factors discussed with regard to apartments. We have in fact already quite some people (mostly Dutch and German) interested in that scenario, especially as far as plots of land in the vicinity of golf courses.

Ivan D.

www.dukaty.com
Click to expand...
Apologies to you personally if I have offended you. My criticisms in the previous post are not directed at you in any way. Indeed I did make a specific reference to "ski apartments" in my analysis, which are the bulk of offers available to foreigners investing in Bulgaria, and also to "the few good people on the selling side." I realise that you are not a rental agent.

The opinions I have expressed about transparency in the rental and re-sale markets remain valid as far as I am concerned.

If anyone can come with facts and real numbers, I'd of course be delighted to correct/improve my post.
I have no axe to grind, and no reason to bash or hype Bulgaria. I am also not trying to sell anything to anyone on this list.

Have a look at these two price lists that I was quoted for apartments in the same building from the same agent:

Re-sale price list & published online on one site with "only 2 apartments remaining:"

Apartment No. Building Floor Type Bedrooms Size (sq m) Common area (sq m) Total (sq m) PRICE in Euros
304 A 2nd floor 1 bed apartment 1 57.93 5.79 63.72 €80,535
307 A 2nd floor 1 bed apartment 1 57.65 5.77 63.42 €80,250
202 A 1st floor 1 bed apartment 1 59.81 5.98 65.79 €73,437
217 B 1st floor studio - 33.89 3.39 37.28 €41,612

Still available brand new from the developer from the same agent in the same building, but not widely published:

Apartment No. Building Floor Type Bedrooms Size (sq m) Common area (sq m) Total (sq m) PRICE in Euros
102 A ground 2 bed apartment 2 97.89 16.87 114.76 €98,694
106 A ground 2 bed apartment 2 98.33 16.14 114.47 €98,444
115 C ground 1 bed apartment 1 52.92 15.36 68.28 €54,624
119 C ground 1 bed apartment 1 53.00 15.39 68.39 €54,712
310 B 3rd floor penthouse 2 122.18 25.19 147.37 €132,633

The top re-sale properties are going for €1116 - €1265 per square meter.

The new developer properties are going for €800-€900 per square meter, with more discount / free kitchen etc. still available if you negotiate.

That's 40% more for the publicly available 2nd hand price compared to the "current new-build market price," where the developer is still making a fat profit..... and I'm sure the "real market price" is even well below this level, perhaps as low as €500 per square meter. Who really knows?

Now try to convince me that there's a re-sale market.

Land deals (assuming 0% revenue and 100% reliance on market appreciation) would fall into speculation in my view, as there is again no market transparency for a foreign investor. It would be incredibly easy to buy a swamp that was put on the UNESCO World Heritage list, and that could be of no use to any owner. Equally, the notion of a wave of "golf fanatacism" sweeping Bulgaria also makes me chuckle. I mean the sport is hardly as popular as in Scotland or Ireland, with just three existing courses in the whole country. If you want golf properties, go to sunny Portugal or Southern Spain IMHO.

If you have other creative ideas, then feel free to email me.
 
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Re: Why Bulgaria?

Hi Martin77,
Watching this post with interest. Just a suggestion but could you label the columns with your figures clearly. I for one am finding them hard to read. It's a pity someone didn't have a stand advertising this thread at the MRI organised Bulgaria expo at the weekend :0.
Thanks
Gearoid
 
Re: Why Bulgaria?

gearoid said:
Hi Martin77,
Watching this post with interest. Just a suggestion but could you label the columns with your figures clearly. I for one am finding them hard to read. It's a pity someone didn't have a stand advertising this thread at the MRI organised Bulgaria expo at the weekend :0.
Thanks
Gearoid
Click to expand...
I tried to reformat it, but the editor seems to strip out HTML.

The items are in order:

ApartmentNo.
Building
Floor
Type
Bedrooms
Size (sq m)
Common area (sq m)
Total (sq m)
PRICE in Euros

I also asked whether the developer properties included VAT, as that would explain a significant proportion of the difference. Guess what? VAT was included. At least according to the agent.
 
Re: Why Bulgaria?

Ivan D. said:
I also would like to advise anyone reading here to abstain from investing with borrowed money. Not just in Bulgaria, anywhere. And not just in real estate, in anything. It is the most unwise thing to do. Investing is a gamble (risk taking, they call it, for giving it a wiser sounding tint), therefore you should gamble only with your FREE CASH, period.
www.dukaty.com
Click to expand...

With respect, that's the most off-the-wall piece of advice I have seen for a while in these lists. The key to investing in large asets is to borrow, and to lay off the risk on banks where possible. Borrowing also allows you to leverage and acquire maybe ten properties instead of one, and so spread your risk. It also allows smaller players to get into high-value assets like supermarkets, shopping centres and office blocks by borrowing or leasing, and re-financing at an early stage allows you to take back your original stake for use elsewhere, leaving the bank carrying all the risk.

If I hadn't borrowed to the maximum over many years, I would still be "bottom-feeding" in the property ocean. (Note to the smart-alecs, no references to sharks please!)
 
Re: Why Bulgaria?

Perhaps you know something I don't, Auto, so please enlighten me.

In my opinion what you say would be true in case, and only in case two conditions are met simultaneously:

1. Your bank would agree to give you a mortgage for a property abroad, and
2. Your bank would lend you 100% of the needed amount.

If not, the risk is there big time, hence my advice. And, in my experience there is no bank that I know of, which would meet the two requirements above at the same time.

I have to say, I do have some experience with banks in Belgium, Switzerland, Germany, US and Bulgaria, and not at all with Ireland. If you indeed can get 100% of the money from the bank, and the newly acquired property would be the only thing you'd loose, in case, well, then it is worth the risk indeed.

Ivan D.

www.dukaty.com
 
Re: Why Bulgaria?

Ivan D. said:
If you indeed can get 100% of the money from the bank, and the newly acquired property would be the only thing you'd loose, in case, well, then it is worth the risk indeed.
Click to expand...

That's rather glib-it would also leave a huge black mark on your credit record if a lender had to result to repossession-and that's just for starters.

100% mortgages are common enough in Ireland-but not necessarily for financing the purchase of investment properties.
 
Re: Why Bulgaria?

100% is unlikely but 70/80% is possible in many countries for overseas property. With some luck, capital appreciation, re-mortgaging, adding to existing value through renovation, etc., it should be possible to extract most if not all of the seed money invested, particularly if you buy a balanced portfolio of properties.

Your main assertion that borrowing is not a good idea in relation to property investment really makes little financial sense.
 
Re: Why Bulgaria?

Have paid so far 23,000 off studio apt. in sunny beach. Have decided to pull out having seen all negatives re: resales.. got call today to say i am in breach of contract!! Have signed preliminary contracts only and still have 29.000 to pay. Must be paid before the 3oth of April in order to avail of rental this year..roughly 2,5oo each Nov. Building not complete yet..Can they do this? ok am one of the naive ones!
 
Re: Why Bulgaria?

Bought in Bankso, ski resort in Bulgaria over a year ago, new build, not yet completed, but underway. Purchased for €75K for a 1 bed 4* style development. Originally went over to view and possibly purchase 4 x 1 bed apts in Sofia. Was concerned about lack of local 2nd hand market... i.e. would Sofia natives purchase in 3-5 years time ??

Didn't like Sofia, did not understand enough about the market, so instead took a punt on the Bankso unit. Have seen zero capital appreciation in the last 18 months. Far better understanding of the drivers for the secondary market in Bankso, it's very evident after going out there and seeing the 5 month ski season and amount of Greek, German and Russian tourists with money.

But that's just my experience. Bought this unit with a 5 year view... it will definately take 5 years to get any decent return in my opinion.
 
Re: Why Bulgaria?

It's very unlikely they will try to prosecute you, i.e. get you over in Bulgaria to appear before the courts? i don't think so.

The following appeared in:

[broken link removed]


1/3 of Sunny Beach holiday homes on the market
Some 1,000 vacation homes in Black Sea resorts Sunny Beach and St. Vlas have been listed for sale, shows data of local real estate brokerage portal imoti.net.
A third of the apartments were bought at 600-800 euro/sq m three to four years ago and now the owners are trying to sell them at double the purchase price.
The holiday homes have been listed after the rent income they generated fell short of their owners' expectations.
Most of the units are occupied for no more than 3 weeks and that amount of rent income is insufficient to cover year-round maintenance, let alone eke out a profit, commented imoti.net analysts.
The asking price of holiday homes in the two resorts starts from 450 euro/sq m and tops out at 2,500 euro/sq m with the average price at 900 euro/sq m. Oversupply has developers struggling to move properties still under construction at sale prices above 1,000-1,200 euro/sq m, forcing them to throw in incentives like furnishings. Only fully-furnished seaview properties command sale prices of over 1,600 euro/sq m.(Dnevnik)
 
Re: Why Bulgaria?

Merdianfawn,

Why are they saying you are in breach of contract? What have you supposed to have done? If building is not yet complete and meant to be are they not in breach of contract?

I have helped a couple of people get out of poor contracts and deals with various apartments and also helping a few deal with dodgy builders - I have a good lawyer here. If you want to let me or her take a look at your contract, let me know.

Rachel
 
Re: Why Bulgaria?

Just checked out article doberden posted and also looked at a number of others in Sofia Echo. Have posted most interesting ones on my forum at http://thetravelbug.proboards84.com/. Some interesting ones about rental returns, construction bans in summer along coast, over supply and so on....

Rachel
 
Re: Why Bulgaria?

Ivan D. said:
Perhaps you know something I don't, Auto, so please enlighten me.

In my opinion what you say would be true in case, and only in case two conditions are met simultaneously:

1. Your bank would agree to give you a mortgage for a property abroad, and
2. Your bank would lend you 100% of the needed amount.

If not, the risk is there big time, hence my advice. And, in my experience there is no bank that I know of, which would meet the two requirements above at the same time.
Click to expand...

Not going to give a masterclass in finance, but the way that investors operate is to invest the minimum in a project, and refinance it as soon as possible in order to extract the original stake for use elsewhere, leaving the bank carrying the risk. Typically in the case of a commercial unit, refinancing is easy when you get to the first rent review, say at five years, since all such investments are yield-based rather than priced per sq m etc. In the past for instance I have bought a property that had just a year to go to rent review, and I was able to get back more than my original stake in just over one year. Five years later I refinanced again and again took back more than my original stake, and at the end of ten years (second rent review) I sold the project for a multiple of the new rent, pocketing a further profit.

Its not rocket science, just doing the math, and buying carefully with an eye to the end game.
 
Re: Why Bulgaria?

Ivan D. said:
Perhaps you know something I don't, Auto, so please enlighten me.

In my opinion what you say would be true in case, and only in case two conditions are met simultaneously:

1. Your bank would agree to give you a mortgage for a property abroad, and
2. Your bank would lend you 100% of the needed amount.
Click to expand...
Auto is right under certain assumptions. When I bought my flat I had to go for what they call a "top mortgage." I'm sure you're familair with these concepts if you've lived in Belgium. That is at a higher rate than the market due to the risk of the size of the loan compared to the execution value on a repossession for non-payment. It was attractive to me to take as big a mortgage as possible simply because I still get full tax relief on the loan, even though I don't actually need a mortgage at all. A few years later the market value had risen, whilst of course the outstanding mortgage value stayed the same. So of course now the execution value for a repossession was way higher than the outstanding value of my mortgage. I shopped around for a new mortgage and made sure that my bank manager knew I was prepared to change for the slightest advantage elsewhere, or else I would just simply pay off the loan for cash. That shocked them as they are not used to customers calling the shots. The same bank was prepared to give me a standard mortgage rate, to release the extra value from the capital appreciation, and even at a lower rate than my first mortgage.

I think that the main assumptions to make this work are:

- the bank thinks that you are a good risk and your property is resale-able

- you can finance the mortgage (e.g. from rental, or your own income)

- the market improves enough to bring up the execution value to above the original market value (execution value is typically 80-85% of the free market value so that equates to a 25% market gain)

- you have plenty of cash, can call people's bluff, and can take the risk of losing serious money, or be able to put up without the cash for a very long period and still pay the mortgage in the interim period until you can either sell out, the market does go up that 25%, or you find a new tenant to cover the mortgage.

My opinion is that none of these things hold true for a property in the current emerging market that is Bulgaria.

If you _have_to_ loan to invest, that is rarely a good idea, because you are not in control if things become tough.

On the other hand, there is nothing wrong with leveraging a balanced portfolio.
 
Re: Why Bulgaria?

Martin, essentially you are rephrasing what I have said earlier, i.e. that without sufficient free cash available borrowing money from the bank for investing carries a big risk.

The main reason of my issuing the advice is that I saw quite many people enticed to invest the bank's money while their monthly cash flow is extremely meager. I just feel sorry for those who do not realize what a huge gamble they take. Remember there are about 30 million unemployed people in Europe ? Well, I can tell you probably at least half of them thought prior to that status "this can not happen to me".

The full analysis also requires to mention the following: Auto tells us that an apartment in Spain is worth 250 k. Well, then the monthly pay to the bank, other conditions being the same, would be three to four times less in Bulgaria simply because that amount would purchase you three to four apartments there. So, our hypothetical lender is somewhat under less burden there isn't he (less he becomes greedy, borrows a quarter of a million and purchases four of them in one shot, and the bank being perfectly happy with that, as I am told) ?

Now, we can dwell forever here in reflections about market characteristics and what have you, for investing in Bulgaria; currently the main driving forces for the humans who participate in this are, according to me, the lowest costs in absolute values, and the highest growth rates in percentage. The rest are only speculations on our part. Regarding the other two main categories of buyers, the retirees andthe holiday dwelling seekers, I've already shared my view earlier.


Ivan D.

www.dukaty.com
 
Re: Why Bulgaria?

Ivan D. said:
Martin, essentially you are rephrasing what I have said earlier, i.e. that without sufficient free cash available borrowing money from the bank for investing carries a big risk.

The main reason of my issuing the advice is that I saw quite many people enticed to invest the bank's money while their monthly cash flow is extremely meager. I just feel sorry for those who do not realize what a huge gamble they take. Remember there are about 30 million unemployed people in Europe ? Well, I can tell you probably at least half of them thought prior to that status "this can not happen to me".

The full analysis also requires to mention the following: Auto tells us that an apartment in Spain is worth 250 k. Well, then the monthly pay to the bank, other conditions being the same, would be three to four times less in Bulgaria simply because that amount would purchase you three to four apartments there. So, our hypothetical lender is somewhat under less burden there isn't he (less he becomes greedy, borrows a quarter of a million and purchases four of them in one shot, and the bank being perfectly happy with that, as I am told) ?

Now, we can dwell forever here in reflections about market characteristics and what have you, for investing in Bulgaria; currently the main driving forces for the humans who participate in this are, according to me, the lowest costs in absolute values, and the highest growth rates in percentage. The rest are only speculations on our part. Regarding the other two main categories of buyers, the retirees andthe holiday dwelling seekers, I've already shared my view earlier.


Ivan D.

www.dukaty.com
Click to expand...

We agree that an investor needs sufficient free cash/liquid investments to cover the bad times by having a balanced portfolio, but that it is not the same as saying "never borrow." I agree that you should not loan to invest if you cannot stay in control. You also saw that in Belgium with the "Legio Lease" debacle where people used borrowed money to gamble on the stock market. That is not just limited to mortgages or property or a particular market.

I do not agree with your analysis comparing the two markets, but we will probably never agree on this.

Looking independently (I am not selling property in Spain or anywhere else):

Bulgaria is an emerging market. It may have the lowest costs per property, and the highest growth currently, but it also has the highest volatility. It is volatility that kills property investors more than anything else.

Did you see the post about rental income dropping 8-20% in one year in Sofia? How do you plan for that?

Did you see the post about people getting 2-3 weeks rental income per year on their Black Sea properties? How do you plan for the fact that there may be no rental market at all? That lack of transparency is killing.

Sure the capital value may go up 100% (although I doubt it), and it could easily crash 50%.

Therefore I think the risk curve is very different to an established market, where the cost of entry may be high, but the volatility is also lower. And without a proven re-sale market you lose one of your exit lines that I mentioned, which means you have to either find a tenant to pay the mortgage (in a dodgy rental market), or continue to pour money into a black hole to pay the mortgage and other fixed costs, or lose the lot.

It is the forced sales (repossessions and distressed sellers) that wipes out investments in property, not small natural swings of a few percent or a stagnant market.

Also the credit market has been established for far longer in the West, and it is much more transparent. There are regulations on the types of mortgages that can be granted, although even in an established market it is my personal belief that people are over-borrowing. Then again, you can get a 20 or 30 year mortgage in Euroland with a fixed rate at less than 6% interest p.a. Can I get a 30 years fixed low-rate mortgage without any currency risks in Bulgaria yet? No. not yet. Until Bulgaria really joins the Euro there is always going to be either a currency or interest rate risk or both. I can get that stability in Euroland already.

Something simple like a transparent land registry also helps stabilize pricing. I trawled google and had to rely on the agents to establish the average fair-value house price in Bulgarian ski resorts. In other countries you can purchase a report from the local land registry for a few euro's giving the exact sale price of all property in a given post-code area. These are real people buying real property. You know exactly how much other people have paid, which avoids the practice I highlighted of a market having two price levels for public and private consumption. See e.g. http://www.ourproperty.co.uk/ or http://www.kadaster.nl/

If you buy in your own country, or via a local agent in an established market, you normally have pretty good legal protection regarding property descriptions, tax, valuations, and contracts. But if you buy in Bulgaria via a UK-based agent, my understanding is that they exploit a loophole in the property and trading laws, meaning that the Estate Agents Act and the Property Misdescriptions Act do not apply. You could not get away with advertising "12% return" in most countries without providing a detailed financial background analysis or prospectus. Or you could not say on your website that there are "Only 2 remaining" when it is clearly misleading IHMO. see [broken link removed]
or
[broken link removed]

So they are very different markets. Which one is better? Well that depends on what risk/reward profile you are looking for. But my analysis convinced me at least that this was not the high risk/high reward I was looking for in my portfolio.
 
Re: Why Bulgaria?

Definitely true UK based agents selling property anywhere outside the UK fall into a loop hole in that they are not covered by misdecriptions act or trade description laws. Having complained to Trading Standards about Bulgarian Dreams, this was their eventual conclusion.

Rachel
 
Re: Why Bulgaria?

Ok they may not get me to Bulgaria to prosecute.. but they do have 23000 of my cash. Any ideas from you financial whizzkids on how to get my money back.? Do I have to retain a solicitor specialising in foreign property? Should I risk it and hope in 5 years to sell even for a small profit? Help!
 
Re: Why Bulgaria?

Hopefully the mods will delete the advert from Switch Homes, however it is useful to see it from the point of view of the kind of stuff that investors need to avoid in dodgy markets. For instance, if you go to their website you will see that they are selling a tarted-up apartment in an old block, 1 km from the beach in Varna at 1055 euro per sq m, about twice what it is worth on a really good day. Avoid them like the plague!
 
Re: Why Bulgaria?

Yes can Mods delete the several adverts by SwitchHomes as certainly not helping Meridianfawn get out of his purchase. Meridianfawn - what is the exact situation? Maybe PM me the details as have helped a few people get out of various new build situations.

Rachel
 
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