Now there are a few things you should know before investing in BG RE.


1.First is the cost of construction. For Bulgaria it is pretty low. It runs about 300-400 euros per square meter or 30-40 per square foot the price of land included (actually in most cases builders dont pay for the land instead they compensate the land owners by granting them 25-35% of building, so they dont disburse real cash). So by buying properties for 1000 euros per sq.m you are making the developers, estate agents and everyone involved filthy rich. Builder margins are north of 100% in most big cities like Varna & Sofia and even higher for ugly resorts like Sunny Beach, Golden Sands or Bansko. Because of the high margins builders are building like crazy, you signs of construction everywhere. There is a tzunami of supply that is going to hit the market pretty soon. As long as prices remain as high builders are ready to pour concrete on 99% of the territory.

2 Valuation ratios such as prices/rents (p/e), mortgages/rents, prices/incomes are all flashing mighty red signs. P/E normally should be around 10-12 years. Now it stands about 20-25. I know fist hand because I own and rent out a 100 sq m luxurious fully furnished appartment in the center of Varna. It's market price right now is probably around 100000-120000 euros and I am renting it out for about 4000 euros per year after taxes. I have been renting out that appartment for about 7 years and the only increase in rents that I was able to pass was to move from dollars to euros ( about 20% increase). I bought the apartment for 40000 euros, repairs & funiture did cost about 20000 euros, I lived there for 2 years and started renting it out. So you see that by this simple mesure RE is 40-50% overvalued.
Mortgages are almost twice as expensive. If the renter bought the appartment from me with a mortgage he should be paying atleast 7000-8000 euros per year on the mortgage. As we know mortgages should be 1.3-1.5 times rents. Here we see again that most of the real estate is 30-40 overvalued.
Prices to income is the level by which shows that RE is the most overvalued. It is normal for a person to be able to buy the average property with 5 years worth of salary. In Bulgaria, prices for average 70 sq. m. appartements which are the norm is about 50000 euros in Varna & Sofia. Average incomes in these cities is about 250 euros per months so you get, a price to income ratio of about 18-20 so again we see RE as massively overvalued. Please mind that with the entry in EU incomes are expected to rise somwhat because workers would now be able to find jobs in many contries in the EU.

3 Demography is the nemesis of the RE market. Bulgaria's population is dwindling at an alarming rate.It is one of the countries that is grwing old the fastest. Bulgarians dont have babies. Almost half of the newborn come from ethnic minorities mainly gypsies which are antisocial and commit most of the crimes. In 20 years it would be virtually impossible to sell real estate.

4 The Economy is being growing steadily at about 5% for the last 8 years. However most of the growth is being concentrated in RE construction and other RE related activities. By my estimates RE comprises about 30-35% of the GDP so anything negative in RE market would have a reverberating impact on the economy which in turn would further hit the RE market.

5 One positive for RE is the large sums of money the BG would receive from the EU for infrastructure projects.

Things that you should not do when in vesting in RE in Bulgaria. Never I repeat NEVER use a British estate agents. There are the ones that would scam you the most and are usually the sleaziest. I would need a hole week to explain you some of the horror stories that are going on. A few scams to be aware of especially in the resort areas. The estate agents try to sell you a condo in a resort complex and they guarantee to find you a tenant or they already have one, promising yuo X% of rental income. In most cases this a pure scam, the renter is in most case a strawman paid by the estate agent to pose as a tenant. You would usually receive rent for a couple of months, maybe even a year. But then the guy would. Well technically he wont leave because he is not really living there. In any case you wont receive anymore income however you would still have to pay for the mortgage (if you borrowed money) & housing association fees. Then when you try and sell the appartment you realise that you are pretty much stuck with it and have to discount the price very heavily to incite any bids and find out how really overpriced it was. It is virtually impossible to sell your property in Sunny Beach right now because of all the new supplies & sellers competing with each other. So you are really looking for a bigger fool, a classic ponzi scheme. This is just one of the scams. There are of course many others so be very aware. I advice not to use any british estate agents or their subsidiaries they are the worst of the worst.

How to invest in RE in Bulgaria. The cheapest way is to build it yourself. I built a luxury house for my self started 2005, finished in 2006 cost me about 380 euros per sq m te price of land included. 600 euros with very expensive furniture. So if you want to invest find a plot, hire a construction company (you should hire a construction engineer to help you with all that) and in 2 years you would have a nice house. Another option for those seeking a retirement home to live in full time is to buy a house in the country they can go as cheap as 5-10000 euros, spend another 10000 euros to renovate and live there full time. It would of course be impossible to rent it out. Buy such houses only in areas where there are few or no gypsies, because you might find your house empty after rentering grom visiting relatives in the UK.

Wow interesting post!

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Spanish Property

How ironic that pretty much all the facts and headaches outlined above (or below i guess) I have also experienced. I own 2 flats, bought, renovated and in theory at least rented out.

However, sadly my caution is for the way over-valued and over-hyped Budapest. Same rules apply - avoid UK agents/touts. Their interest is to bubble the market, and you the investor with little knowledge other than their eager words, are easy bait.

Steer well clear for several years of Hungary (and of course Bulgaria). It's not so much the money that you'll inevitably lock into a downward spiral (afterall, you'd be a fool to part with more than 100k pounds in Budapest), but it's the headaches, paperwork and bonds which will prevent you from walking away. A bitter flavour that washes out slowly.
Martin.

I think I will have another look at the figures given. Also we work with 3 developers in Bulgaria. 1. German, Spanish, 2. Bulgarian. 3. Cypriat. No English, or British, though I dont think branding nations as good or bad is the key. It is do a reality check and do your due diligence. Your article highlights the underbelly which does not get talked baout, and you know your stuff from 7 years being there.

I will reread. The problems I hear of Bulgaria are 1. Resale value. 2. Zero or limited rental yields. I think if one can get the rental yields high, then correspondingly the resales values will grow, but then the conundrum why would you sell a good yieldiing property. Balkan holidays rent out apartments year on year, so they generate income and thus you have a valuable asset.

Interesting comments above though, it is good comment.

Have to agree with most of what is said here and I am a British, but Bulgarian based agent here. But a few points:

1. Not all British agents are dishonest and out to make a fast buck! Some of us look after our clients VERY well.
2. There is a small rental market for rural property
3. It will cost you more than 10,000E to renovate a rural house to a good standard - nearer 15,000 to 20,000E

Rachel

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Bulgarian property for sale from just 4,000 Euros. Renovations, relocation, furnishing and free advice. Visit http://www.thetravelbug.org

Village houses to rent from 50E/mth - http://www.therentalbug.com

if only i had gotten that advice from you 2 years ago , i like many other gullible or perhaps greedy fools bought an appartment in budapest 2 yrs ago , while its in a good location and rented out , its worth less now than what i paid for it , you cannot give away property in budapest right now , avoid like the plague

Not only English but Ive found that Bulgarian rental agencies are complete crooks. Ive had two different Bulgarian agencies for two years now and the first year I got nothing even though the apt was used (Boris Shopov) and this last year I used PM Group and got only 200 euros for the whole Summer.

Hi Sirholidayalot

Perhaps you might like to back up your statements of "complete crooks" about Boris Shopov and PM Group with facts please. Look forward to hear what you have to say
Cheers,

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Jain Goodall, Director, Quest Bulgaria Magazine

Independent advice and information for owning and buying property in Bulgaria
http://www.questbulgaria.com

How can I prove that they havent paid me while the apt has been rented out by them when I have no evidence of money going into an account ?

Shopov admits he owes money yet fails everytime to pay anything - and Im not the only one to be owed money - ask anyone else at Messambria Fort Beach in Elenite.

What evidence do you need ?

Hi

It's not so much what evidence do I need more that you can't go making these kind of statements on a forum without hard facts to back up what you are saying, that's all.

If he says he owes you money, do you have that in writing? And so on..

I agree with you, if people have been using your apartment through those agents, then you are surely due rental.

It's just that you can't go saying people are "complete crooks" without being able to support this and show it is true.

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Jain Goodall, Director, Quest Bulgaria Magazine

Independent advice and information for owning and buying property in Bulgaria
http://www.questbulgaria.com