Black Sea coast: Sophistication adds to the strain
June 6th, 2008
By Kerin Hope and Theodor Troev
www.ft.com
As the global credit crunch tightens, British and Irish home buyers, who drove the development of Bulgaria’s Black Sea coast, are being replaced by cash-rich Russians and Romanians.
A sharp fall in demand for smaller studio and one-bedroom apartments of between 40 and 60 sq. m. in established resorts has pushed down prices by between 8 and 12 per cent in the past six months, according to estate agents. Prices now range between €800 and €1,200 a sq. m. in new developments, depending on proximity to the beach. But rental yields are low, at about 2-3 per cent, because of a relatively short summer season and an over-supply of smaller apartments. The re-sale market is still in an early stage of development, although many speculative buyers have already “flipped” properties acquired earlier. Yet the mood is still optimistic. Not only are more Russians, Poles, and Romanians expected to join the market for moderately-priced apartments, but a growing number of high-end projects are being launched in previously undeveloped areas. Land prices are soaring, especially in the “villa zones”, a 10km strip around regional coastal towns that municipal planners allocate for suburban development.
Purchases of property and land for development counted for at least 40 per cent of Bulgaria’s estimated €5bn in foreign direct investment last year. While growth is slowing, the country’s economy is still projected to expand by about 5 per cent this year and next, led by foreign investment and domestic demand. The slowdown has probably come at a good time for Bulgaria. There is a swing now from budget properties to those in better locations, of good build and good management.
The property boom has created tens of thousands of jobs in tourism, construction and services. Varna, formerly a run-down industrial port, has become the country’s fastest-growing city with a vibrant nightlife and a separate commercial and residential property market of its own. Yet the pace of development puts a severe strain on infrastructure. Varna and Burgas airports are both being upgraded by Fraport, the German airport operator, under a concession agreement. Flights to both destinations have multiplied with the entry of low-cost carriers from the UK, Germany and Poland.
Bulgarian environmental organisations warn that the rush to build on undeveloped areas is threatening sites included in Natura 2000, the EU member-states’ network of protected areas. Unwary investors from the UK, Ireland, Belgium and India bought properties being developed in the Strandzha nature park south of Burgas without an environmental impact study and in violation of local water and building regulations. The project’s future is uncertain following a court order halting construction. In response, local authorities have tried to exclude the resort from the area designated as protected - a move that could lead to penalties being imposed by the European Commission.
