Just found this and thought it was an interesting article from NOVINITE.COM
A Lesson in Transparency from Bulgaria:
[size=55:1v1j0j70]August 19, 2009, Wednesday
Some experts predict that no new homes at all will be built next year as Bulgaria seems to be having one of the longest downturns of any country.
By Graham Norwood
Three years ago it was hard to avoid Bulgarian real estate. Its sea and ski tourist resorts were seen as "
must have"
locations for holiday homes, its capital Sofia was mooted to be a new strategic office center for central and eastern Europe, and even warehousing was considered a good long-term investment thanks to the country's apparently-endless growth.
The country was being marketed everywhere, or so it seemed. Top-end estate agents in Western Europe and even the US were selling Bulgarian properties;
big name designers such as Starck and Yoo were in the country trying to grab a slice of what was seen by some as the most vibrant emerging market in the world.
Well, now we all know better. Bulgaria's pain is not unique but compared to many countries - even those others in Eastern Europe - it is at the severe end of the scale. A plethora of figures prove the point:
- Real estate transactions across the country have fallen 35 per cent in the first half of 2009 compared to 2008
- Transactions in resorts like Bansko and Borovets are down 50 per cent. In Sofia, transactions have plummeted 58 per cent
- Mortgage foreclosures are 36.6 per cent up on a year ago
- Government figures show just 3,897 new housing units built in the first quarter of 2009, compared to 20,924 in 2008
- Some experts predict that no new homes at all will be built next year as Bulgaria seems to be having one of the longest downturns of any country.
How bleak is that? But while no one can have assumed that Bulgaria could buck the downturn in real estate markets seen throughout the capitalist world, does it have to that bad?
I visited Bulgaria in 2005 and 2006, on both occasions to see residential developments in the course of their construction, and I was struck by the almost complete absence of neutral professional guidance on the real estate industry.
As a result, individual investors - in office, industrial or residential sectors - had little to go on except instinct and the reports from estate agents. As a result, claims about price rises were widely varying.
For example, between 2003 and 2004, the Bulgarian estate agency Imoti BG suggested that residential prices rose by an average of 147.5 per cent. But other researchers, most significantly business consultancy Merrill Lynch, suggested the price rise during that year could have been as low as 31 per cent.
Now even 31 per cent is good but how could there be such discrepancy between rival estimates? And what effect does that have on the market?
Bulgaria, in recent years, has been heavily reliant on foreign buyers who in the main [it is probably safe to assume] do not speak the local language and have little direct experience of how the real estate industry works within the country.
So the currency expert HIFX calculates that of all the Bulgarian property transactions in 2005 [the peak of the market in that country], foreigners were involved in no fewer than 23 per cent of deals.
The strong likelihood must be that most of those foreign buyers relied on estate agents, developers or random internet research for their data. This is neither authoritative nor even common sense.
It may explain why so many invested there and now find themselves walking away from their deposits or partly built properties following the downturn.
This approach of making the buyer do all the work - the British use the old Latin term Caveat Emptor, or Buyer Beware - is hardly 21st century customer service. Instead, why should the Bulgarian Government [and perhaps every other country, too] not create a series of real estate market indices that give external investors a neutral benchmark which can be used to help decide where they put their money?
In 2006 and 2007, Bulgaria's Government, and some of its local regional authorities, showed respect for buyers from overseas by restricting development of residential units in particular until infrastructure development had caught up.
But it was too little too late, and now newspapers and the web abound with stories of investors who have lost money on schemes that have never been completed, while a handful of criminal agents have run off with buyers' money before leaving Bulgaria.
Much of this is par for the course in developing markets, unfortunate side-effects of any boom. But perhaps there would have been a less bitter taste left in the property industry's collective mouth if the Bulgarian Government had created objective indices.
The same, of course, can be said for almost any emerging government. And if there is one lesson from this downturn that will cost little to learn, it is that transparency in future real estate dealings will be essential if public confidence in property is to be restored.
Wed Aug 19, 2009 12:36 pm