Post by bear42 on Jul 18, 2006 0:29:48 GMT 1
Could there be a lesson in this for Croatia?
Bulgaria? Beware
British buyers on the Black Sea may have to face some hard facts, says Sarah Marks
It was, many thought, too good an opportunity to miss: a beachfront property on Bulgaria’s Black Sea coast for £30,000. Not just a holiday home, but a cast-iron investment opportunity. Rental income would cover the running costs and mortgage payments, while soaring property prices would guarantee a hefty profit when the flat was cashed in.
That, at least, is the prospect that has been dangled before thousands of British buyers by estate agents and developers during the past few years.
This summer, however, the consequences of Bulgaria’s property boom are beginning to sink in. The frenzy of development has delivered a glut of apartments in Sunny Beach, Golden Sands and a string of other Black Sea resorts and is threatening to do the same in the mountain resorts of Bansko, Pamporovo and Borevets.
Many Britons who bought on promises that they would get rental returns of as much as 10% are receiving half that — if their properties are being let at all, a Sunday Times investigation has revealed. Meanwhile, those who had hoped to sell for a profit are finding that the relentless building programme can make it difficult even to get their money back.
Karina Mackenzie, 28, a school teacher from Swansea, was seduced by the Bulgarian dream 18 months ago. She and her father spent £30,000 on a one-bed flat in the Apollon beachfront complex near the town of Nessebar. In common with many other buyers, she saw the flat as both a holiday home and an investment.
Like its competitors, Mareli Properties, the agency through which they bought, was upbeat about the flat’s rental prospects. “There were a lot of promises given to us by agents that we would get a high rental income,” says Mackenzie. “I was told we could expect 70% occupancy in the summer months.”
The reality has proved very different. After months of advertising on the internet and putting up posters at work, she has had few inquiries and no confirmed bookings. Not that she could rent it out, even if she wanted to: when the Mackenzies visited Bulgaria in April, they discovered that the flat, which had been due for completion before the summer season, will not now be ready to let until the end of August.
Her visit left her feeling deeply pessimistic. “I don’t think the rental side will ever come to anything,” she says. “I think we’ll be lucky to cover our costs. Bulgaria is a building site. How can they build so many apartments and expect to fill them with tourists?” Charles Simpson, an accountant from Stoke-on-Trent, bought two apartments on Sunny Beach in the Sunny Day development for a total of £55,000.
During a viewing trip to Bulgaria, Simpson claims he was assured verbally that he could expect an income of about £70 a night for at least six months. Once the contract was signed, however, he says the developer admitted there was no guaranteed income, leaving him to spend £300 advertising the properties himself through internet letting sites.
One flat has been rented out for two weeks and the other for six weeks — far less than he was led to believe when he bought. If bookings don’t improve, he intends to sell. “I am very disappointed about the rents,” he says. “I was told by the managing director of the company all the properties came with guaranteed income and that these were no exception.”
Despite such problems, developers and agents — many of them based in Britain — are continuing to paint a rosy picture of both the rental and resale markets.
Posing as a buyer, a Sunday Times reporter was assured by several agents that the rental season in Bulgaria lasts from May until October, occupancy rates are high, returns of 10% are realistic and a two-bed apartment will command £485 a week. New golf developments or planned marinas were often mentioned as sources of further uplift.
Simon Jenkin, a sales agent for Bulgarian Dreams, was especially upbeat when promoting a new development at Balchik, 15 minutes from Sunny Beach, next to three proposed golf courses. “At the moment the season is three to four months long, but once the golf courses are finished, it will be seven to eight,” he said.
A salesman from Manchester-based Bulgaria Revealed, who identified himself only as Adam, said: “You’re normally looking at 8%-10% rental return, so say you buy an apartment for €100,000 (£69,000), you’ll get €10,000 (£6,900) a year income.”
Worryingly, the reporter found many agents were talking up the investment case in the full knowledge that buyers are borrowing money to fund their purchase and may be relying on rental income to pay their monthly debts.
Barrasford and Bird, which has released what it calls a “self-certification, off-plan, true, buy-to-let mortgage in Bulgaria”, suggests on its website that borrowing 70% of the purchase price could raise a buyer’s profits from 50% to 479%. “This is how property investors make so much money in property deals — they use the bank’s money,” it explains.
Research by The Sunday Times suggests that for most people, net returns are more likely to be in the 3%-4% range at best, that six to eight weeks’ rental is optimistic, that £277 is a realistic rate for a two-bed apartment and that just a few people, with truly exceptional properties, will achieve 12 weeks’ rent. With local interest rates of about 7%, this means that far from being self-supporting, some Bulgarian properties can start costing their buyers money from the start.
Lauren White of MacAnthony Realty International assured our reporter that a two-bedroom apartment at Sunny Beach would “rent for €700 (£484) a week” and claimed this meant owners needed only five weeks’ rent to cover the mortgage. However, she said 10-15 weeks’ rental was the norm.
“You can rent the property out for the summer months without a problem,” White said, adding that the firm “normally achieved 95% occupancy”.
Anil Shah, 46, an IT consultant from Harrow, who bought a one-bedroom apartment at Efir Holiday Village on Sunny Beach for £51,000 last year through MacAnthony, has had a somewhat different experience. He now feels that he was misled by the company, which, he claims, repeatedly told him during the buying process that he would receive guaranteed rental income for June-September that would more than cover his mortgage.
When he completed, he discovered that the rental income was not, in fact, guaranteed. The letting agent recommended by MacAnthony has so far found Shah just one week’s booking. Like other buyers, he has resorted to advertising his apartment on the internet at his own cost.
Shah says numerous complaints have led nowhere. “There’s very little you can do about it,” he says. “It’s not in their (the agent’s) interest to do anything. They’ve got their commission.”
Nor are the problems restricted to the coastline. In recent months, agents have been vigorously promoting the investment potential of Sofia, Bulgaria’s capital, and the country’s ski resorts. Much was made by developers of Bulgaria’s bid to stage the 2014 Winter Olympics; the country’s failure to make it to the shortlist last month went largely unreported.
Many industry experts are sceptical, however, that the building of golf courses will be enough to turn mountain towns into genuine all-year resorts, while those who’ve bought in the capital also face problems finding tenants.
Fraser Young, 33, who owns a company exporting telecommunications equipment, paid £50,000 for a one-bed flat in the Monastery, a residential complex 10 minutes’ drive from central Sofia, last year, after being impressed by Barrasford and Bird’s sales pitch at a London property show.
Although the apartment was finished in December, Laguna, the rental agency promoted by Barrasford and Bird, has failed to find a single tenant for him — nor, he believes, has it done so for any of the others who have bought. After months of complaints, Laguna wrote to the 40 owners admitting “the rental market for residential apartments is very competitive and dominated by the supply over the demand”. Laguna confirmed last week that it had not placed any tenants in the Monastery.
Robin Barrasford, managing director of Barrasford and Bird, admitted there had been problems with Laguna in Sofia and no longer recommends the firm in the capital. He said, too, that he would look into his website’s promotion of mortgages. A warning has since been added: “Rental returns are not guaranteed in Bulgaria or any country and clients should only borrow money that they can afford to pay back via other means if necessary.”
MacAnthony has denied it misled clients, pointing out that it is developers and letting companies rather than estate agents who ultimately give guarantees. “When we opened on Sunny Beach last year, rental guarantees had been the norm in 2004,” said Michael Liggan, chief executive. “Based on that, we believed they would have been offered in 2005/6. However, they are not as readily available as they were.”
Bulgarian Dreams also backed its salesmen’s views, while Steve McCann, administration manager at Bulgaria Revealed, said its agents were “merely passing on the information we received from the developer”. He maintained that, based on what the developers had said, “10% is a realistic return over the next few years”.
Experts such as Patrick Berger, who analyses emerging European property markets for CA-IB, an Austrian bank, are sceptical. “Eighty per cent of people are buying in Bulgaria because they see it as an investment,” he says. “I don’t believe they will ever get the yields they were promised — certainly not 10%.”
Many buyers interviewed by The Sunday Times claimed they were not worried about rents in Bulgaria as they had bought primarily for capital growth. Yet Berger believes that they, too, could experience problems.
“Investors look at two factors: the rental income and the yield,” he said. “If the rental income is not there to justify the value, prices will fall, possibly some way below the level at which people are now buying.”
Galina Mihaylova, a Bulgarian property consultant who has watched the boom since its early days, has met a number of unhappy clients. At present, she is helping one British investor sell a ski apartment in a new building in Bansko for £713 per sq m; she says that agents are still asking £969 for comparable off-plan flats. A second owner in the same block is hoping to sell three properties for the same price he paid for them two years ago.
“People who are hoping to make a quick profit are going to be very disappointed,” says Mihaylova, who runs Sash Solutions in Stara Zagora.
With thousands more apartments ready for sale and rental next year, the situation is not likely to improve. Last month, Orlin Vladikov, head of the National Real Property Association in Bulgaria, warned that prices in resorts were expected to decrease because of “over-construction and the lack of clear construction criteria”.
Ivo Marinov, director of Mareli, is still optimistic. He says apartments in the Apollon complex should achieve 70% occupancy next year and claims he is talking to big tour operators interested in placing holidaymakers in the development.
Mackenzie is not convinced, however. “The market is overheated,” she says. “The agents are on a money-maker and the more flats they sell, the more difficult the rental situation becomes.” For hundreds of other investors, the sand may turn out to be the only thing “golden” in Bulgaria.
Karina Mackenzie’s flat can be rented through http://www.apolloncomplex.com; Charles Simpson’s flats are available through www.holiday-rentals.com (ref 56946); Anil Shah’s flat can be rented via www.holidaylettings.co.uk (ref 11808)
Do’s and don’ts
Make sure you visit the area where you plan to buy. It sounds obvious, but many people are pressured into buying at property shows in Britain before even setting foot in Bulgaria
Don’t be seduced by promises of rising prices. Just because developers are raising the prices of new flats it does not mean there is a genuine market in second-hand properties. Indeed, they may actually be changing hands for substantially less money than off-plan ones
Talk to people who have already bought in the development or in the area to see if they are happy. Internet chatrooms (such as http://www.my.bulgaria.info) can be a source of useful information — although bear in mind some contributors may have axes to grind
Choose your property carefully. Be prepared to pay a little more to buy a flat on the beachfront or directly next to the ski lift. It will hold its value better and be far easier to let than a property in the middle of nowhere
Beware of so-called ‘rental guarantees’. Be sure of who is making the guarantee and what you can do if they don’t honour it. Some unscrupulous developers will offer a 10% return for the first year to make the property look more attractive — and will have simply inflated the sale price accordingly
Bulgaria? Beware
British buyers on the Black Sea may have to face some hard facts, says Sarah Marks
It was, many thought, too good an opportunity to miss: a beachfront property on Bulgaria’s Black Sea coast for £30,000. Not just a holiday home, but a cast-iron investment opportunity. Rental income would cover the running costs and mortgage payments, while soaring property prices would guarantee a hefty profit when the flat was cashed in.
That, at least, is the prospect that has been dangled before thousands of British buyers by estate agents and developers during the past few years.
This summer, however, the consequences of Bulgaria’s property boom are beginning to sink in. The frenzy of development has delivered a glut of apartments in Sunny Beach, Golden Sands and a string of other Black Sea resorts and is threatening to do the same in the mountain resorts of Bansko, Pamporovo and Borevets.
Many Britons who bought on promises that they would get rental returns of as much as 10% are receiving half that — if their properties are being let at all, a Sunday Times investigation has revealed. Meanwhile, those who had hoped to sell for a profit are finding that the relentless building programme can make it difficult even to get their money back.
Karina Mackenzie, 28, a school teacher from Swansea, was seduced by the Bulgarian dream 18 months ago. She and her father spent £30,000 on a one-bed flat in the Apollon beachfront complex near the town of Nessebar. In common with many other buyers, she saw the flat as both a holiday home and an investment.
Like its competitors, Mareli Properties, the agency through which they bought, was upbeat about the flat’s rental prospects. “There were a lot of promises given to us by agents that we would get a high rental income,” says Mackenzie. “I was told we could expect 70% occupancy in the summer months.”
The reality has proved very different. After months of advertising on the internet and putting up posters at work, she has had few inquiries and no confirmed bookings. Not that she could rent it out, even if she wanted to: when the Mackenzies visited Bulgaria in April, they discovered that the flat, which had been due for completion before the summer season, will not now be ready to let until the end of August.
Her visit left her feeling deeply pessimistic. “I don’t think the rental side will ever come to anything,” she says. “I think we’ll be lucky to cover our costs. Bulgaria is a building site. How can they build so many apartments and expect to fill them with tourists?” Charles Simpson, an accountant from Stoke-on-Trent, bought two apartments on Sunny Beach in the Sunny Day development for a total of £55,000.
During a viewing trip to Bulgaria, Simpson claims he was assured verbally that he could expect an income of about £70 a night for at least six months. Once the contract was signed, however, he says the developer admitted there was no guaranteed income, leaving him to spend £300 advertising the properties himself through internet letting sites.
One flat has been rented out for two weeks and the other for six weeks — far less than he was led to believe when he bought. If bookings don’t improve, he intends to sell. “I am very disappointed about the rents,” he says. “I was told by the managing director of the company all the properties came with guaranteed income and that these were no exception.”
Despite such problems, developers and agents — many of them based in Britain — are continuing to paint a rosy picture of both the rental and resale markets.
Posing as a buyer, a Sunday Times reporter was assured by several agents that the rental season in Bulgaria lasts from May until October, occupancy rates are high, returns of 10% are realistic and a two-bed apartment will command £485 a week. New golf developments or planned marinas were often mentioned as sources of further uplift.
Simon Jenkin, a sales agent for Bulgarian Dreams, was especially upbeat when promoting a new development at Balchik, 15 minutes from Sunny Beach, next to three proposed golf courses. “At the moment the season is three to four months long, but once the golf courses are finished, it will be seven to eight,” he said.
A salesman from Manchester-based Bulgaria Revealed, who identified himself only as Adam, said: “You’re normally looking at 8%-10% rental return, so say you buy an apartment for €100,000 (£69,000), you’ll get €10,000 (£6,900) a year income.”
Worryingly, the reporter found many agents were talking up the investment case in the full knowledge that buyers are borrowing money to fund their purchase and may be relying on rental income to pay their monthly debts.
Barrasford and Bird, which has released what it calls a “self-certification, off-plan, true, buy-to-let mortgage in Bulgaria”, suggests on its website that borrowing 70% of the purchase price could raise a buyer’s profits from 50% to 479%. “This is how property investors make so much money in property deals — they use the bank’s money,” it explains.
Research by The Sunday Times suggests that for most people, net returns are more likely to be in the 3%-4% range at best, that six to eight weeks’ rental is optimistic, that £277 is a realistic rate for a two-bed apartment and that just a few people, with truly exceptional properties, will achieve 12 weeks’ rent. With local interest rates of about 7%, this means that far from being self-supporting, some Bulgarian properties can start costing their buyers money from the start.
Lauren White of MacAnthony Realty International assured our reporter that a two-bedroom apartment at Sunny Beach would “rent for €700 (£484) a week” and claimed this meant owners needed only five weeks’ rent to cover the mortgage. However, she said 10-15 weeks’ rental was the norm.
“You can rent the property out for the summer months without a problem,” White said, adding that the firm “normally achieved 95% occupancy”.
Anil Shah, 46, an IT consultant from Harrow, who bought a one-bedroom apartment at Efir Holiday Village on Sunny Beach for £51,000 last year through MacAnthony, has had a somewhat different experience. He now feels that he was misled by the company, which, he claims, repeatedly told him during the buying process that he would receive guaranteed rental income for June-September that would more than cover his mortgage.
When he completed, he discovered that the rental income was not, in fact, guaranteed. The letting agent recommended by MacAnthony has so far found Shah just one week’s booking. Like other buyers, he has resorted to advertising his apartment on the internet at his own cost.
Shah says numerous complaints have led nowhere. “There’s very little you can do about it,” he says. “It’s not in their (the agent’s) interest to do anything. They’ve got their commission.”
Nor are the problems restricted to the coastline. In recent months, agents have been vigorously promoting the investment potential of Sofia, Bulgaria’s capital, and the country’s ski resorts. Much was made by developers of Bulgaria’s bid to stage the 2014 Winter Olympics; the country’s failure to make it to the shortlist last month went largely unreported.
Many industry experts are sceptical, however, that the building of golf courses will be enough to turn mountain towns into genuine all-year resorts, while those who’ve bought in the capital also face problems finding tenants.
Fraser Young, 33, who owns a company exporting telecommunications equipment, paid £50,000 for a one-bed flat in the Monastery, a residential complex 10 minutes’ drive from central Sofia, last year, after being impressed by Barrasford and Bird’s sales pitch at a London property show.
Although the apartment was finished in December, Laguna, the rental agency promoted by Barrasford and Bird, has failed to find a single tenant for him — nor, he believes, has it done so for any of the others who have bought. After months of complaints, Laguna wrote to the 40 owners admitting “the rental market for residential apartments is very competitive and dominated by the supply over the demand”. Laguna confirmed last week that it had not placed any tenants in the Monastery.
Robin Barrasford, managing director of Barrasford and Bird, admitted there had been problems with Laguna in Sofia and no longer recommends the firm in the capital. He said, too, that he would look into his website’s promotion of mortgages. A warning has since been added: “Rental returns are not guaranteed in Bulgaria or any country and clients should only borrow money that they can afford to pay back via other means if necessary.”
MacAnthony has denied it misled clients, pointing out that it is developers and letting companies rather than estate agents who ultimately give guarantees. “When we opened on Sunny Beach last year, rental guarantees had been the norm in 2004,” said Michael Liggan, chief executive. “Based on that, we believed they would have been offered in 2005/6. However, they are not as readily available as they were.”
Bulgarian Dreams also backed its salesmen’s views, while Steve McCann, administration manager at Bulgaria Revealed, said its agents were “merely passing on the information we received from the developer”. He maintained that, based on what the developers had said, “10% is a realistic return over the next few years”.
Experts such as Patrick Berger, who analyses emerging European property markets for CA-IB, an Austrian bank, are sceptical. “Eighty per cent of people are buying in Bulgaria because they see it as an investment,” he says. “I don’t believe they will ever get the yields they were promised — certainly not 10%.”
Many buyers interviewed by The Sunday Times claimed they were not worried about rents in Bulgaria as they had bought primarily for capital growth. Yet Berger believes that they, too, could experience problems.
“Investors look at two factors: the rental income and the yield,” he said. “If the rental income is not there to justify the value, prices will fall, possibly some way below the level at which people are now buying.”
Galina Mihaylova, a Bulgarian property consultant who has watched the boom since its early days, has met a number of unhappy clients. At present, she is helping one British investor sell a ski apartment in a new building in Bansko for £713 per sq m; she says that agents are still asking £969 for comparable off-plan flats. A second owner in the same block is hoping to sell three properties for the same price he paid for them two years ago.
“People who are hoping to make a quick profit are going to be very disappointed,” says Mihaylova, who runs Sash Solutions in Stara Zagora.
With thousands more apartments ready for sale and rental next year, the situation is not likely to improve. Last month, Orlin Vladikov, head of the National Real Property Association in Bulgaria, warned that prices in resorts were expected to decrease because of “over-construction and the lack of clear construction criteria”.
Ivo Marinov, director of Mareli, is still optimistic. He says apartments in the Apollon complex should achieve 70% occupancy next year and claims he is talking to big tour operators interested in placing holidaymakers in the development.
Mackenzie is not convinced, however. “The market is overheated,” she says. “The agents are on a money-maker and the more flats they sell, the more difficult the rental situation becomes.” For hundreds of other investors, the sand may turn out to be the only thing “golden” in Bulgaria.
Karina Mackenzie’s flat can be rented through http://www.apolloncomplex.com; Charles Simpson’s flats are available through www.holiday-rentals.com (ref 56946); Anil Shah’s flat can be rented via www.holidaylettings.co.uk (ref 11808)
Do’s and don’ts
Make sure you visit the area where you plan to buy. It sounds obvious, but many people are pressured into buying at property shows in Britain before even setting foot in Bulgaria
Don’t be seduced by promises of rising prices. Just because developers are raising the prices of new flats it does not mean there is a genuine market in second-hand properties. Indeed, they may actually be changing hands for substantially less money than off-plan ones
Talk to people who have already bought in the development or in the area to see if they are happy. Internet chatrooms (such as http://www.my.bulgaria.info) can be a source of useful information — although bear in mind some contributors may have axes to grind
Choose your property carefully. Be prepared to pay a little more to buy a flat on the beachfront or directly next to the ski lift. It will hold its value better and be far easier to let than a property in the middle of nowhere
Beware of so-called ‘rental guarantees’. Be sure of who is making the guarantee and what you can do if they don’t honour it. Some unscrupulous developers will offer a 10% return for the first year to make the property look more attractive — and will have simply inflated the sale price accordingly
