Bulgarian Property Bubble Bursts

Bulgaria's property bubble has burst in a big way. Prices have fallen by as much as 60% in the last few months, with many recent sales back on the market at substantial price reductions

Bansko, Bulgaria's biggest winter resort thrived on the back of a property boom fueled mainly by UK investors, but that expansion has imploded as the global economic crisis puts a squeeze on credit and wipes out real estate values. No longer backed by soaring housing prices and cheap mortgages at home, foreigners are fleeing ex-communist Europe in droves.

Real estate agencies say at least a third of Bansko's 2,200 foreign-owned holiday flats - many bought over the internet without their owners having set foot here -- are on the block again at half price.

"Many buyers who live in the UK and bought in Bulgaria are now trying to re-sell," said Christophe Gater of New Estate Consultancy in London, which specializes in Bulgaria.

Bulgarians are the poorest European Union population per capita. There are rumors that some Black Sea hotel owners have offered their debt-laden businesses for sale at a price tag of one euro, which is not good news for the tourism industry, Bulgaria's top foreign income generator.

Rila Lakes Bulgaria

Latvia, Lithuania and Estonia also saw a huge foreign-financed property boom. The most widely quoted property prices there have dived 30 to 40 percent.

The housing collapse is the front end of what economists say could be a long, deep recession across the region that could spark a wave of bank and currency crises. The IMF and EU have already bailed out Hungary to the tune of $25 billion. Now economists say Bulgaria, its Balkan neighbour Romania, and Latvia, Lithuania and Estonia may need help. "It's a matter of time before the IMF are called in," said Capital Economics EMEA economist Neil Shearing.

Construction and property, which along with related financial services drew most of Bulgaria's 6 billion euros in annual foreign investment is the first sector to feel the pinch of the credit crunch. The London-based Black Sea Property Fund has abandoned a residential project in Sofia, and estate agents report a glut of unsold new properties in the capital. Builders in Bansko and Black Sea resorts have cut staff due to low demand, and in Bansko, property prices have dropped as much as 40% in the last month, to €600-900 psm.

"No-one is buying. Everything has frozen," said Asya Kavrakova of the British-owned Ski Property agency in Bansko.The worst is yet to come in the property sector with higher unemployment and possible bankruptcies, leading ultimately to a region-wide recession. Bulgaria's current account gap is over 20%, and with private debts of this size she must continue to attract foreign capital to keep the economy running, which seems unlikely at the moment.

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