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Managing Director Of Emerging Markets Understood Ltd. On Bulgarias Luxury Sector
Simon Feek, Managing Director of Emerging Markets Understood Ltd., appraises Bulgaria's luxury sector"For real estate to be considered "luxurious", it must possess the following attributes:
-Desirable location
-High specification design (high building cost)
-Well-planned facilities' management model (to maintain and service property)
-Desirable "lifestyle services" (concierge, other hotel services, fitness, etc)
-Desirable "options" - placing a personal stamp on the property such as bespoke kitchens, bathrooms or bedrooms.
-Desirable price (this is usually above the market average, without being extortionate, so demonstrating commitment to comfort).
Most domestic buyers seem to believe - falsely - that "new" equals luxury. They should exercise care, particularly with off-plan purchases. Many Bulgaria-based developers also believe - perhaps correctly - that foreign buyers are looking for "bargains". Developers sometimes cut corners to deliver the contractual price at the expense of quality. Although this "fast buck" tactic hands developers their anticipated profit, they are in danger of creating a saturated, poor quality secondary re-sale market. The surplus of poor quality stock could then reduce prices nationwide. They must realise that building costs and profit margins are in direct correlation. As a rule, the more you spend, the higher the price.
Square metre prices vary greatly across the EU and seems to have little correlation to building quality - i.e. use of skilled labour. Location seems to affect cost more than any other factor. However, this is also changing. As more EU citizens decide they want to own a property overseas (an estimated 85 per cent of British residents expressed a desire to buy a holiday home outside the UK in 2006) and become more savvy, so they expect more for their money. This applies even more to Bulgaria because of its rapid growth.
Investors buying in Sofia four years ago at 500 euro a sq m, are now being charged 1500 euro a sq m. Aware of this three-fold increase, educated investors will expect more in return. Although the square metre price is higher in a luxury property, the growth rate will still increase proportionally. You also have rental demand to consider. Wealthy Bulgarians are gradually catching up with their western European neighbours. Demand for high-end housing schemes in the capital can only escalate as the economy improves.
When considering yields and profitability of a luxury unit investment, we have to bear in mind the time span.
- Short term (1-2 years) - these properties will not prove lucrative. The outlay in high-end furniture for rentals alone will be all but lost. In addition there seem to be fewer tenants at present. To sell the property if purchased off-plan (say 18 months prior to completion) would work with current growth but it's risky.
- Medium Term (2-6 years) - they will definitely pay off - in every respect.
- Long term (7 years +) - as above ....but who knows!
- The current Bulgarian market is dominated by price considerations. Everyone wants a luxury property but not everyone (especially greedy foreigners!) want to pay for it. It's usually the greedy foreigners you hear complaining about local builders and developers!
- Larger cities, such as Sofia, will not see drastic drops in property prices if at all, whereas coastal and ski resorts market (except for Borovets) will certainly cool off or stagnate. Signs of this are already visible. Sofia and regional centres will benefit and grow fast over the next five years. If you allow for the adoption of the euro, rumours of another Olympic bid, the influx of businesses exploiting Bulgaria's highly educated labour force and the fact that Bulgaria still has some of the cheapest property in Europe, it's hard to imagine the market slowing down.