Bulgaria's Capital Small Housing Market Shows Signs of Recovery

Properties | May 27, 2010, Thursday // 14:26|  views

Construction investors in Sofia are gearing their interest towards smaller single apartment buildings at prime locations. File Photo

After a temporary retreat, in May investors show renewed interest in the urban real estate market, a study of GreenLife shows.

The buyers are looking for small, but attractive plots, and aim at profiteering from lower land and construction prices. The plots in question are between 500 and 800 square meters at key locations where an apartment building with about 20 units can be built. The sale of such apartments is feasible in the near future, which can make a new construction project very beneficial despite the fact demand is still smaller than supply, according to the GreenLife experts.

The land sales' price is estimated at EUR 250 per square meter, which can bring the investor profits of about EUR 375 000 for the entire building in one year. The favorable factors are the low labor cost, abundance of materials and lack of competition.

Investors are, however, looking to purchase only attractive and promising plots, whose owners want and need cash, which, on one side, would help the latter cover current bills and prevent them from huge losses in case the investor files for bankruptcy – before the economic crisis the bankruptcy risk was estimated at 10% while now it is over 70%, GreenLife say.

Because of the crisis, even the most stable investors lack free cash and for this reason the deals are concluded if both sides agree that the buyer will pay in cash up to 50% of the asking price while the other 50% would be accepted by the seller as compensations. Many sellers now are conducting a thorough background check of the investor before signing the contract, including asking for bank guarantees.

The crisis has made investors more careful about details of the construction process, something that was not very common before – since banks do not land funds for the initial construction stages, investors are negotiating hard with the subcontractors to pay them in advance only the administrative expenses and up to 20% of the value of the materials, which leads to a distribution of the financial burden among the different “players” in the building process.

According to GreenLife, these apartment buildings, which will be on the market one year from now, would be constructed according to two main criteria – demand and an optimal ratio between quality and price. The gated residential complexes, requiring larger investments and full infrastructure will turn less competitive and will yield to single buildings with high-quality materials and construction and optimum inside space (no large hallways and/ or balconies.)

In addition, builders now prefer classic and standard construction, without complex architectural design which further increases the price.

All this will lead to profits for investors, and for buyers – to quality housing at lower prices then before the crisis, according to GreenLife.

Green Life Property Development is an investment company offering Bulgarian real estate properties to individual and portfolio investors from the UK, Ireland, Russia, Spain and the Scandinavian region.

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Tags: GreenLife, housing market, apartment building, real estate market


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