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Residential market: luxury is in demand!

Issue 10 - October '08

от Petya RALCHEVA

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Photographer: ILE

Real estate market, Bulgaria, 1990. The idea of a decent dwelling equals to a new panel block of flats long-awaited to become suitable to live in. The space around the block provides vast green areas.
Eighteen years later the model shifted to a gated community of small blocks of flats located in a prime capital neighborhood. The dream home is associated with easy access to major transport thoroughfares, security, maintenance and property management, cleaning services, dinner and babysitter on order and gym under the building.
This change has been experienced by the residential market in Bulgaria for just one generation. After a number of transformations and quite a few problems, now real estate industry professionals give positive signs for the future of the sector, which is to be marked by market segmentation and sobering processes. Buyers have also begun to distinguish quality product and have become very cautious when deciding where to invest. Experts are unanimous about the high-end segment, which they say has the best prospects on Bulgarian residential market.

Luxury is not what it used to be
If prime residences had been best described by the so called three L-s (location, location, location) until recently, nowadays luxury properties are identified by Location, Quality and Services. These three components are the current drivers of the property market in Bulgaria.
"At present, location is less important than quality. There are plenty of locations where properties, owing to good quality and infrastructure, have become more expensive than ones in luxury neighborhoods," comments Konstantin Bobchev, Managing Partner at Home for You, a real estate company advising buyers on choosing, purchasing, furnishing and managing their properties.
Bobchev assumes the high-end property market is yet to develop and direct the course of events on the whole local residential real estate trade. Clients for them will be found among Bulgarians who are gradually getting wealthier and will increase their requirements, will look for the speciality, quality and difference of prime properties and will be ready to allocate more resources to own them.
Supply of such real estate, however, is not matching demand. Arch. Vesela Miryanova, Executive Director of property development company ARTEKS ENGINEERING AD, says there is a niche for super-luxury properties, which will be demanded by the wealthy. "What the market lacks at present are the symbolic residential buildings. There are such buildings in most of the capitals of Western countries and they are signs of the public status of their inhabitants," she says.
Experts are unanimous that the high-end property will be the most perspective niche for the residential sector in the years to come. Therefore, it is quite obvious why some developers shift their activities to residential projects that offer higher quality. We are yet to see whether and how many of them will stay on the market. Gated communities with additional services might be considered luxury compared to the average quality, but many of them lack good quality property management, which is an essential component of the luxury habitation.

Buyers - developers
Wealthy clients have their own requirements and needs. The development boom has widened their choices in order to match these needs. With rising competition developers have to offer something different and special if they want to sell well. They, too, have gradually come to terms with the fact that clients investing in luxury properties have plenty of requirements. "They demand more spacious residences, nontraditional architecture, larger common areas, property management," explains Konstantin Bobchev.
His opinion is confirmed by Nikola Stoyanov, Managing Partner at Lux Imoti, the prime property agent, who says the wealthy are reasonable people who know what they want. "Such clients are difficult to please as they are quite picky, so one has to approach them very carefully," he adds.
What many developers bet on is the full service. According to Arch. Miryanova, it is an inseparable part of the luxury property. Buyers require special attention; they should be able to feel that they can trust the security and staff. Customers have their individual requirements regarding interior designs, like for example spacious rooms, personal bathrooms, built-in wardrobes, spacious living rooms or even personal architects.
"When buyers purchase prime residential properties and they are prone to allocate a considerable sum of money, they would hardly accept to buy a completed product as they have their own tastes. Our experience shows such buyers would rather prefer to buy something to their taste or at least participate in its development," Mr. Stoyan Hristov, of Vas Reserve, a company investing in a luxury complex of apartments for rent, comments.
However, if developers want to win the trust of buyers, they have to be ready to sacrifice some time and resources to achieve their goal. Another industry professional claims that when wealthy clients invest in residential property they insist to be convinced in the quality of a completed product. And this suggests developers should think long-term.

Quality and price
Experts say that luxury property prices should start at least from 1,800 euros per sq m. Despite the high level they believe prices will continue to grow even if other segments of the real estate market go bust. "The global financial crisis mostly hit average customers. Well-off people have protected their wealth and even got richer," says Konstantin Bobchev. These people are actually the ones interested in high-end real estate.
Data shows that mortgage credit has not shrunk with the deepening of the credit issues and thus it has not produced any effect on clients. "The banking system in Bulgaria is relatively stable and the credit bubble that badly hit the USA and Great Britain has not affected larger Bulgarian cities. I wouldn’t say higher interest rates are somehow changing the attitudes of those resolved to buy property. Most deals use bank loans," comments Ms. Vesela Ilieva, of Unique Estates, agent dealing in the high-end market.
So as every market has its ups and downs luxury real estate has proved so far to be a profitable option in times of economic growth and a defensive strategy for investors in times of economic uncertainty. Nikola Stoyanov, of Lux Imoti, believes that now the time is good for investment. He explains, "The real estate market is untroubled and asking prices in Bulgaria are much lower compared to their EU and US equivalents. Market segmentation has started relatively shortly (1-2 years ago) and the divergence between prime and average property is little. Contrary to it, countries with mature economies sometimes experience price differences of 150-200% between properties with relatively similar locations (but different qualities)."
The price per square meter, however, is not the most important factor as usually luxury homes also require a certain minimum of square meters. Stoyanov says that if a company sells prime homes at 1,500 euros per sq m and the average unit covers 250 sq m, then the final price will turn out to be quite high. Asking prices of let’s say 500,000 euros for apartments and over 1m euros for houses are far off the mass market.
But luxury properties do not just consist of four walls. "We do not simply sell square meters, but completed product. We offer modern architecture, high quality materials and quality construction. The fact that property supply is increasing makes buyers pickier, more demanding and well-informed," says Rita Yotova, Marketing Manager of Evergreen, a Sofia suburban residential development.
Speaking of quality, all experts are unanimous that it is not what it used to be some years ago. "Bulgaria is competitive to the developed EU countries so it is just a matter of time for our local prime property prices to equal those on the western side of the Old Continent," Bobchev says.
Market experts forecast a 10-15 % yearly price growth in the prime segment. This market is not expected to tolerate speculative prices and will post stable growth.

BalPEx, BalREc - Bulgaria, October 9-12: Buyers ready to pay more, but for higher quality
Hot summer in Bulgaria, it seemed, was not a result just of high temperatures. It proved to be hot season for the local real estate market too. But in its end, experts again threw a positive signal for the residential sector. They assumed the luxury segment will be the most perspective one and, said, expected it to experience the highest growth rates.
Data of BalPEx, the real estate fair, showed that 95,000 homes were likely to be built in 5-years time in the four largest Bulgarian cities. More than 50% of them would be located in Sofia, which means future buyers will have plenty of options to choose from. A significant part of the forthcoming projects will be presented at the exhibition, which is open for visitors from October 10 to 12 at the Inter Expo Center in Sofia. More than 130 companies will participate at the event, mainly real estate developers and agents but also real estate consultants, financial advisors, banks and service providers.
Today, buyers look for prime properties and many are prone to allocate a lot of money if they get quality in return, real estate experts claimed. Demand for quality would lead to the filtering of good schemes. This means that in order to profit, developers will have to rely not only on the square meters, but on additional services and property management too.
Most of Bulgaria’s large-scale office, retail and logistics projects will be presented at BalPEx.
Real estate market perspectives in the light of the strong supply of residential, holiday and commercial properties, which is coming to the market, will be discussed at BalREc - Bulgaria, the national conference preceding BalPEx, which will be held on October 9.