As Expert writes, last year the volume of investments in Montenegro's real estate exceeded €1 billion (about 51% of the total volume of direct investments in this country). The best places on the coast have already been sold out, the supply of land plots is limited. In the first quarter of this year, Bulgarian real estate was sold for about €1 billion. Moreover, about €341 million came from foreigners, including our compatriots. Experts calculated that an average of €22.7 million is invested daily in Bulgarian housing and land.
Bait for buyers
Realtors admit that almost the main bait for buyers of relatively inexpensive real estate located on the sea coast of Eastern European countries is the prospect of price growth in the foreseeable future. This is what the massive advertising campaign is banking on. By the way, British realtors acted in the same vein several years ago, luring their compatriots to Bulgarian and other resort areas. This continued until many buyers, disappointed in hastily made purchases, told the press about it.
If in previous years the growth in real estate prices in resort areas was supported by demand from European speculators, now Russians are ahead of the whole planet. With an average cost per square meter (?1-2.5 thousand in Bulgaria, €2.5-4 thousand in Montenegro and from €2.5 thousand in Spain), investors face very rosy prospects. After all, capital and even Black Sea real estate costs several times more and also implies a completely different level of comfort. Of course, agents hasten to remind clients of this: "In Spain, three to four thousand euros per square meter buys properties finished with marble, natural stone and wood, appliances from the best Western manufacturers. Whereas in Sochi for 5-6 thousand you get an apartment of dubious quality without finishing."
According to Knight Frank, last year housing prices in Croatia rose by 10%. In the first quarter of this year, Bulgarian real estate on the secondary market increased by 6.8%. The average price of secondary housing in that country is about €670 per square meter (in resort Varna – about €1,000 per meter). "Last year, real estate prices in Bulgaria rose by 35%," says Ekaterina Teyn, director of the elite residential real estate department at Knight Frank.
"In Montenegro, prices also continue to move up: from 2004 to 2007 they rose by an average of 50% per year, and according to international experts, price growth will last for several more years," says Vyacheslav Leibman, managing partner of MIRAX Group.
An additional incentive for buyers is the low taxes established in resort areas for real estate transactions (3-4%), as well as low annual maintenance costs for housing (about 0.2% of the property value).
Doubtful prospects
However, the cheapness of resort real estate, as well as encouraging information about price dynamics, may turn out to be a myth.
First, the reliability of price monitoring data leaves much to be desired. As in our country, in most cases they reflect asking prices, not actual transaction prices, which can differ significantly. Moreover, in some countries (for example, Bulgaria), the total area is often included in apartment sizes: terraces, balconies, halls. Therefore, when recalculating, the real cost of living space may be much higher than stated in advertisements.
Second, it is almost impossible to predict the development of real estate markets in resort areas, including because they are very dependent on external demand (internal demand remains low due to meager incomes of local residents). Take Bulgaria, for example. The volume of new construction in this country is growing rapidly, the market is becoming saturated. According to the National Statistical Institute, more than 11,400 new listings will appear on the real estate market in the near future alone. That is how many projects were approved in the first quarter of this year alone. "But will all of them be successfully sold?" experts are already asking.
Some analysts point to a price correction emerging in Croatia. According to CR Consulting, over the year, real estate prices on the Adriatic coast rose by an average of 7%, whereas previously the average annual increase was 15-20%. "Clients have become more demanding and critical," real estate agents comment on the situation. It is possible that the decline in activity is due to an outflow of European buyers. Especially since renting out apartments does not bring significant profit (maximum 3-5% per annum). In Spain, due to economic turmoil, the number of real estate transactions has decreased, market participants say they are having difficulties renting out housing.
Third, ignorance of local realities can have fatal consequences for the liquidity of real estate. The absence of a beach in close proximity to the residential complex, a rocky seabed overgrown with algae, a marshy area around; lack of infrastructure, terrible transport accessibility – all these and other annoying troubles can make living in coastal apartments unbearable, let alone their successful resale. Buyers of "affordable housing" in relatively small complexes are more likely to encounter such troubles. Apartment owners may face problems associated with poor maintenance of complexes and infrastructure facilities, since a significant number of apartments will be empty almost all year round.
“Proximity to the sea, full service maintenance of villas and apartments, high-quality renovations, location near shopping and entertainment centers, provision of additional services such as car rentals – all of this is very important. Location can enhance attractiveness or kill it. For example, if there is active construction near a villa, no matter how wonderful it is, no one will want to live in it,” says Marina Markarova, managing partner of Mayfair Properties.
Risks are minimal but present
Specific risks are also associated with the legal procedures for transactions involving foreign real estate: they are generally simple but require knowledge of important nuances. For example, under current Montenegrin legislation, foreign citizens cannot purchase land. Only a legal entity registered in the country is entitled to do so.
Pavel Katkov, head of the legal department of Peresvet-Invest, explains that only a Bulgarian individual or legal entity can own land in Bulgaria. Registering a legal entity can cost from €300 to €3,000.
“In some cases, when a company is liquidated, the property must be sold, and its value will then be divided equally among the co-owners. This means that if the owner, out of the kindness of his heart, brought in friends or relatives as shareholders, he will be forced by law to share with everyone if the company is sold,” warns Marina Markarova.
According to Evgeny Skomorovsky, managing director of Century 21 Zapad, sometimes the law requires that the director, even if nominal, must be a local citizen. “The risks with such a scheme, although minimal, are present. First of all, they are related to the integrity of the local director, as well as the responsibility of the intermediary who takes on accounting support and the provision of services for paying necessary taxes and fees and auditing.”
Zhanna Gusein, head of the foreign real estate department at Prestige Property, does not recommend buying real estate where there are legal restrictions on its acquisition by foreigners. Certain problems may also arise with renting out apartments. For example, if the property is in a condominium, all residents must consent to a new tenant. Andrey Ufimtsev, sales director of Novoye Kachestvo, says that in a number of countries, price growth is legally restrained by high taxes on the resale of residential property.
When buying foreign real estate, experts strongly recommend thoroughly studying the surrounding environment, the property acquisition scheme, tax and other expenses (notary, registration of ownership). And they urge not to skimp on the services of professional intermediaries. The cost of their services should not exceed 2-3% of the transaction price.