Troubled Bansko Buyers seek help from the few UK agents still in the Bulgarian Property business

Since the beginning of 2009 a wave of clients have approached New Estate Finance (part of the New Estate Group) seeking advice, assistance and financing in a desperate bid to avoid repossession of their investment and holiday properties. The vast majority of whom originate from the same notorious developer who operates several projects in the Razlog / Bansko region. Unfortunately they all have a similar tale to tell, albeit some more extreme than others.                   

 

Due to some dubious sales techniques and the use of allegedly independent solicitors, many buyers have been duped into singing contracts for property at up to and above 2000 Euros / sqm. Whilst some property has genuinely peaked at this value it would have to have been in mid 2007 and within immediate proximity to Bansko’s only gondola. Never has property within the Razlog district let alone near or on the Ian Woosnam Golf course ever been at that value. It is hardly surprising that bank evaluators are now returning figures of 800 Euros / sqm at the very maximum to the mortgage applicants who own these properties. 

 

Many buyers fell victim to slick salesmen from their own culture, who oversold properties to them at more than twice their true value; taking 50% payment as a deposit (the true full amount) whilst promising a mortgage for the other half. Most were convinced to use the services of the developer’s recommended solicitors and mortgage brokers.

 

Critically, terms within purchase contracts conveniently redefined ‘completion’ is being when the authorities issue a certificate known as ‘Act 15′, upon receipt of which final payment of the full balance is due from the buyer. To put this in perspective; Act’s 1 to 16 are standard Bulgarian terminology used to describe and certify various construction stages, from an agricultural plot of land through to a completed property. Act 15 is the penultimate certificate which describes a building site at an advanced stage, not a completed habitable property. Act 16 is the final and most rigorous stage which involves inspection by authorities, connection to mains water and electricity supplies etc. Once achieved the authorities grant it certification of Act 16 or the ‘Residency Permit’, which is also the first point at which a property is legally habitable. Naturally, it is much cheaper to build a project only to the Act 15 stage and then claim completion, Act 16 requires considerably more funds, materials, licenses, workmanship, labour etc to achieve.

 

In the current climate, no bank anywhere in the world will lend against a Bulgarian property before it has reached Act 16, yet payment is being demanded from buyers before it has been achieved and they feel beguiled.

 

The so called ‘independent solicitors’ encouraged clients to sign these contracts as they are actually on the payroll of the developer. Furthermore, having taken considerable fees in advance for their work, the mortgages brokers failed to deliver anything at all claiming the ‘credit crisis’ has stopped them from delivering mortgages as no banks are lending. In truth, the solicitor encouraged them to sign a contract that demanded full payment before a property was fully complete, meanwhile the mortgage broker had no intention of providing financing options as they had already made 1000-1500 euro per ‘application fee’ and stood to gain nothing further from completing their promised work. 

 

As buyers have received ‘completion notices’ and ‘mortgage declined’ notices simultaneously they find themselves in a quandary. Without any support from the solicitor, the developer conveniently claims that they can’t be held responsible for the banking polices, meanwhile the mortgage broker hides behind the recession, thus leaving a beleaguered buyer to go to the open market for solutions. 

 

It is at this stage they encounter their first professionals in the Bulgarian property market, who are willing to provide solutions, straight answers and appropriate services in return for moderate remuneration (New Estate Finance, London office,  +44207 9934197  www.newestate.biz). However, it is also at this point that the buyer first realises that they have been charged excessively for their property, had they done their research, got themselves an independent solicitor or even spent 10 minutes searching through Google, they would have found similar properties at half the price. Unfortunately, in this case hindsight only provides a painful lesson.

 

Even with Act 16 in place there are only four active lenders in the market who will currently provide a mortgage. These banks will only lend according to figures provided by independent evaluators. In the case of these properties the valuation is sometime as little as 40-50% of what the buyer agreed to paid. Mortgages products claim to offer up to 70% of the value of a property (Loan to Value, LTV), however in reality it is only possible to get 50-55% LTV at the very maximum.

 

In real terms, those who bought at 2000 euros / sqm often received valuations of 900-1000 Euros / sqm and get offered 50-55% of that value by the bank. This equates to a mortgage of around 450 Euros / sqm, less than 25% of the value they agreed to purchase at. Had they bought from a professional agency or developer, they would have paid the market rate (in the region of 900-1000 Euros / sqm) and the current valuation would hold true (even with the effects of the current downturn) allowing them to genuinely borrow 50 -55% of the purchase price.

 

Whilst it is likely that that the developer hasn’t deliberately devised this scheme, it is likely that they are intentionally perpetuating the effects of their bogus contracts and the current economic climate to entrap those more vulnerable in order to achieve inordinate late fees, penalties or worse repossession.

 

So what can be done?

 

First and foremost, the developer cannot quickly resell large numbers of Bansko properties in the current climate, even at huge discount there is not sufficient demand either from investment funds or from the public to absorb these numbers, as such repossession on a mass scale is technically possibly but unlikely. The best course of action is to try and negotiate payment terms with the developer, achieve some extended financing agreement and if possible get them to remove any late fees or fines whilst you arrange a mortgage.

 

Speak to us, get some professional advice and a mortgage application underway. Inform the developer in writing that you are making progress and that a mortgage will take no less than 6 weeks from when the bank has a copy of Act 16, as such it is in their best interests to get Act 16 achieved. There is no hope to receive bank funding before that point.

 

The developer is fully aware of the true situation as you are not alone, we are processing dozens of clients in the same position. The developer hopes that their applied pressure will cause you to find financing from an alternative source, equity in your home, family funds, personal loan etc rather than wait for a property mortgage.

 

Contact us at New Estate Finance in London for free and professional advice about any aspect of the Bulgarian market, +44207 99347197 www.newestate.biz    

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