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Russian Sanctions impact Bulgarian property market for the long term
21.08.2014

The media this week has been filled with stories from various industries impacted by the sanctions imposed by Russia, the US and the EU. Poland is the world’s largest apple producer has been granted European financial aid as Russia has closed its doors to imported fruits and vegetable. Carlsberg has reported 7% reduction in sales due to the same sanctions and McDonalds has had four of its franchises closed in Moscow, seemingly only due to its symbolism of the west. So how is Bulgaria faring? The answer is short is ‘not good’.

 

Although tourist numbers are officially up by 2% this year, the Institute of Analysis and Assessment reports that Russians specifically are down by 10% and overall revenues for the sector are down by 12%. In a market worth 1.5 Billion Euros and with 70% of the annual trade taking place during the summer, this 12% drop is making a huge impact for all those reliant upon tourism for their livelihoods.

 

Summer 2015 can only expect less investment from small businesses, less marketing from tour operators, reduced returns for hoteliers and smaller chances to sell for private property vendors. Whilst the season started off so well and looked to return Bulgaria to the pre-recession levels, the geopolitical issues currently surrounding Russia have scaled back the Bulgarian tourism revenues to those of 2009.

 

 

So what has caused the decline?

 

Fundamentally there are several interlinked reasons why, all of which stem from Russia’s annexing of Crimea and its continued support for civil war in the Ukraine:

 

  • Economic and trade sanctions were initiated by the west and countered by Russia having an adverse effect on both, but far more damaging to Russia’s single economy than any others (now in recession according to The International Monetary Fund).
  • Following the invasion of Ukraine, by March this year the Rubel had devalued by 20% by comparison to its YTD 2013 level causing tourists and tour operators to have 20% less budget to afford the same this summer.
  • Between July 16th and August 6th, seven Russian tour operators went bust, impacting some 65,000 tourist according to the federal Tourism Agency, leaving between 15-20,000 stranded abroad in unpaid hotel rooms and without return tickets as the carriers due to fly them home became grounded assets of a bankrupt companies or were unpaid third party airlines.
  • Russian servicemen, civil servants, police etc have all been subjected to heavy restrictions for foreign travel, denying all employees of Russia’s largest employer (the state) an equal opportunity to holiday with their families.
  • Visas have become many times harder to achieve at higher costs with considerable delays encouraging Russians to holiday elsewhere.
  • Russia’s borders with Ukraine have remained shut forcing those in transit to Bulgaria by car (a considerable majority of Sunny Beach property owners) to circumnavigate the entire country at great cost or simply cancel.

 

How about property sales – is the Russian wave over?

 

The impact has been felt across the board; property sales are down by 15-20% and budgets are at their lowest since Russians started buying in 2009. Foreign owners reselling their properties generally are at rock-bottom, most would rather retain ownership and achieve sufficient rental income to cover annual costs rather than sell for less. With less Russians encouraged to travel easily abroad the volume of visitors and opportunities to sell has clearly and significantly reduced. Of those who still come, those who were in the market for a 1 bedroom apartment and had sufficient budget in Rubels can now only afford a studio simply due to the currency flux, naturally they don’t proceed and thus less sales complete.

 

It is too early to say for sure, but the general feel in the industry is that perhaps the Russian wave that started five years ago has peaked in 2013 is at best now reduced to a lull, or at worst is now heading along the downward side of the trend. With little more than 5% of sales taking place to other nationalities there is no other major source of Bulgarian property buyers. As such, unless the geopolitical mess Russia has created for itself is soon ironed out, it is unlikely that Russia’s confidence in governance, their own economy and thus their collective buying power will be sufficiently restored by next summer season.

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Gorian Varbanov
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Gorian Varbanov
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Irina Dalgopiatova
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Irina Dalgopiatova
Irina is one of the editors of the website. She is always looking for good stories and relevant information. Irina has a degree in literature and has been involved in Bulgarian properties for more than 3 years.
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