Interview | Saving energy is increasingly important for home buyers in Bulgaria

Ms. Hristova, how did Nova City Group decide to do business in Bulgaria, given that 2008 was a difficult year for the housing market in the country?

Two investors from Israel started their business more than 30 years ago in Nigeria. Then they expanded their activities in Israel, the Czech Republic, Poland, Romania and Bulgaria. Subsequently, they developed our branches in New York and Toronto. Currently, their sons are taking over some of the work in various countries.

These businessmen hold special sentiments towards Bulgaria, as one of the founders and his son have Bulgarian roots. And although Bulgaria is the smallest market of the listed countries, they still remain here, despite the dynamic situation in our industry.

In Bulgaria, we mainly deal with housing construction. In Romania, years ago the company built a shopping center in Constanta, which was subsequently sold to one of the major commercial operators in the world. Nigeria is the only country where the company doesn’t invest and only builds.

In Bulgaria, housing construction offers the greatest security benefit because it leads to quick liquidity. When it comes to shops and offices, frequently the business model is letting, which is a completely different story.

How would you define a property worth investing in?

Location, location, location. It may be located in the suburbs, but it's next to a subway stop. Infrastructure and public services should be easily accessible. If there are enough schools, kindergartens, and supermarkets, if there is enough infrastructure to serve people's needs, then this is a good location.

You have a planned site in Krasno Selo. Why did you choose this district, and do you think this is where more and more residential projects will develop?

The public infrastructure there is well-developed, and the close proximity of the subway line plays its role. However, all developers encountered obstacles with the previous administration of the municipality. We hope that soon we will be able to finish the paperwork and administrative part of the development plan and proceed to the actual construction of the site.

What is NovaCity Group's view on the real estate market in Bulgaria?

The trend, both historically and statistically, shows that prices have been rising over the years. And I don’t mean price changes within a month or a year. I'm talking about a trend over a period of 5-10 years. Prices of both land and housing units are rising. A good company that can withstand a crisis for several years will slow down and when the market stabilizes it will continue with the development of its projects.

During a crisis, property sales do not end. Their volume is significantly reduced, but there are always sales. Regardless of whether we are in crisis mode or not, the fact that the houses will not be sold within a month, but say within a year and a half, is not an issue for a stable developer.

What are the similarities and differences between the housing markets of Bulgaria and the other countries where your company operates?

The Bulgarian market is similar to the one in Romania. I find a difference between Bulgaria and the Czech Republic, as well as Poland. Bulgarians are extremely similar in terms of the market and mentality of the potential buyer to Romanians. The main difference is that in Bulgaria the prices are the highest in the capital city, whereas in Romania this is not the case. Over there, record high sales prices are observed in a city that is home to the CEE headquarters of major companies and serves as an industrial center.

In the Czech Republic, apart from the differences in regulations, it takes 5-7 years to get an urbanization plan and a building permit, which is quite problematic for a developer who cannot make an objective business plan for a future project. The other problem in the Czech Republic is that many powers are delegated to the regional municipalities, which also creates quite serious problems. From the point of view of buyers, the difference with Bulgaria is that properties are sold there only when they are completely done and ready for moving in. Czech buyers feel that this is a better model because it preserves the common areas of a building and there is no discomfort for residents by having their neighbors do finishing works for years.

The Polish market has nothing to do with either the Czech or the Romanian markets. Poland is a huge market. There is a property segment there that does not exist in Bulgaria - private dormitories. In these, housing is bought and rented only to students. They are located next to universities, on their respective campuses. The other specificity is that there are large Scandinavian developers who buy a whole portfolio of projects rather than individual ones.

Why do you think private dormitories are not being developed also in Bulgaria?

There are many reasons. In Sofia, the most suitable place for developing such type of projects is the "Student City" district. Years ago, there were quite a few building permits issued for student dormitories that later turned out to be residential buildings. That is, none of the developers built a dormitory to be rented out. Rather, residential units were singled out, which were then sold as apartments. Upon realizing this, the city administration stopped issuing building permits for dormitories.

Have you ever planned this type of project?

Yes, we had that idea. However, we were told that they would not allow us to implement it because of these past fraud schemes implemented by the developers with regard to dormitories. Currently, ‘dormitory’ is a dirty word in the construction industry. So, they didn't let us, and it was odd because we had designed the building as a dormitory, its units were suitable for a dormitory, and there was also a laundry room and an internet corner. That project was made about four years ago.

So, you gave up on the project then?

In order to develop such a project, it should be close to a university. In Sofia, that means a location like the Student City district and possibly Ovcha Kupel because of the proximity of New Bulgarian University. In Student City, it is very difficult to find plots near the university campuses, and if it is far from them, there is no point in building it.

I don’t think that the Bulgarian market is fully ready to accept this innovation. The property we had was in close proximity to the universities and that was going to be key to the project.

What is the Bulgarian housing market ready to accept as an innovation? Recently, there has been talk of the introduction of a build-to-suit (BTS) concept (ed. note – building constructed specifically for renting).

Some trends will have a hard time entering the Bulgarian market, because the local residents, whether in Bulgaria or another country, are not always perceptive to some of the more innovative ideas. Build-to-suit is indeed a trend that is developing in Sofia. However, some of the housing units, which were intended for leasing, have actually appeared on the market for sale. I don't think that Bulgarians are ready to take on such a large number of leasable units.

Does that mean that the Bulgarian market is extremely conservative and not subject to modernization?

On the contrary. Rarely do developers initiate something that is embraced by the market right away. Rather, it is indeed the change in mentality among buyers or external factors such as the COVID crisis that leads developers to implement new trends.

The focus taking the central stage at the moment is on green construction certificates and green energy. Buyers have become much more demanding about sustainability and environmental factors in buildings. The idea is not necessarily how to produce more electricity, but how to use less.

We are planning our next project to have photovoltaic panels and a battery to store energy, which can be used during the peak hours of the day with the least amount of sunlight.

In Sofia, we also face another problem - overbuilding...

Overbuilding is a regulatory issue. This is where developer interests and the work of public institutions collide. We are a foreign investor and when we buy a plot of land, we make a business plan. At some point, the local administration decided that Sofia had been overbuilt and began restrictions. I agree with that, but everything has to be legally defined in some form. Do you think that foreign investors will want to invest in Bulgaria when there is no clarity and when sometimes institutional decisions are made without a legal basis or by an arbitrary interpretation of an old law or regulation?

When a foreign investor sets foot on the Bulgarian market, they want clarity. They believe that by investing, after a certain period of time they will be able to start the project. I agree that there should be regulations on the height of buildings and that overbuilding should be limited, but all of that should be legally justified. There should be clarity and predictability rather than regulations changing every time a new local government comes into power.

In other countries where we operate, we have not encountered similar problems.

Bulgaria is the country with the fewest foreign investors in the housing construction sector in the European Union. And that’s because of the above problem. The main is is that with the change of administration, new rules are immediately introduced, even when they have no legal justification or are a matter of an arbitrary interpretation.

Translated by Tzvetozar Vincent Iolov