Bad news?

Hi there!

There is a new clipping on Good2004.biz/news.htm about a decline in occupancy in the Bulgarian Black Sea resort area hotels. What does that mean for the apartment market there? The bears will shout "the beginning of the end!" and the bulls will shout "just a technical correction!"

Well, there are a few points that should be made about the hotel occupancy levels:

Firstly, the information shown doesn't discriminate between new hotels and old hotels or between the levels of the hotels (2-star or 5-star or in-between). This is significant because there are a number of old Soviet-era hotels that are trying to compete with recently built hotels, and (mostly) failing. To give you an example, we just reserved rooms at an older hotel in downtotwn Nessebar for mid-July (only 1 week in advance), and we are paying BGN 24 per night for double rooms (for 1 or 2 people) less 10% for more than 6 nights. That's about €11 per night, with three meals per day included!

Next point: hotels built in the beginning of the current boom period generally were not built very well, and the infrastructure was not appropriate for supporting them. These hotels are also having troubles competing with newer hotels.

The third item that is causing the distressed occupancy numbers is that more and more Bulgarians are going on vacation abroad! On the other hand, there are twice as many Roumanians vacationing in Bulgaria as last year. Confusing results here!

One other item is that the US dollar is weak against the Euro now. That is taking buying pressure off the resort markets (rentals and purchases) because the prices in USD are higher, and Americans and others with dollar-based or -related income and investments are feeling the pinch.
I also think that the success of apartment sales is impacting on the hotel business. Many Bulgarians bought or are buying apartments at the beach to have vacation there any time they want, rather than to spend money on a hotel and take everything with them each time they go. I suppose, ultimately, that the sales of apartments will suffer also, but that has yet to happen. Note that older "new" apartments are also subject to the older "new" hotels' problems.

What are the results for a potential investor?

I think that this is an indication of the short-term ups and downs of the vacation business. Bulgaria will continue - in general - to expand it's vacation resort business. Why? It is still one of the least expensive resort areas in the EU! Transportation to-and from Bulgaria is becoming more available and less expensive. The Lev is fixed to the Euro now (at the rate of the old German Mark), and eventually Bulgaria will join the Euro club. The apartment business - my estimate - still has at least 5-10 years before the expansion slows to a rate consistent with most of the rest of Europe - EU and non-EU. By then, the prices will have doubled or tripled from today's level. Also, mortgage money is becoming more available to Bulgarians and non-Bulgarians alike. In another article (it's not on the Good2004 website), there was a note that Bulgaria enjoyed economic deflation of 0.4% in June - a strong monetary position! Support for apartment sales also will come from the growing middle-class Bulgarian who will want to express his new-found buying power with a new (at least for him) vacation apartment.

Is it time to buy?

Looking medium- to long-term, I think yes, and now! Use the short-term dip (if it even exists) to leverage better prices from the builders (who are forced to look short-term), and use Euro-based mortgage money to leverage your capital.

Happy investing, and enjoy your vacation!


Ciao for now,

Craig