ANOTHER 1,000 CONSTRUCTION FIRMS LIKELY TO GO BUST

Most deals in 2010 to be closed on secondary market due to lack of security

This year will be harder than 2009 for the construction sector. Another 1,000 companies or so will drop from our register, Bulgarian Construction Chamber CEO Ivan Boykov told the Pari daily. Last year some 1,500 companies went bankrupt.

Shrinking

The companies that will stop operating will be mainly small firms with 5 or 10 employees, Boykov added. Most of the projects started before the crisis have been completed already and there are almost no new orders. That is why 2010 is seen as the year of the secondary market of residential properties. In 2009 construction decreased 30 or 35%. Usually buildings makes up 40 or 45% of the total volume, the remainder is infrastructure construction, Boykov explained.

The bankruptcies of construction companies followed the financial difficulties of developers. They did not have, and still often do not have, free resource to pay builders. Thus many apartment buyers have been unable to move in because the buildings have not been completed or have not obtained the necessary permits for use.

Brokers

Brokers cannot guarantee that the properties they sell under construction will be finished according to schedule. It is insurance companies rather that should offer such a product. However, it is our obligation to notify potential buyers if there are doubts about the reputation and intentions of a certain investor, Mirela agency manager Miroslav Hristov told the Pari daily. It is very difficult for brokers to find our the actual state of investors. Therefore we are cautious with new buildings, Hristov added.

Warranty

Last year developers used several ways to assure buyers that the buildings will be completed. A Sofia investor offered to buy back his apartments at the sales price if buyers are not satisfied with the quality. Another option is putting buyers' money in a special bank account that the developer cannot use. In this case a trilateral agreement is signed by the buyer, the seller and the financing bank. The lack of security, however, is the reason why 2010 will see deals mainly on the secondary market.