Credit crunch bursts Bulgarian property bubble

Bansko - Once an idyllic hamlet of red-tiled roofs, this Bulgarian ski town is now crammed with empty new apartments, unfinished hotels and huge, idle cranes that mar the breathtaking view of the Pirin mountains.

Bulgaria's biggest winter resort thrived this decade in a property boom fueled mainly by British and Irish investors, but that expansion has imploded as the global economic crisis puts a squeeze on credit and wipes out value in once lucrative deals.

Now the foreigners, no longer backed by soaring housing prices and cheap mortgages at home, are fleeing in a scenario playing out across other parts of ex-communist Europe, where heavy dependence on foreign cash and external deficits on trade and capital have raised the risk of crisis.

Real estate agencies say at least a third of Bansko's 2, 200 foreign-owned holiday flats -- many bought over the internet without their owners having set foot here -- are on the block again, sometimes at half price.

"Many buyers who live in the UK and bought in Bulgaria are now trying to re-sell, " said Christopher Gater of New Estate Consultancy in London, which specializes in Bulgaria.

"They cannot afford their costs back home."

Bulgarians themselves, the poorest European Union population per capita, are also struggling. Media say some Black Sea hotel owners have offered their debt-laden businesses for sale at a price tag of one euro -- grim news for tourism, Bulgaria's top foreign investment sector.

They are not alone. To the north the Baltic republics of Latvia, Lithuania and Estonia also saw a huge foreign-financed real estate explosion. The most widely quoted property prices there have dived 30 to 40 percent.

The housing collapse is the front end of what economists say could be a long, deep recession across the region that could spark a wave of bank and currency crises.

The International Monetary Fund and EU have already bailed out Hungary with a $25 billion deal announced last week after foreign investors dumped the forint currency due to fears over its heavy dependence on foreign borrowing.

Now economists say Bulgaria, its Balkan neighbor Romania, and Latvia, Lithuania and Estonia may need help.

"It's a matter of time before the IMF are called in, " said Capital Economics EMEA economist Neil Shearing.

Analysts say Bulgaria will pay for not using its credit boom to boost productivity and encourage exports. Like elsewhere in eastern Europe, developers borrowed to build shopping malls, not factories, and consumers bought luxury cars and flat-screen TVs.

With foreign lending now drying up and some Western banks likely to cut loans to their Bulgarian units, economic growth in the country of 7.6 million will plunge to below 3 percent next year from the current 7 percent, analysts say.