The agricultural land market in Bulgaria: relief after the boom

After several years of high activity and record prices, the system is already cooling down

In the last few years the market for agricultural land has been overheated. The hot front came mostly from subsidizing the agricultural sector, which Bulgaria received after joining the European Union. The rise in degrees was supported also by the purely conjunctural reasons, facilitated lending and investment interests. The result became clear during the high activity in agricultural land transactions, rapid growth in prices and the ever-increasing desire of farmers to consolidate areas. The boiling point was reached in 2015, and since then the system has gradually switched to cooling mode, clearing itself from the negative effects such as appearance of speculators. Cooling is more prominent in the past 2017, when the feeling of declining activity on the market was even more noticeable.

The years of the boom

Since 2007, European funding for agriculture in Bulgaria has not only returned interest in agricultural business, but has also increased the charm of acquiring and renting arable land due to the payment of subsidies per decare. As a result, the average land price in the country went up and over the ten-year period 2007-2017 it increased more than threefold. The average rental cost per decare is also doubled (see the chart). Purchase and sale prices are significantly higher in more fertile areas such as Northeastern Bulgaria, where, according to official NSI data, the price per decare exceeded BGN 1000 even in 2015 and in 2016 it increased by 11%. However, NSI data does not give a full picture of market reality, because transactions often fit into a tax assessment that is lower. In most cases, sales and purchases were realized at significantly higher prices. According to Miroslav Yordanov, owner and broker of Miraland Agricultural Land Purchase and Sale Agency, only a few years ago there was a huge overestimation of land even in areas like Balchik, Shabla and Kavarna, where deals were executed at levels between BGN 2500-2700 per decare.

“Investors are already looking for attractive, clustered plots on the market, but at prices that promise very slow returns, sometimes for 15-20 years or more.”Nikolay Valkanov, manager and analyst in Inteliagro”

NSI has not yet published market data for 2017, but the slight slowdown is still in place in 2016 when the growth in the value of the dca was only 4% at double-digit growth rates in almost all previous years. In some regions of the country, prices not only do not grow more smoothly, but even fall. There is a huge collapse in Southwestern Bulgaria, where the average cost per decare was only BGN 221 compared to BGN 415 year ago and BGN 403 leva in 2014.

Slow refreshment

Besides the slowdown in the prices growth in 2016, there is a declining activity in the deeds. The number of executed contracts for the sale of land then was 16,800 compared to 20,500 year ago. 176.3 thousand decares of land have been marketed in these deeds, compared to 233 thousand decares in 2015. All this indicates declining interest. “The decrease in the number of transactions and the withdrawal of the buyers is also occurring in 2017” Miroslav Yordanov of Miraland stated. In his opinion, however, this has a good impact on the market, because speculators and casual players have disappeared therefrom, and they have contributed significantly to the price ballooning. In the last 7-8 months in some municipalities of Northwestern Bulgaria, agricultural land prices have gone down sharply, losing about 25-40% of their value.

The observation of Nikolay Valkanov, manager and analyst at Inteliagro, shows also that the market is cooling down, and there are now also no large deeds like in the previous years. “Investors are already looking for attractive, clustered plots on the market, but at prices that promise very slow returns, sometimes for 15-20 years or more.” With the market realities of the last four years and the decreasing profitability per unit area combined with reaching the ceiling of subsidies, currently there is nothing to give a serious momentum to the market” was his comment.

Continuing consolidation

An important problem for the market continues to be the fragmented ownership of agricultural plots. Very often their owners can not be found or are not interested in their lands because they have left the country. At the same time, the consolidation of the lands has led Bulgaria to have some of the largest farms in Europe. However, the consolidation continues and will continue to be a land-market engine. “The main buyers at present are farmers who invest subsidies in “rounding off” their properties. At the same time, we have reached a certain level of consolidation not only in the use but also in the ownership of the land – note that we have separate individuals and legal entities who own 1 to 3% of the arable land in Bulgaria” – this stated Nikolay Valkanov from Inteliagro.

According to him, the supply of the country’s land is heavily limited – up to several percent of the area, dominating small, fragmented plots that are hardly interested as such, and a next step would be for the big owners in the adjoining lands to start “exchanging" plots to concentrate their property.

Look ahead

Expectations for the agricultural land market may not be left out of the context of EU Common Agricultural Policy plans after 2020. “Any subsidy decision will affect the market, especially if the payments per hectare drop out” stated Miroslav Yordanov from the brokerage agency “Miraland”. In general, however, the sector expects a rather relaxed market where price adjustments are not excluded.

As far as the players on the market are concerned, their forecasts are that their profits will be shifted more and more by investors looking for profit to those who want to do farming. Farmers who process land will also face the challenges of survival. “In some places, tenants are still “overpowering” (agricultural lease costs have increased by 8% in 2017), but in the current market situation, this is a big mistake. With current earning standards, consolidation of land use is needed, not wasting resources. That is why we are expecting more movement when the logical end for some small, medium and larger farms that have not managed their business wisely in recent years” stated Nikolay Valkanov.

Change in rental prices

On the background of the slight rise in agricultural land market prices in 2016, the average rental price in the country also increased by 4.7%. Renting a decare of land was BGN 44 compared with BGN 42 year earlier. The lease cut remains high, the most expensive were the land for use in Northeastern Bulgaria – BGN 63/dca and the lowest value is in the Southwest region – BGN 22. Decline in the rent in 2016 is observed only in the South Central Region.

In the last few years, rental profitability have also declined. At 7-8% return on investment in land in 2013-2014 now it is only 3%.