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Simeon Mitropolitski is a Canadian analyst, of Bulgarian origin, and a former syndicated columnist with the Bulgarian News Agency (BTA). He is the author of several hundred articles dealing with hot political and economic topics, both national and international.
He was part of the first group of Bulgarian intellectuals and students that began the opposition movement that finally put an end to the communist regime in this country in 1989, and in 1996-1997 participated in international observation teams during the elections in several Balkan countries - Romania, Albania and Bulgaria.
In 2002 Simeon and his family moved from Bulgaria to Canada where they live now in Montreal, province of Quebec. Simeon is a Master of Political Science from McGill University and a B.A. of Political Science and History.
Global Real Estate Project
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Banks in Eastern Europe play dangerous gamesSince the fall of communism in many East European countries* dominant players, besides individual buyers and sellers, were governments that through sudden changes in regulations pushed real estate markets up and down. To a degree prominent role in some countries and at some point played also foreign corporate investors, which sheer weight was enough to tilt markets in one or another direction. More recent phenomenon occurred when banks in many countries, owned largely by foreign interests, tried to create something resembling mortgage-loan demand-driven upward helix. In fact, such proactive and sometimes openly aggressive loan policy led to price growths in any country, although the growth was uneven between different countries and within each country. We already mentioned the limits of this strategy in societies, which remain middle- or low-income by world standards. Last news suggests that many banks are playing dangerous games in order to keep this roulette rolling.
Keeping foreclosure properties out of marketWhen a homebuyer goes into bankruptcy and cannot pay its bank loans the bank takes back the property under mortgage, a process also known as a foreclosure. It's a common sense that the bank needs this property only in order to resell it in order to have back at least some of its initial capital. The common sense however doesn't imply that the bank should do this instead of leaving the property away from the market, and in countries without proper regulations on this issue the final bank decision may be different.In many post-communist countries it seems becoming a bad custom for banks not to resell foreclosed properties. The reason why they don't do this is that they fear it may provoke price downturn, withdrawal from the market of many speculation-driven buyers, and finally to many and heavy financial problems of the leading developers, shrinking of business activity and much heavier losses for the banks. These fears seem to prevail over the calculation that cheaper properties may increase demand by non-speculation-driven buyers, leading to increased number of mortgage loans. We believe that banks have more than substantial reasons to make one set of calculations instead of another. They prefer to accumulate number of individually small losses by keeping properties away from the market instead of suffering few big losses in inflicting a blow on their client-developers. If this is the case, then we can make the following conclusion: the real estate market in many East European countries is more fragile than many believe. In fact some of the essential market players, the banks, must accumulate losses in order to keep the market moving. This isn't usual market practice and it may lead to unexpected price falls when the banks decide to stop it or are forced by governmental regulations.
Pumping demandThere are several ways we can see how regional banks are pumping demand-side in order to keep their activity high and growing, sometimes even beyond the limits of legal regulations. By reporting higher transaction prices, the banks score twice. They create false impression of the market going up. They also provide customers with more than maximum allowed funds for buying property. By creating false impression about real market trends the banks try to keep speculation-driven customers inside the game. By providing all customers with more funds than legally allowed, e.g. 100% instead of 80%, they artificially increase the demand side. Local governments clearly understand how this dangerous game is played, but they don't enforce their own regulations by fear of market slump, which always leads to big political repercussions.Signals for such artificial pumping of the real estate market in Eastern Europe come from different directions, which may suggest that these practices if not coordinated have at least big demonstration effect and are largely emulated across the region. At least 2-3 countries are already showing signs of overheating. It will be interesting to observe whether the next market "correction" will have national or regional character.
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