Hotels and developers in Bulgaria facing tough times

Three to four hotels on the Bulgarian Black Sea coast are in financial trouble every week according to the State Tourism Office in a sign that the credit crunch is biting.

A number are filing for bankruptcy, others are being put up for sale but having no luck finding buyers. Officials are blaming over supply and a downturn in tourist trade.

According to Anelia Kroushkova, the head of the State Agency for Tourism, the hotels are unable to pay back their debts as they are half empty at the height of the tourist season and could end up in the hands of the banks if they cannot be sold.

Inflation in Bulgaria rose to a new 10-year high of 15.3% in June and there are concerns that the economic situation is likely to get worse. Land prices are deemed expensive compared with other European countries.

Kroushkova said she is worried that Bulgaria would soon share Spain's fate where the state began buying out all bankrupt hotels, demolished them and created green areas and parks instead.

Developers are also facing problems. Engel East Europe, one of the leading developers of residential and mixed-used properties in Central and Eastern Europe, is withdrawing from a residential project in Sofia due to start later this year in a row over construction rights and ownership.

The project envisioned a residential complex consisting of 430 apartments, in which Engel held a 40% share in a joint venture with Heitman Group, which held 60%.

As the main reason for its withdrawal the company said that the owner of the land plot where the complex should have been built did not abide to his side of the mutual agreement.