If it was meant to win construction entrepreneurs a modicum of public support in the face of the impending crisis, their most recent initiative looks more likely to backfire.
The announced intention of the construction, architects’ and notaries’ chambers to petition the Cabinet to impose a two-year moratorium on mortgage interest rates for households that have mortgaged their only residence have found few sympathetic ears.

The reasoning behind the industry’s demands is the ubiquitous forecasts that the sector would suffer the most from the slowing down economy both domestically and globally. In 2009 alone, according to participants in a seminar organised by the three chambers in Plovdiv on February 15, as quoted by mediapool.bg, construction companies would lose two billion leva worth of custom because of the economic downturn.

A Cabinet moratorium on mortgage interest rates, coupled with an interdiction on banks foreclosing on mortgage loans, would help stabilise the real estate market and help the construction sector weather the crisis.

Despite the construction and lending boom in recent years, property prices have gone steadily up to levels perceived as inflated, for which construction companies are often, rightfully or wrongfully, blamed.

But while the general public is at best indifferent to the plight of the construction entrepreneurs, or even cheering on their downfall, macroeconomists have branded the initiative as dangerously counterproductive. Given that the overwhelming majority of mortgages are taken by households for their primary residence, such a measure would cause further cash flow problems for banks, already reeling from low liquidity.

"It is complete madness and is in the top five worst ideas, which could wipe out all the advances made by the Bulgarian economy over the past 12 years," macroeconomist Luchezar Bogdanov from think-tank Industry Watch told Dnevnik daily. A state intervention of this kind would distort the market and send the message that meeting contract obligations is far from mandatory, with terrible consequences, he said.

Former Bulgarian National Bank (BNB) board member Garabed Minasyan argued that the general public would not benefit in the least from such a measure: "Who will pay the difference if interest rates are frozen by an administrative decision - taxpayers. Why should taxpayers pay for the losses of one industry?"
BNB governor Ivan Iskrov wasted little time in adding his voice to the chorus.

"The attempts to put debtor rights ahead of creditor rights are unacceptable," Iskrov told a forum dedicated to Bulgaria’s economic prospects during the current crisis. "There are proposals being made by non-governmental organisations and members of Parliament in that sense, but if that is allowed to happen, it would cause a serious negative impact and Parliament should reject them."

"The economy will adapt to the new conditions on its own, as long as there is enough financial stability. Some sectors that relied not on balanced growth, but on over-optimism, outright greed if you will, will hurt more while they adapt," Iskrov said.

Bad loans
Bulgarian bankers, predictably, have countered any initiative of this sort, including an earlier attempt to increase grace periods for overdue interest payments, by saying that there was no need to resort to such drastic measures because the ratio of bad loans remains low.

Bulgarian lenders have so far been fairly accommodating in restructuring mortgage debt, extending the repayment period and lowering monthly payments in exchange for higher interest, Teodora Dimitrova from the Bulgarian office of Era real estate advisory told journalists on February 16.

On top of that, European Mortgage Federation data showed Bulgaria had one of the lowest ratios of household mortgage debt at 12 per cent of gross domestic product (GDP), compared to an average of 50 per cent in Europe. Only Romania and Slovenia had lower ratios.

A much bigger cause for concern, according to bankers surveyed by Dnevnik, was a potential jump in unemployment, which could drastically affect a lot of households with outstanding mortgage debt.