Is Bulgaria Still A Good
Bet?
Low property prices and a buoyant marketplace still offer investors an
excellent opportunity to ride the wave of capital growth as Bulgaria heads
towards EU accession. However, maximising your return will come down to choosing
sustainable hotspots.
Over the past two years, Bulgaria has rarely been out of the public eye. It
is no longer a forgotten Communist state stuck behind the Iron Curtain. Bulgaria
has shaken off its grey image and moved into the mainstream. Tourists are
pouring in at a rate of around four million per annum and visitor numbers have
been increasing by over 13 per cent every year, generating revenue of around €2
billion.
Investors, meanwhile, have been busy enjoying Bulgaria's growing economy and
thriving property market. Since 2002, Bulgaria's economy has been growing
steadily at over 5 per cent per annum (National Statistical Institute), and
property prices to date have soared over 100 per cent (REMI), rising on average
at 25 per cent per annum. Indeed, enterprise and entrepreneurialism are
thriving.
The World Bank reports Bulgaria averaged 4.4 per cent real GDP growth a year
between 1998 and 2004, and inflation was contained to single-digit levels.
Projections from the International Monetary Fund forecast growth of 5.6 per cent
in 2006, and medium term growth increasing at around 6 per cent per annum
between 2007 and 2011. But the question that many investors now want answered
is, is there any room left for property values in Bulgaria to continue rising at
this phenomenal rate, and if so, where and for how long?
The answer lies in three key areas: Bulgaria's political and economic future,
the property market's sustainable growth levels and the country's accessibility
as both a tourist destination and a viable trading post. Rest assured, the
general outlook is extremely positive, subject to a few precautionary measures.
Black Sea cooling down
The main difference in the Bulgarian property marketplace now, in comparison
with two or three years ago, is that it is no longer a bottomless pit of
investment potential. Although average property prices are still rising well
above the EU average, there is an upsurge of new developments being constructed,
so choosing your property investment wisely is paramount in making sure you
are not caught in a location that is suffering from over-supply.
Word on the street, as well as evidence, shows that there is a risk of
over-supply in densely built-up areas such as Golden Sands and Sunny Beach on
the Black Sea, where the property boom first kicked off four years ago (REMI).
This has created an uncompetitive marketplace that is at risk of stagnating for
some years to come. Anyone investing there now certainly cannot count on the 12
per cent plus yields early bird investors have benefited from over the past few
years. And trying to find the biennial 100 per cent capital returns available in
2004 will certainly leave buyers waiting for a few years to come.
It is capital in Sofia
There are other exciting hotspots investors can take advantage of in
Bulgaria, which offer even better potential than the seasonal peaks and troughs
of the Black Sea coast. The capital city of Sofia is set for a period of
exciting sustained growth. It is already considered an ideal centre for
outsourcing, with its highly trained, low-cost workforce. Hewlett Packard, as
well as General Motors, Capital One and Ford have recently outsourced their IT
operations to Bulgaria. Retail giants, such as Marks and Spencer and Intersport,
among other multinational companies, have begun investing in Sofia, attracted to
the large new malls that opened there this year.
Ex-pats are moving in and a new workforce is looking for accommodation. It is
no surprise that property prices in the city are reflecting this progress.
Prices have been growing steadily at over 20 per cent for the past year (NIS),
making Sofia one of the fastest rising capital cities in Europe.
With EU accession pending, developers, agents and investors expect to see
Sofia become another Budapest or Warsaw circa its pre-EU membership frenzy.
Property prices in the city vary hugely from district to district, ranging from
€400 per square metre in Liulin up to €2,000 per square metre in the city centre
and around €1,500 per square metre in the upmarket suburbs of Boyana, Simeonovo,
Lozenets and Ivan Vazov. Those tipped for imminent growth are the areas around
the new Sofia Business Park in the south east of the city, where 10,000 people
will start working for large Bulgarian corporations and some international
companies. A sharp increase in demand for rental property in this area is
expected, with particular emphasis on good quality apartments.
Hot property in ski resorts
Aside from Sofia, the mountain resorts of Pamporovo, Bansko, and Borovets are
also exciting markets, flourishing at over 20 per cent plus per annum. Their
surging popularity over the past two years has been driven by a solid
combination of soaring tourist numbers and property buyers capitalizing on the
vast inward and foreign direct investment being poured into these resorts to
develop cutting edge facilities and modernize the infrastructure.
Pamporovo alone has seen over €55 million invested in the past two years, yet
it is still considerably under-developed in comparison to Borovets and Bansko,
making it a good long term investment prospect. Further capital investment into
the Pamporovo region of €255 million was announced on 19 May this year,
confirming the government-agreed development of the "Super Perelik" project.
This is set to provide an integrated system of winter and summer sports
facilities between Pamporovo, Smolyan, Chepelare and Perelik, and could make it
Bulgaria's biggest mountain resort.
Bookings for Pamporovo are already up 40 per cent for next season. It is not
surprising when you consider that a skiing holiday there, or in any of
Bulgaria's ski resorts, costs around a third of the price you would pay in
France or Switzerland.
"Good quality apartments in Pamporovo are going for around €1,250 per square
metre," says Charlotte Taylor of property consultancy Hollingworth & Taylor.
"Our market research found that the best developments to buy in Pamporovo are
the hotels with self-catering apartments. Renting out or reselling an apartment
that has top-notch on-site facilities, such as a health spa, restaurant or
conference facilities really adds value. Plus, tour operators can more easily
package up these types of apartments and guarantee an investor gets a yield. Our
most recent recommendation was a superb ‘guest invest' opportunity at the
Snezhanka Hotel in the heart of the resort offering one bed off-plan apartments
from £34,913 and a guaranteed yield of 5 per cent for the next three years. In
addition buyers can use it completely freely next summer."
Market sustainability in Bulgaria's lakes and mountain resorts will come
from their improving year-round yield potential
London-based developers Emerging Market Property view Bansko as a classic
investment opportunity with solid long-term growth prospects. "One of the great
things about Bansko is that the huge amount of interest being shown by property
developers and investors is being matched by a strategic investment initiative
by the municipality," says Barry Russell, director of Sales and Marketing at EMP.
"This means that not only should roads and services meet growing capacity
demands, but that ski runs and lifts are progressively being extended to reflect
the resort's upsurge in popularity. Ultimately, and on a positive note for both
tourists and current developers, Bansko has natural limits defined by the
borders of the Pirin National Park, which will also help keep the market
competitive."
Bansko is already starting to attract tourists during the summer, with bike
and hiking trails on offer as well as the development of an equestrian centre.
Upmarket golf courses are also in the offing. The presence of the five star
Kempinski Hotel and plans for a new Hilton Hotel are evidence that major
investors see Bansko in the long term as much more than a budget skiing
destination. A new motorway linking Sofia to Bansko through to Thessalonica
airport in Greece is also under way, and there are rumours that Bansko will get
its own airport over the next few years.
The best bet
Investing in apartments still offers foreign buyers the best returns and
rental yields, and the least amount of purchasing hassle. "The local
population is also keeping the market in good shape," says Kamen Shoylev, a
UK-based Bulgarian solicitor at New Balkans Law Office. "A lot of Bulgarian
housing stock needs to be replaced. With the recently functional credit scoring
system and newly competitive mortgage rates, wide swaths of the population are
likely to want to replace their prefab ‘panelka' for a new apartment in a modern
development. Many of them have already begun doing that. Incomes rise by about
10 per cent a year in real terms so this is also beefing up the trend."
Indeed, the mortgage market has been one of the fastest developing financial
areas in Bulgaria over the past year. According to a report published by the
Bulgarian National Bank (BNB) in March, mortgages granted by Bulgarian banks
almost doubled in 2005 and the same has occurred in the first half of 2006. The
increase in uptake has no doubt been affected by the reduction in the annual
interest rate, which dropped to 6.55 per cent at the end of March.
Bulgarian mortgage products are also improving for foreign buyers. "Demand
continues to grow," says David Wells, from Piraeus Bank, the only UK-based bank
offering Bulgarian mortgages. "Mortgage terms have improved with lower interest
rates, which have dropped from 7.7 per cent to 5.95 per cent in some cases, and
there is the introduction of an interest only option in the first year. There
are also higher LTVs available now, where buyers can now get loans up to 75 per
cent of the purchase price."
Developers are also starting to tune in to investors' needs. "100 per cent
finance is available on a particularly innovative deal in Sofia, which allows
buyers to purchase with minimal cash upfront," says Nick Shinner of Where On
Earth. "You choose a plot of land, take advice from the experts about what would
be best to build on it, obtain a 70 per cent mortgage, and then the developer
funds the final 30 per cent. The plots are just 20 minutes away from the city
centre in the Petarch and Vladia districts - perfect for commuters."
Signs of a strong future
After Bulgaria joins the EU, whether or not that it is in 2007 or 2008, the
country is certain to become even more attractive. Take the former communist
countries that joined the EU in 2004. Hungary or Poland's respective economies
have rarely looked stronger and business is booming.
Other positive signs for the future include the Bulgaria National Assembly's
recent announcement in March this year to privatise Bulgaria Air. Almost 100 per
cent of Bulgaria Air will be put up for sale, which will allow for greater
competition and increased accessibility for trade, industry and tourism.
Bulgaria's progress to complete its transition to a fully functioning market
economy will also be aided by the EBRD's recent confirmation that it will be
investing an average of €300 million in Bulgaria for each of the next five
years. The European Bank for Reconstruction and Development wants to strengthen
its presence in Bulgaria and it will create a fund for co-financing projects by
Bulgarian municipalities. Also in the cards is Bulgaria's transition to the euro
currency from the Lev by 2010, which is strongly backed by the International
Monetary Fund (IMF).
Over the past five years, Bulgaria has become less of a bet and more of a
dead cert, and clearly, it is not too late to get into this flourishing and
progressive marketplace. Choose your location wisely, keep abreast of local
developments, and above all, ensure you have a reputable solicitor and property
consultant that you can trust to help you make the most of Bulgaria's exciting
investment potential.
Biography
Caroline Hollingworth specialises in analysing property investment
opportunities in the emerging markets of Central and Eastern Europe. For more
information about what is on offer in carefully selected areas in Bulgaria, call
Hollingworth & Taylor
Tel: 0845 456 7737
email
info@hollingworthtaylor.co.uk
website:
www.hollingworthandtaylor.co.uk. |
