Bulgaria has been judged the best overseas property investment market in the Assetz March Property Investment Tracker index, despite a predicted slowdown in house price growth in the coming year.

The Property Investment Tracker rates the return on investment, weighed against a variety of issues in countries relevant to UK property investors, recently expanding its remit to include South Africa, Portugal, Poland, Turkey, Italy and Greece.

Despite Bulgaria’s likely slowdown in house price growth over the next year, it remains the strongest investment prospect, said the group.

With a minimal deposit of only 30 per cent, along with excellent yields of 12 per cent, Bulgaria offers significant returns of 116 per cent on a small initial outlay.

According to the property investment company, the average two-bedroom apartment in Bulgaria now costs about £80,000.

Cyprus is not far behind says Assetz, with prices in southern Cyprus rising by about 15 per cent in 2005, and expected to rise further ahead of the islands accession to the euro in 2007/2008.

Rental yields remain at a confident eight per cent with a year-round rental market in some parts of the island, accumulating a total 84 per cent return on investment.

Turkey, a new addition to the Tracker, will present a new overseas opportunity for investors who are awaiting a change in legislation to allow mortgages for foreign investors, expected later this year, say Assetz.

Although gains are still strong, with 27 per cent capital growth and 8 per cent yield, the change of rules concerning borrowing will have a dramatic effect on the housing market, potentially pushing up prices in key areas as much as 50 per cent in one year, the group added.

Growth in South Africa has slowed from 24.6 per cent to 15.8 per cent and is likely to continue falling. Mortgage rates, already 8.5 per cent are rising, prompting serious concern over the stability of the market. Yields have fallen from 10 per cent to as low as 5 per cent in 2005, so rental income will fail to make a profit for many investors.

Stuart Law, managing director of Assetz, said: “Overseas markets are still offering excellent opportunities for investors, with Bulgaria and Cyprus now overtaking some of the more established destinations in terms of total return on cash invested.

“However, investors should remember that high return is often associated with higher risk. Established locations such as France are still holding up extremely well against the competition.

“Cheap Bulgarian ski destinations are certainly in as much demand as quality resorts in the France Alps. However, for sunny destinations combined with quality investment returns I prefer the South of France and Southern Cyprus to the coastal resorts in Bulgaria.

“Property in America is in a very tense state at present with conflicting statistics showing resilient existing home sales but collapsing new build sales volumes. The jury is still out on how safe it is to be investing in the States right now.”

By Nick Gibbens

Anyone who has bought property in Bulgaria will tell you that the prices are so low, it is impossible to lose. Prices will continue to rise. The only uncertainty is by how much. And how long.

The Balkan country already has had 12 years of increases. And the National Statistical Institute reported in January that the average sales price per square meter for residential properties in Bulgarian cities had gone up 36.6 percent in the previous year.

But residential prices in Sofia still average only EUR 600, or USD717, per square meter, or USD 66 per square foot. That is much less than the EUR 750 average per square meter in Bratislava, Slovakia; EUR 850 in Bucharest and EUR 1,500 in Prague, according to the National Real Property Association of Bulgaria.

Those numbers have pushed Bulgaria squarely into the real estate spotlight, attracting West Europeans lured by the current hot place for vacation homes and, to a lesser extent, for investment. And real estate agencies from small European countries like Ireland and Malta have opened offices in Bulgaria in an effort to expand their businesses.

Foreigners were involved in 23 percent of the 220,000 property deals registered in Bulgaria in 2005, transactions that totaled more than EUR 4 billion, according to the property association. The year before they generated 18 percent of all sales, or EUR 3.36 billion.

Overall, real estate is one of the fastest growing sectors in the national economy, which grew by 5.2 percent in 2005. Observers say that while the foreign interest certainly has not hurt, the country itself is producing much of the change.

“I don’t think this kind of growth can be supported by international investors,” said Milan Khatri, chief economist at the Royal Institution of Chartered Surveyors in London. “It must be driven by organic, domestic growth.”

Much of the interest is linked to the country’s expected entry into the European Union. Bulgaria and its northern neighbor, Romania - the two poorest of the former Soviet bloc countries in Europe - are on track to join the European Union on Jan. 1, 2007.

Construction costs, sales prices and incomes are all expected to jump after membership, fueling a “now or never” air of urgency among citizens and foreigners alike.

“If the prices are so low, people assume the prices must go up a lot, which means that the GDP and incomes will catch up with the EU average,” Khatri said. However, he cautioned, “they may never take off.”

At the end of World War II, 85 percent of Bulgaria’s population lived in villages. Communism brought industrialization and blocks of Soviet-style housing, most of it concrete and all of it drab.

In the years after the collapse of communism, Bulgaria adopted a post-Communist style common to much of Eastern Europe: garish construction done quickly and cheaply, unmistakably meant to impress. But things are changing.

Deyan Kavrakov, a partner with Equest Investments Bulgaria and a specialist in luxury properties, says about two-thirds of the better properties being sold now are new construction, partly because renovations can easily be one and a half times as expensive as new builds.

Isolde Pringiers, an interior designer from Belgium who moved to Sofia with her husband and two children in 1998, said, “Some of the best work is now being done by interior decorators who are going into building.”

“They are traveling, they subscribe to the international magazines, they are very well informed,” Pringiers said. “They go to the Milan Fair to see what’s going on. They have much more of a sense of space and how you live.”

When she bought her house in 1999, there was far less to choose from than there is now. She searched for months before finding what she described as a house “with a spirit.” It was built in 1939 by a German architect, and she fell in love with it and renovated it.

Kavrakov said he finds affluent professional Bulgarians in their 30s - the first generation to reach adulthood after communism - are developing a taste for modern minimalist interiors with integrated high-tech systems: blinds, air- conditioning, audio systems, security and lighting. “There are excellent examples in the area of contemporary modern style with more space,” he said.

While Bulgaria is stable politically and economically, with protection for the rights of property owners, the regulation of the public space outside a home is chaotic. Urban planning is very much a new concept. “You don’t know what’s going to be next to you next year,” Pringiers said. “That’s the scary part.”

Also, the rental market is in its infancy. The rate of home ownership is one of the highest in the world - more than 90 percent - so few Bulgarians rent. Foreigners who are thinking of investment, or who are planning to help finance the purchase of a vacation home by renting it when they are not using it, should first think about how to find tenants.

The property market is linked to tourism, one of Bulgaria’s largest industries even during the Communist era, when attracting Westerners was seen as an effective way of getting hard currency into the country. Much of the current growth along the Black Sea, for example, has its roots in those times.

But now, according to Orlin Vladikov, chairman of the national property association, green spaces are being preserved and the country’s policy makers have learned “not just from bad experience but also from best international practices.”

“It’s not easy,” Vladikov said. “But it’s happening.”

By Matthew Brunwasser
International Herald Tribune

The issue:
Scores of column inches in foreign newspapers and vast volumes of cyperspace occupied by the websites of real estate agencies have been devoted to the view that Bulgaria’s property market is the place to be.

According to a report by specialist UK-based website assetz news on March 14, “confidence in the Bulgarian property market appears to be on the rise, as growing numbers decide they are prepared to invest their money in properties throughout the country”.

Few would disagree, assetz said, that the Bulgarian property market currently had “phenomenal potential”. This potential was being stimulated by the country’s expected accession to the European Union and with the comprehensive overhaul being done to Bulgaria’s infrastructure.

“If Bulgaria does indeed follow in Spain’s example in terms of a sustained property boom, investors who are currently getting their hands on remarkable deals will be set to make significant returns in the years to come,” assetz said.

Media reports in the UK and Ireland, along with some other European countries, in recent months have enthused about Bulgaria’s Black Sea property markets, as well as those in mountain resorts, and have said that there is rising demand for office space and accommodation in the capital city of Sofia. The overall message is that Bulgaria’s property market is at very least a safe bet, and quite possibly one that could guarantee a win.

Yet, there are other factors to consider. Much of the hype about Bulgaria’s property market is based on the relatively affordable prices of property. Given the popularity of the country as a place to invest in real estate, with the concomitant demand, prices are rising steadily. While this may be a good argument to invest now, to be sure of an optimum return, an argument may be made that the future is no longer what it used to be, and that in time the market’s boom must fade because of an inevitable increase in prices. At the same time, the boom in the property market is often linked to the popularity of Bulgaria as a tourism destination. However, the tourism industry is not without its challenges. First, that prices are rising, second, that “construction tourism” has been the foundation of much bad publicity for the country, third, the current shortcomings in low-cost flight services to Bulgaria. These factors will not kill either the tourism or the real estate industries, but they may limit its potential.

Is Bulgaria’s property market, then, a “bubble” that inevitably must burst? Or is what is being seen now simply the normalisation and growth of an emerging, and very attractive, market?

By Clive Leviev-Sawyer