[DrBubb]

If this topic interests you, have a look at:

BulgariaHotspot (for good Links) ...and... Forum: Living & Investing in Bulgaria : LV: F2

VARNA PROPERTY : Report no.1
========================

This short report was written in Varna from an internet cafe, after speaking with location property agents. Tomorrow, I plan to visit one or two properties and file a second report. Today was about getting a general sense of the market.

The starting point in looking at the Bulgarian property market is to understand the huge discrepancy between Bulgarian and UK salaries. The Bulgarian currency, the Lev trades at Lv.2.85 = GBP1.00. Lv.12,000 (GBPx,xxx) is probably above the salary of the average Bulgarian. By comparison, the average Brit has a salary of GBPxx,xxx, which is x.x times as great.

I was told this morning by a local agent, that the average Bulgarian would probably not consider paying more than Lv.300 a month (that's about GBP.100 monthly to rent a property. That's an annual amount of Lv.3600, would enable one to buy a property at Lv.72,000 and get a 5% return. This amount is equivalent to about Eur.36,000 or GBP.25,000. Few propeties are priced below this level near the major cities (Sofia, Varna), and those above this, are priced for more well-to-do Bulgarians, and for foreigners.

Having said this, the market in Varna is hot, and prices are up 40-50% or more in the past 12 months. In asking what was available amongst new properties, I was told that most well located new properties in Varna within walking distance of the center city would cost between Eur.800 to Eur.1000 per square meter. Thus, a 2BR flat of 90 sq.m might cost about Eur.80,000 or more. This is about twice what the average Bulgarian can afford. (Note: a premium for highend properties is not surprising. We find this in all countries. But if the premium becomes too great, then the investor is relying on flows of international capital, which can be highly volatile.)

Rents have not risen nearly as fast as property prices; and neither have incomes. Even in a relatively prosperous city like Varna, there are few that can afford these higher prices. I was told by one of the two agents that a year ago, property agents were telling their clients that a yield of 10% could be achieved on a new residential property. In the current market, this would be an unrealistic expectation, and something like 8-8.5% might be possible BEFORE management charges and voids. But prices are still pushing higher, so even these yields may be about to slip lower as strong demand for new "highend" properties pushes prices even further out of reach for most Bulgarians.

There seems to be a wide discrepancy in charges, depending upon the agent.

EasyBG, which has a UK parent ( http://www.PropertiesinBulgaria.com ),
said that they were offering a one year guarantee on the rental returns of 5%, against an "expected" return of 10%, but this is before their management charge which is a rather enormous 22%. And the guaranatee is only for a single year.

Terra (web address to be confirmed: http://www.terra.bg ?) was talking about a more standard 10% charge. Terra is a newer and smaller firm which appears to give greater attention to its individual clients.

There are other costs which I will need to pin down more precisely, but in summary form, they include:

- VAT: which is normally included in the purchase price. but do ask, because this could be up to 20% of the purchase price

- Buying agent's commission: between 1.5% and 3.5%, depending on the agent and the price of the property. Something like 2% might be normal for the properties of interest to foreigners.

- Legal and transfer tax: This will be related to the price, and the transfer tax is defined by law. Expect to pay 2.0-3.1%, but do some chex\cking first.

- Company set-up cost: ?? Maybe Eur.500-600 initially, and maybe Eur.50-100 per annum.

This last item is rather important. At the moment, only Bulgarians are allowed to own property (Land, that is). The usual way around this, is for the foreigner who want to buy the freehold land under an apartment or house, is to set up a Bulgarian company, which then purchases the property. However, it seems that local property taxes are higher for corporations than they are for individuals. I had some difficulty in following the explanation for this, but it is also true that Bulgarian citizens, irregardless of where they live, are accustomed to obtaining discounts (often as high as 50%) for Hotel rooms. At two hotels I visited, two separate rates were posted, one for foreigners and one for Bulgarians.

Another explanation for the difference in tax costs, was that local property taxes are based upon the purchase price recorded in the land registry. Apparently, many Bulgarians agree a lower price for official property registration purposes, and make a separate cash payment to the seller which brings to full price up to market levels. Foreigners are normally less likely to take the risk of doing this, since if they sell their capital gain (which carries a capital gains tax of about 20%) will be based upon the difference between the registered price at the time of purchase, and that at the time of sale. This system of taxation means that a property registered at an "honest" price winds up carrying a higher local property tax than one purchased years ago, or where the registered price was a record at a discount to market. As an example, a new Eur.50000 property might pay 10 times as much taxes as one acquired 10 years ago at Eur.5000

[DrBubb]

EASIER TRANSPORT...

Europe's Low-Cost Airlines Take off to Bulgaria


European air companies are expected to set at EUR 30-40 the price for a return ticket to Bulgaria's Black Sea coast in 2005 when the country opens its air space for European air carriers.

Hungary's low-cost airline WIZZ Air has already declared its interest in launching flights to Bulgaria and Romania after the two countries sign an "Open Sky" agreement.

Europe's new low-cost airline took off at the end of May from the southern Polish city of Katowice, initially flying to Budapest, London's Luton airport, Rome, Milan, Venice and Berlin.

Sky Europe, the first low fare airline in Central Europe, and Ireland's Ryan Air budget flight company are also willing to fly to Varna and Burgas on Bulgaria's Black Sea coast, said Civil Aviation Administration head Kalin Barzov.

Low cost airlines, launched with the aim of making flying affordable for central Europeans, usually eye airports, which handle huge passengers' traffic. More than one hundred planes take off from Germany to Burgas and Varna each week, data shows.

Bulgaria will launch talks for joining the common European air space in September.

[DrBubb]

SOME WORDS OF CAUTION...

BULGARIA PROPERTY COMMENT (Excerpt)

Real estate market on the edge
(12.Dec 2003) : letters@in-business.info

Falling interest in the residential rental market may be the first indication of a slowdown in house price growth in Bulgaria. For some time now house prices have apparently been growing at a rate well ahead of the rest of the economy, largely driven by a chronic under supply of quality property and speculative investment. This is not sustainable and is probably bad news for anyone who has bought recently with the intention of making a quick buck.

However, there are a number of other factors that suggest there is still some room for further growth. Slowly, mortgages are easier to obtain, incomes are growing, interest rates are falling and there is interest from foreign buyers looking for investment properties or holiday homes. But these are long term or localised influences.

Analysing and understanding the various contradictory forces at play is not easy, making it difficult to predict which way the market will move in the short term.

The optimists argue that Bulgarian real estate is seriously undervalued by comparison to other countries in the region and with more advanced economies. "You can sell one property in London and buy three equivalents in Sofia, and foreigner investors are doing just that" says Tanya Kosseva of Colliers, which focuses on the high end of the market.


MORE: <http://www.in-business.info/English/12En/new_page_20.htm

[DrBubb]

VARNA COMMENT, same source...

What are foreigners looking for in Bulgaria

(12.Dec 2003) : letters@in-business.info


More and more foreigners want to buy real estate in the region around Varna and elsewhere on the coast. They are interested in flats or villas, attracted by the wonderful climate. The British have started to look at Bulgaria because it is becoming difficult to buy in Spain. In England itself there are wonderful coastal resorts and places like Devon and Cornwall are more than beautiful, but the problem is the cold wind! The British go to the beach with their bathing costumes and their umbrellas.

Moving to another country has been a good business in the UK for a long time. There are whole sections in the newspapers and many TV programmes giving advice on how to live abroad and fight the local bureaucracy. In the last few years there have been such features about Bulgaria and many of the potential buyers have decided quite wrongly that the prices in Bulgaria are extremely low, even ?2-3,000. Foreign buyers are looking for ridiculously low prices, of course such prices exist in less attractive villages, but not on the coast or in mountain resorts.

For a couple of thousand leva, they can buy unremarkable houses, which usually require serious renovation. The English though do not suspect that they have delusions about village life in Bulgaria. The villages in rural England are more developed, the houses are well maintained and the lifestyle is semi-urban. There is a lot for residents to do. The lifestyle in Bulgarian villages is a distant memory in the UK. The poverty of the transition period is felt most keenly in villages. In some places, people are trying to organise rural or eco-tourism, but foreign visitors do not come that often. They prefer summer and winter tourism.

As for buying real estate, the main rule for foreigners is buy in interesting locations, but buy cheap. But these two principles contradict. The Bulgari-an owners were not born yesterday. When they felt western interest in the Black Sea coast, they raised prices to levels higher than Majorca, the French Riviera or Provence. I would like to meet the person who will buy a fantastic villa near to Varna for EUR500,000 without it having a good view. And who would pay EUR 150,000 for a luxurious or stylish house in Koprivshtitsa? For Bulgarians, the town is symbolic, but for foreigners, its just a nice place.

Many English do not even know where Bulgaria is, but they have heard that real estate is cheap. At the moment Varna is the second most expensive city in Bulgaria. New apartments in the centre of the city can be found for EUR300/m2. It is understandable that many Bulgarian developers and owners do not know the Bulgarian market, and want fast profits. But at the moment the gap between supply and demand is so big that deals are signed very rarely. Bulgarians have decided to take as much as possible from foreigners, but the foreigners are also playing tough, wanting to buy exclusive real estate for virtually no money.

So the foreigners keep coming, mostly to look around and waste agents' time. Often, they don't have the money but delude themselves that they are serious buyers.

LINK:
http://www.in-busine...new_page_21.htm

[BBB]

good reporting DR BUBB, and an interesting subject. i hope you have the chance to enjoy that sunshine you speak of.



best wishes BBB


will you buy though? that is the question.

[housepricepooper]

Hi All

The wife and I have four properties in Bulgaria plus two plots. She is a local though. i've just seen that the one at pomorie - www. pomorie.nl has gone bust.
For sure Bulgaria is the wild west in many ways - just take a look at the number of black Mecedes Benz hustling Ladas out of the way. I am not sure it is a place for a Brit to speculate without a trusted person to guide you through the syrillic alphabet and local customs. Hope the wife and I keep getting on well. We're keeping our properties and will move there one day - nice country.

Pooper ( but only as far as the UK is concerned)

[DrBubb]

hpPooper,

I would if you have posted as FFsomething on another thread?

If so, we may have met in Bulgaria on a previous trip there.
And I hope you are getting on well with your investments there.

I will write more about this later, But my overall feeling was that prices
have moved up sharply already and one needs to be more selective now.
For some locations, it may make sense to wait for a cooling off, while
seeking to improve what you have bought already. In other upandcoming
areas, this may still be a good time to buy.

I am trying to get a better sense for what areas are truly upandcoming

[hra]

Quote

How about doing a report on buying houses in 0uter Mongolia.

OK, by popular request:

Mongolian Real Estate

(Couldn't quite spare the time to go there and do the research myself; such a shame).

[DrBubb]

No passport?
Haven't traveled much, eh Charlie?

Stick to central Birmingham, if it suits you.

[DrBubb]

If this topic interests you, have a look at:

BulgariaUK website (for good Links)

...and...

Forum: Living & Investing in Bulgaria

[Sledgehead]

Dear Dr,

Read it all with great interest. Thanks for your toil. Much appreciated.

[DrBubb]

From next weekend's (17-19 Sept) Alternative Investment Seminar

3pm
How to Invest in Emerging Market Properties
In Eastern Europe, new and dynamic property markets are emerging which have not yet been noticed by the Western World, but many potential investors are keeping a keen eye on this markets. These emerging property markets hold not only great potential for investors but also numerous pitfalls, if not done thoroughly, professionally and by property specialist. One such country is Bulgaria. The points that will be outlined and covered by this topic will include:
Opportunities for Investors – Why is the market so appealing?
How to safely invest in the new emerging markets
Looking out for potential Pitfalls and Problems
Potential Investment Areas – In the Mountains and on the Coast - outlined
Procedures for Property Purchase - explained

Emil Ivanov, E & D Agency
Mr Emil Ivanov is one of the Directors of E&D Agency Ltd - a British company that has specialised in the Bulgarian property market for overseas investment. Mr Emil Ivanov has a joint BA degree in International Relations and Economics. He is a Bulgarian by nationality and has specialised in the overseas property market, having been raised in Africa and successfully establishing and effectively running his own company. For more than four years, he has dealt with the accelerating property markets of Turkey, Cypress and Malta. For more then a year, he has concentrated on the Bulgarian property market in the UK. With his vast wealth of practical and legal experience, he is no stranger to the topic about the emerging Bulgarian estate market.

[DrBubb]

ALSO AT EXCEL / same time/ they are running the...

PROPERTY INVESTOR Show 2004

Some of the Exhibitors include:

- Arkle UK and European Property Investments
emerging Europe: PRAGUE priced from £47,000, beach-front apartments on the Black Sea Coast in BULGARIA from £26,000

- Bulgaria Revealed! (stand 737)
focus on the three key areas: the Black sea Coast, Sofia (the capital) and the ski-ing areas of Bansko and Borovets.

- Bulgarian Dreams
"the leading player in the Bulgarian property market"

- Garden of Eden - Bulgaria
new ‘Garden of Eden’ frontline development, historic Nesebar.

- Invest in Bulgaria Ltd

- Rockarch Estates - Bulgaria
UK based independent property consultants

- Sun Coast Properties
holiday resorts: off plan : Black Sea coast and in Pamporovo ski resort

[DrBubb]

ANOTHER UPDATE ... On Property from InBusiness (May 2004)

Bulgarian real estate in real terms ... (14.May 2004)

The real estate market has become just another aspect of the Bulgarian economy, which is continuously compared to the corresponding markets of the member countries in light of Bulgaria's upcoming EU accession. Comparisons serve to "filter in" the differences between "comparables" and eventually facilitate the comprehension of their uniqueness. With real estate, understanding of what is distinctive about a certain market is even more essential - as real estate is always strictly tied to locality and its factors.

Prices of real estate in Bulgaria compared to those in other markets are often cited and compared in the media and the public. During 2003 prices of apartments in some areas in Sofia increased up to 30% compared to the previous year. This increase is due to accelerated demand both on part of homeowners and investors, and is provoked by the belief that now is the best moment for real estate investment. Instead of deterring buyer activity, in many cases growing prices fuelled interest. Investment purchases witnessed a high peak during 2003 as more and more foreigners seized the opportunity for generating rental income and achieving future capital gains. Yields from investment in residential properties in Bulgaria exceed average returns in the EU and other Central European countries, and thus stimulate activity on the market. Another factor boosting demand is the better credit terms and decreasing interest rates of banks, which has lead to a significant growth in mortgages.

Another reason behind the steady demand for residential properties is the psychological effect of Bulgaria's entry preparations for the EU. Many people believe that prices will continue to increase at the same rate and will approach the levels of other European countries once Bulgaria joins the EU in 2007. Speculation for a two- to five-time increase in real estate prices during the next few years is, however, in the air. But more often than not, such offhand projections for the growth of prices may turn out to be inaccurate. After all, money is a measure of value - and value is rarely determined by the same "package of factors" in cities across different countries. In this sense, it is not always appropriate to draw straight comparisons among markets as unique as those of Sofia, Athens, Dublin or Paris.

In spite of the real estate boom in the country, buying a home in one of the prestigious areas in Sofia is still cheaper than in Athens, Belgrade or Bucharest, for example. Rental and sales levels in the country are the lowest in Europe because prices are related to the purchasing power of the population. Another factor is that the residential market in Bulgaria has still not achieved the level of sophistication, which has already become the "norm" in developed markets.

However, even a major political event as the EU accession, which will certainly bring about great economic spur, is unlikely to reshape the market overnight. Simply joining the Union cannot compete with the immediate influence of local factors. Increase in real estate prices is mostly driven by the interrelation between demand and supply as well as by the overall economic development of the country and the purchasing power of the main agents on the real estate market.

In the office segment, the steady growth of the Bulgarian economy and the promise of double-digit returns (12-15%) also account for the continued high level of investment. The annual rental yields for office developments are substantially higher than in other Central and European countries. In general, however, the yield is a measure of the risk associated with the property. To a great extent Bulgaria follows into the footsteps of Central European countries regarding economic development and it is likely that the real estate market would not be an exception either. If we take as an example the Czech Republic, we will witness yields falling to about 8% as conditions become less risky and the legal and government systems mature.

As the Bulgarian market matures and approaches 2007, the development of yields will probably follow the same downward trend and eventually stabilize, while the market itself will achieve greater liquidity. Again, it should be noted that determination of yields cannot be that straightforward and depends on a combination of factors; including location and surroundings, property condition, legal situation and overall economic conditions.

During the last two years the office market in Bulgaria has started to show sophistication and stronger indications of competition, as several high-quality buildings became available and offered brand-new office space to potential occupants. Business Park Sofia imposed new standards on the Sofia office market and enjoys 100% occupancy, while the leasing campaign for the second-stage is currently underway. In general, tenants have become more demanding and requiring state-of-the-art office environment, sufficient parking space and easy access. Therefore, supply began to respond more adequately to the rising requirements on the demand side. The growing supply and competition among landlords exercised an initial downward pressure onto rental levels, which stabilized toward the end of 2003.

The high growth of the Bulgarian economy (4.3% GDP growth for 2003) and double-digit returns, exceeding those of other Central and Eastern European countries, is likely to sustain investors' activity. Office supply will continue to increase in 2004 and as companies decide to relocate or new entrants come to the scene, the gap between supply and demand will diminish, thus bringing more stability on the market.

@: http://www.in-busine...x%20english.htm