Bulgaria: The New Spain?

from: Property Secrets EUROPE - September 2004, Part 1

There is no doubt in my mind that Bulgaria currently offers an almost
unrivalled investment opportunity.

It is easy to see why I have come to this bullish conclusion when you cast your eye over the facts below:

O�Bulgarian property prices are currently some of the cheapest in Europe

O�Bulgaria is scheduled to join the European Union in 2007

O�The Black Sea airports are about three hours flight from Britain

O�All major British tour operators will be on the Black Sea coast next year. Some, such as Thompson, for the first time

O�The Black Sea coast boasts 220km of sandy beaches and enjoys more than 1700 hours of sunshine from May to October

O�Last year property prices rose by more than 30% - and that BEFORE
accession to the EU starts to make the country wealthier. Remember, Spain and Ireland were backwater with supplies of bargain basement property before�the EU started pouring billions into their economies

O�The country's diverse climate means it has both ski and beach resorts

O�The cost of living there is one of the lowest in Europe - with a pint of lager costing about 40p and a three-course meal, with wine, priced at no more than �5 a head

O�Bulgaria has recently joined NATO

O�Its currency is stable and linked to the Euro

Developers are predicting a return on capital of 100% within three years - but even that may be conservative if one of Britain's low-cost airlines opens up a route there.

Agent http://www.barrasfordandbird.co.uk claims only to market
top-of-the-range complexes, and advises investors to head for the most exclusive areas as they will always command a premium. But as they say,�since prices - including all taxes - start at around �36,000 in Bulgaria, there is no reason not to buy the best.

This agent has properties at St Vlas, a coastal village a 15-minute drive away from the airport at Burgas, for example.

Three small, self-contained complexes with 24-hour security, private pools and landscaped grounds have been completed and the agent says the developers - the Dinevi Brothers - are so impressed with the location, which offers stunning views across the bay, they have even built their own houses there.

All of the apartments are within a few hundred feet of the sea and nearly all have sea views across the bay to the ancient town of Nessebar. There are no busy roads to cross to get to the beach.

St Vlas can never become over developed as it is bordered by the Stara Planina mountain range and the beautiful Black Sea coast.

This exceptional location also ensures that it benefits from a wonderful micro-climate which is milder than the rest of the coast.

Of course, you may be more interested in skiing than beaches. If so, Bulgaria can offer you that too.

The Monastery is the second development built by the Dinevi brothers in the�ski resort of Pamporovo.

Only released for sale on in May, the complex is an hour's drive from Plovdiv airport - 85 kilometres away - and about two hours from the capital, Sofia, which is 240 kilometres away. It will have its own restaurant, bar, jacuzzi and sauna and views over the stunning mountain range and the surrounding woods.

All apartments in the complex come fully finished with central heating, fully tiled floors and bathrooms and an open fire/log burner.

Pamporovo, the most southerly skiing resort in Europe, is modern and located in the heart of the Rhodopi mountain, home of the mythical singer Orpheus.

It is also the sunniest Bulgarian mountain resort and has wonderful snow throughout the whole season.

Pamporovo has a wonderful climate, with a soft winter and about 120 sunny days during the skiing season, which starts in mid December and lasts until mid April.

The average air temperature is -3C and the gentle profile of the mountain make its slopes particularly suitable for beginners. But expert skiers aren't left out either. There are also difficult runs such as the giant slalom, which challenges even the most experienced downhill skiers.

The ski runs, which are maintained to a high standard, employ more than 100 ski instructors and the resort has a variety of shops, bars and restaurants.

Prices for available properties range from �43,177 to �82,190 and the payment terms are as follows:

1.�34 per cent one week after the viewing trip

2.�33 per cent half way between payments 1 and 3

3.�33 per cent on complex completion on December 25, 2004

Maintenance fees are scheduled to be only 300 euros a year

One last thing, should you buy, you may be able to collect rent on your apartment this coming winter. Barrasford and Bird have just announced that they are negotiating a deal with Balkan Holidays to let out apartments in the complex for the 2005/2006 ski season.

I have no figures for rental income, as Bulgaria is an, as yet, untested market - but that in itself will be attractive to potential renters. And with so little capital tied up for the purchase, and the promise of a good return on it, surely it's worth speculating.

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* East European Property Secrets
LINK: PropertySecrets

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 chexcking 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%)

More: on Varna

So what's the latest from Bulgaria? I was planning a trip there to check it out during Chinese New Year, (I live in Hong Kong), but I heard somewhere that the market is now so red hot it is starting to overheat. Is this correct?

Also I was thinking about investing in property in Romania. Does anyone have any info on this?

Comments appreciated.........


Meanwhile if anyone is intetested in property in Macau they can check out this website:

http://www.image-solutions.info/9B/

and

http://www.image-solutions.info/16B/

Radio 4 'start the week' programme broadcast today had a guest whos extensively written about post communist Bulgaria. In a nut - shell the whole shabang is run by crimminals teamed - up with Olympic weighlifters and wrestlers - strange but true!
He said crime as a way of life is absolutely endemic and laws mean very little.
Not to say some investors wont benefit but if you get into the wrong deal it could proove a one way ticket for your cash.
East Germany at least has the law on your side and fully complies with EU rules.

Interesting article, tough quite old. Now the situation in Bulgaria is changing. Prices for houses and commodities have risen in recent years making the market less attractive for investors. The accession to the EU has on the one hand resulted in more stability on the Bulgarian property market and increased living standards. On the other hand it will lead to long term price increases and therefore property investors are said to be moving on to other emerging Eastern European countries such as Lativa and Romania.
I am not sure if what happened in Bulgaria will now happen in these countries too?

Any opinions on that?