Has Bulgaria gone off the boil? Article Published: 22:44 20/06/2007 Article Classification: Smolyan Pamporovo Pine Lodge Apartments
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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 Sunny Beach on the Black Sea, where the property boom first kicked off four or five years ago. 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.

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, making Sofia one of the fastest rising capital cities in Europe.

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.

Ski resorts

Aside from Sofia, the mountain resorts of Smolyan, 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 capitalising on the vast inward and foreign direct investment being poured into these resorts to develop cutting edge facilities and modernise 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, market research found that the best developments to buy in Pamporovo or Smolyan 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.

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 swathes 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 in March, mortgages granted by Bulgarian banks almost doubled in 2005 and the same has occurred in 2006. 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."

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.