Bulgaria Looms as the Next Real-Estate Hotspot

Article by Matthew Lynn (*with excerpts), Bloomberg News, 17th August 2005

A villa overlooking the Black Sea? Or a flat in the Bulgarian capital, Sofia? If you happened to be vacationing in the area this year, you might have noticed just how temptingly cheap all those properties for sale are.

The catch-up between property values in Western and Eastern Europe isn't finished yet. Even as house-price bubbles burst in Western Europe, emerging markets such as Bulgaria may be immune.

Rapidly modernizing economies, rising investment and asset prices, and booming tourism, will keep property values climbing for years. In the long term, Eastern Europe's real-estate boom may stall as population growth wanes. Still, that's a long way off.

There is certainly no shortage of vehicles to put your money into. In London, several new companies have come to the market in the past few months raising funds to invest in Bulgaria.

European Demand

Last year, 146,000 British people bought properties outside the U.K. You can buy a two-bedroom luxury flat by the sea in Bulgaria for 40,000 pounds, which is less than the average British house has gone up in value by during the past two years. The prognisis is that there is going to be big demand from foreigners for holiday properties in the country.

What kind of returns you might expect will vary. The Bulgarian market has risen about 40 percent in the past two years and the predictions gains of at least 10 percent annually for the next three years.

That may be too optimistic. Still, equity markets across Eastern Europe remain strong. The Bulgarian stock market, for example, is up 32 percent this year. Asset prices are rising fast, and property is unlikely to be left out.

Economic Expansion

Growth is strong as well. This year, the Bulgarian economy may expand 5 percent, according to a Bloomberg News survey of five economists in August. Inflation is subdued and the government aims to join the European Union by 2007 and to sign up for the euro by 2010. There is little to make investors feel nervous.

In parts of Western Europe and the U.K., property prices have surged because of historically low interest rates and rising incomes. It looks like a bubble has developed. In Eastern Europe, real-estate prices are being driven by rapid economic growth and the need to replace low-quality housing. As people get richer, they spend more money on living somewhere nicer. It may be decades before that process is complete.

The boom in companies investing in markets such as Bulgaria isn't just a passing fad. Money is there to be made over the next few years - and buying shares in a listed company is a lot less work than buying a property yourself.

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