Future Profit Potential for Property in Bulgaria in 2007

There comes a time in any emerging property market’s period of transition when it stops emerging and it actually arrives, and 2007 could very well be the year when Bulgaria’s property market arrives. The future profit potential for property in Bulgaria in 2007 will be aided greatly by the fact that the country will become a member of the European Union on the 1st of January and between 2007 and around 2010 the property market in this Eastern European country will most certainly remain hot.

Some have said that prior to accession all of the profits have been drained from the market, that greed and speculation have damaged the long term attraction of Bulgaria for its required international tourism and retiree market and that actually Bulgarian property was a flash in the pan as an investment commodity – this article will prove that to be a false series of assumptions. Bulgaria will return profitability in 2007.

It’s true that Bulgarian property as an investment asset has boomed significantly in just three short years. Gone are the days when a buyer could snap up a decent property with good sea or mountain views for next to no money but then gone are also the days when one could not get a mortgage to buy in Bulgaria, when the property buying process was opaque, corruption was rife and it was impossible to determine whether a given patch of land would be awarded planning permission or even get utilities run to it. The market has definitely matured and this maturity has improved the investment climate in Bulgaria.
As the country joins the European Union so it will open the doors for further investment and one of the main sectors likely to boom in 2007 and beyond is the retail sector which is a good alternative market to residential property for an investor to examine.

As Bulgaria attracts more international professionals, retirees and holiday makers and as the Bulgarian population slowly becomes more affluent as GDP increases and the nation enjoys one of the fastest growing economies in Europe – so intense competition will come to make the most of the wealth flowing in Bulgaria. As an example of retailers’ plans for Bulgaria in 2007 we can look at Technopolis Bulgaria which is a joint venture between Germany’s Lindner Group and Bulgaria’s Videolux and which supplies Bulgarian based consumers with consumer electronic products. The company already has 11 mega stores but in 2007 its attentions will turn to the construction of hypermarkets with 20 million leva already allocated for the group’s super expansion plans. In addition to the construction of hypermarkets the group will be constructing logistics operations centres in Sofia and this company is one in a very long line across every sector of the retail marketplace planning massive expansion projects across Bulgaria.

Because of the dramatic curve of expansion on the commercial side of property in Bulgaria a number of international funds are starting to buy into the market and this is offering investors seeking a less direct approach to their investments a way into this active and dynamic marketplace.

On the residential side of things not all will be plain sailing in 2007 and it is not possible for an investor to now buy anything and hope to profit from it. The normal rules of investment now apply in Bulgaria’s residential property market – i.e., an investor should solicit the services of a decent lawyer as a first step and secondly they need to do their own due diligence on locations of interest to determine what if anything will add to the attraction of the location for future buyers or tenants of property assets bought – e.g., is a location likely to begin benefiting from better transport links, are there any new amenities or facilities going in to improve the attraction of a specific resort, are any new companies opening nearby that will offer employment opportunities and attract inward migration of affluent professionals who in turn will seek an investor’s property assets as resales or rentals.

Negative factors that could impact on the residential market in 2007 include the fact that with EU entry comes EU levels of responsibility. Constructors will have to improve the materials used and adhere to EU building regulations and standards…this will push up their costs which they will pass on to the consumer. The demand for land around the main cities and tourism resorts is getting scarcer and as the commercial side of the real estate market goes head to head with the residential side so prices for land are likely to soar in 2007 (of course this means investors who move quickly to land bank could generate impressive profits) but for those seeking single or small multiples of property unit, prices will begin heating up quickly. Another factor likely to swell property prices is the fact that construction costs are forecast to grow in 2007. The cost of labour, materials and electricity alone will push up the overall cost of construction by up to 5% in 2007 according to the National Construction Federation for example.

Finally on the negative side of things, in part it is true that there has been greed and speculation in some of the main resorts such as Sunny Beach on the coast and Bansko in the mountainous interior…investors and also holiday home buyers need to visit the location of any property they are considering buying and ensure that it is not in a non-desirable location. Much of the best land in the main resorts has already been developed and what’s left and being newly constructed is not in such a good area, naturally this significantly reduces the profit potential and even appeal of such property units.
Approaches to adopt include looking a little further afield and working out in which direction property developers are likely to expand and get ahead of the curve by buying land or renovation projects for example. The main thing to note is that the appeal of Bulgaria is not waning, the country is continuing to see more and more tourism interest and even attract retiree and international expatriate interest and all of these factors mean that property in Bulgaria remains in demand and as long as it remains in demand and affordable it will be a good investment opportunity.

Finally, changes to the national constitution to allow straightforward foreign ownership of real estate have been made but not yet enacted and while this remains the case (probably until between 2010 and 2014) there will exist in many people’s minds additional risk or unsatisfactory levels of administrative hassle associated with buying property in Bulgaria which will keep prices as competitive as possible. This means that those who commit now can buy in ahead of a potential boom in property transactions which will most likely occur when it becomes simple to buy and own land and property in Bulgaria.

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