Bulgarian property: A false dawn…?

Published 10th Jul 2007

A leading property analyst takes a look at the Bulgarian real estate market six months on from EU accession from his base in Sofia and tells investors to “be selective”…
Lance Nelson, Managing Director of Jet2Let presents his findings on the state of the Bulgarian property market: “Six months on from EU entry and analysing Bulgaria's property market presents a number of difficulties, the most obvious being the lack of reliable data so I would again advise buyers to look out for announcements on improved access to areas.

The recent announcement on two new underground train extensions, including a line from Mladost district to Sofia airport, are the sort of thing that can drive prices as well as new low cost airline routes. The theme for 2007 is the need to be selective

My prediction is still for safe capital gains in the major cities with particular emphasis on Sofia. Recent reports show residential apartment prices in Sofia for the first quarter of 2007 seeing a 10% average rise.

Sofia's promise of a capital city that could experience above average growth in incomes rests, at least in part, on the recent influx of companies setting up call centres, back office process centres and IT outsourcing and services.

With a global market for labour it is this IT sector that could be responsible for a disproportionate contribution to the wealth of the city. Large infrastructure construction projects and all property related sectors will continue to contribute to increased earnings and disposable incomes helping to fuel demand.

Since the beginning of 2007, recent reports have shown a steep increase in the number of foreign subsidiary company start ups in Sofia and a strong demand for commercial premises. This all augers well for further residential and commercial price rises even though there is a high supply of new stock coming to market.

However it is often to visitors' surprise, that the best quality and most spacious homes are bought by the Bulgarian and Russian investors. This is an interesting trend and my tip is that if you are in the market for a quality new build, ask who the other buyers are.

Cut through the sales hype

Wealthy residents often buy larger two and three bedroom apartments and many are predicting that there could be a shortage of these types of units in the coming years. On the other hand, good advice to all pure investors is to buy in an area that you would be happy to live in yourself; this helps you cut through the sales hype and ensure that your property will sell to others when the time comes.

So when looking at a new area it is often helpful to discover who has already invested there, to what extent and what influence there will be for driving future property supply and demand.

When assessing the potential in Sapareva Banya, a spa town near Dupnitsa in south west Bulgaria, for example, I discovered that a Russian buyer has bought over 110,000m2 there. He had announced the construction of an aqua park and intentions to start chalet construction.

Research also revealed the public announcements from Rila Sport on land purchase for what they hope to be a new lift connecting the town with an expanded ski area of Panichishte in the Rila Mountains.

You then visit your chosen location and, in this instance, a visit to Sapareva Banya takes ten minutes from Dupnitsa and some fifty minutes from Sofia, you find a brand new dual carriage way linking the Dupnitsa – Samakov road into the town centre.

The street and pavements are being upgraded and even new sewerage infrastructure is being constructed under the proposed new road to a picturesque development area at the foot of the mountain.

A few more checks and we find that the mayor was quoted on Bulgarian TV that he intended to learn the lessons from over development of areas such as Sunny Beach and Bansko. Early signs reveal that there will be an emphasis on low density chalets and houses rather than apartments.

A similar approach can be undertaken in other areas so that you can spot hot property opportunities before others. I recommend combining your holiday travels with property hunting - if your enthusiasm and time allow.

Buyer beware?
My personal discovery was Koprivishtitsa (1 ½ hours from Sofia) which ticks the boxes for attractive houses (a complete absence of communist era development) all set in a stunning mountain location at 1,060m and a hugely popular destination for Bulgarians to pay homage to a landmark in the nation’s history – the April rising of 1876.

Then there was Karlovo and nearby Sopot (2 hours from Sofia) which impressed me for the superb Balkan Range views and good access.

With so much information available we are witnessing towns, cities, regions and whole countries going from undiscovered property hotspots to a “mature market” in a matter of a year or two, rather than decades before.

Needless to say, trying to stay ahead can feel like an unrealistic task and, as always, I recommend property investors to approach it all with a “buyer beware” frame of mind and to always get independent legal advice.

A frequently asked question is should we buy in a large development or a smaller one? There is no doubt there is a feeling of safety in numbers on the larger developments however it is often the smaller developments that achieve higher levels of rental income and occupancy levels.

When it comes to resale the apartments in smaller developments sell quicker and for a better price, when you are not competing with so many others in the same block.

Attention on the low cost airlines operating routes to Bulgaria continues with many new routes announced from Germany, Norway, Austria and other Eastern European countries but the big two low cost operators from UK and Ireland, Easy Jet and Ryanair are still yet to announce routes at the time of writing.

However the charter services have been operating to a very high capacity to the coast and this is likely to give further impetus for the expansion of existing services. It is fair to say that rental returns in some tourist areas are patchy and more cheap flights are required to accommodate the huge number of tourists who avoid packages and buy the flight and accommodation separately.

Greece: a comparison
Those who have premium locations are seeing the best rental and capital appreciation returns.

A recent trip to Thessaloniki on the Greek mainland made me appreciate how important the Greek tourist market will be to occupancy. With two new main roads due to be completed in a few years time, Bulgaria will be even more accessible.

With a pint of beer being between €5 and €8 and property being between two and three times the price, the value difference is huge, so a focus on the Sandanski area and the Rhodopi mountain villages and ski resort of Pamporovo are good bets to profit from this investor interest.

Finally, for the property investor who likes to place their eggs in more than one basket, you might want to take a look outside Bulgaria to Turkey in order to diversify a Bulgarian property portfolio.

My recent visit to Istanbul, and more recently Izmir, to finalise our launch developments there showed that these cities offer low priced properties with a compelling growth story supported by 6.1% GDP growth in 2006 and that, from January 2008, 30 year term mortgages will be made legal.

With a 25% of the population under 15 years old, a population growth of 1.0% per annum and good rental yields you will be hearing about this emerging market more and more, but be sure to remember where you heard this first!”

Source: ' Jet 2 Let Property '

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