As Prime Minister Saxe-Coburg heads for Brussels and the European Council summit this week, he leaves behind a wave of jitters in Sofia over the country's EU accession path. These were evident at the recent Real Estate and Investment Forum (RINFOR) held in the Bulgarian capital, at which the French and Dutch "no" votes and the Union's budget problems left many pondering a more uncertain future.
Following the two "no" votes on the proposed EU constitution, Bulgarian leaders moved fast to try and head off any resulting pessimism over their country's 2007 accession date. However, this was not helped by some poor timing by the European Commission, which sent warning letters about shortcomings in meeting accession commitments to both Romania and Bulgaria shortly after the referendums.
Yet Foreign Minister Solomon Passi and European Affairs Minister Meglena Kuneva said that the warning letter was a standard procedure.
"The early warning letters we expect to receive from enlargement commissioner Olli Rehn should not be over-dramatised," Passi told reporters. "We have long known about them and have worked well with the Commission. These letters come as no surprise to me."
Nonetheless, the fact that enlargement was such a bone of contention in both the French and Dutch referendum campaigns, with Romania and Bulgaria's future membership also questioned by senior German and Austrian politicians, has undoubtedly created an atmosphere of uncertainty.
At the RINFOR, the tone was further depressed by a report on a UK property web site, Assets Property News, that Bulgaria should still be classed a risky country - and if its EU accession was postponed, the Bulgarian real estate market would empty in a matter of hours.
This overly pessimistic view was not shared by all, however. At the forum, the European Bank for Reconstruction and Development (EBRD), for example, announced plans for a further expansion of its investment programmes across country.
EBRD money is a major factor behind plans by local supermarket chain Piccadilly to invest 20m euros over the next two years in 10 or more new outlets, company director Stefan Kossev announced at RINFOR. Funding for this includes a 14.2m-euro loan syndicated by the EBRD and Raiffeisen Bank.
Meanwhile, another locally based outfit, Orchid Developments, is also being helped out by the EBRD, with a 30m-euro loan aimed at boosting the country's investments in the Bulgarian property market. Financing will enjoy the support of the UK's Shore Capital Group, which holds a 2.5% stake in Orchid, as UK interest in the Bulgarian market remains strong.
Yet it is by no means only foreign capital that is behind the Bulgarian real estate boom, as a survey by Creditex credit management agency released mid-June showed. Bulgarian companies have invested more than Lv5bn ($3.09bn) of their own funds in real estate during the last two-and-a-half years, according to the report, with much of this going into high-end property - now, unfortunately, showing low return-on-investment rates.
These low returns have squeezed operating funds and worsened competitiveness, according to Creditex. The owners of these companies prefer to re-finance via mortgage loans, boosting demand for these, but also boosting the volume of due credit payments. According to Bulgarian National Bank (BNB) data, the volume of due credit payments of non-financial institutions exceeded Lv10bn ($6.17bn) in April 2005. Some 60% of that consisted of credits with a maturity period of less than five years. Since these short-term credits are more expensive, many companies are now seeking ways to reschedule their debts into the long term.
Meanwhile, various other panels at RINFOR hit up against another problem faced by the sector - the shortage of downtown space in the capital.
French company Accor announced plans at the event to bring its Ibis hotel chain to Sofia, yet also complained that these plans had been held up by the unavailability of downtown real estate, a scarcity which was threatening a project to build a 10m-euro ($6.17m), 200-bed hotel in the capital.
At the same time, there was also discussion of the current squeeze on office space availability. However, this is likely to be eased when current building and renovation on this score brings more space on stream.
"Total office stock in Bulgaria is over 350,000 sq metres," Stefan Danailov, head of the office building department of Forton International, told the Forum, adding that "240,000 of it built in the past three to five years." Danailov said that around 110,000 sq metres more office space was currently being built and would soon come on the market.
The office segment is also likely to expand outside Sofia as well, many Forum speakers suggested, with Plovdiv and Varna likely to see more investment in future as rents in the capital mushroom. Many companies are also expected to set up shop or relocate to the suburbs of the capital.
Meanwhile, many of the existing companies in Sofia are likely to try and upgrade their existing office space in the months and years to come, as they move away from premises often located in residential apartments - and often in their own homes. This will boost demand for class B office space, of which there is currently also a shortage.
At the same time, many see the current EU difficulties as unlikely to make a major difference - the process has come too far for a real turn around by either party, optimists argue. With so much investment riding on both Romania and Bulgaria acceding, it seems unlikely that a stop can occur, even if a delay may be possible.
"Warnings from the EU will continue to come until the end of 2006," Passi told reporters mid June. "I have repeated time and again the spheres which might attract criticism: justice and home affairs, agriculture, services and especially the environment, which is regulated by numerous directives."
The pressure to address any concerns in these areas is therefore increasing, with little time to spare for any post election wrangling after Bulgarians go to the polls on June 25. The new government will have some difficult times ahead, as it seeks to keep the EU onside and committed to its 2007 accession promise.