Bulgaria's real estate market is stabilising after years of substantial foreign investment and tremendous growth.
Recent statistics show a slowdown in the growth of the Bulgarian real estate market, with valuation increases sometimes lower than in Western Europe. Bulgaria has, over recent years, become the most talked-about destination for real estate investment in the region, with many examples of triple-digit price increases, but now it seems that the market is stabilising with a much lower growth level.
Nonetheless, the country remains a very attractive proposition for investment. Currently, growth is being driven by the booming tourism industry on the beaches and ski slopes of the country. Developers who have grown to know the market are increasingly looking outside Sofia for opportunities. While no great benefits are expected from EU accession, it is likely that the office property sector will receive a boost.
In 2005 Bulgaria's average property price rise stood at 36%, a figure that dropped to 20% in the second quarter of 2006 and then to 13.9% in September. In the second quarter, the south-western Blagoevgrad region, well-know for the burgeoning ski resort of Bansko, experienced a 2.1% drop in real estate prices, though it has recovered in the past few months.
Stuart Law, managing director of Assetz, a UK property investment firm, said the market needed a "committed Bulgarian investor who is convinced of long-term returns" to make worthwhile gains. He predicts that house price inflation will stabilise around 10-15% in the immediate future. While warning that "the days of instant gains appear to be over for the time being", he stated that "Bulgaria still has value as a holiday home destination and is likely to be a reasonable investment in the long term."
There are suggestions that the Bulgarian real estate sector may need reform, with smaller deposits and easier terms of resale to encourage investment.
Bulgaria's National Real Estate Association is predicting a 20% average property price rise this year, falling to 15% in 2007, with no major overall increase predicted after EU accession in January. The exception will be in office properties, as companies seek to open or expand offices in the country. Business centre developments are expected to return rates of around 9% in the next 18 months.
The view of insiders in Bulgaria is that the construction boom in Sofia is beginning to slow, but that developments are starting to blossom outside the capital. The local press reported that the first malls have appeared in the regional centres of Varna, Plovdiv and Burgas. There has also been increased interest in regional distribution and storage centres. Real estate experts expect the next two years to see major investment in administrative buildings and industrial areas outside the capital, as companies become increasingly aware of the opportunities presented and the market situation.
The National Statistical Institute reported last week that the highest rise in property prices in Bulgaria was in the Black Sea cities of Burgas and Varna, after several large deals were sealed.
Elsewhere in the country, Irish property developer Kendar is planning two projects worth a total of 110m euros ($140m). This includes a 330-apartment development in the south-west of Bulgaria near a golf course currently being constructed. The other is an 80,000 sq metre vacation complex on the Black Sea coast. Kendar is also believed to be interested in investing in commercial property in the country.
The recovery of the Blagoevgrad can also be put down to some large investments. Last week, the InvestBulgaria Agency approved plans for the construction of a ski resort in the town of Dobrinishte, worth $169m, creating 1500 jobs in construction in the process.
Tourism is also driving the increasing number of buy-to-let investments being made in Bulgaria, according to local magazine Quest Bulgaria. A three-bedroom coastal villa commands an average weekly rental price of $1045, according to Quest. More people are becoming interested in the potential for values increasing, with many buying more than one property. However, apartments in resorts are losing out in competition to larger villas.
After the unprecedented growth of the real estate sector in recent years, it is not unusual that prices are stabilising. With tourism growing and areas outside the capital reaping the benefits of greater interest in the country, stable growth seems a realistic prospect.