Bulgaria Property - An Introduction
Bulgaria property
has been in the news for a long time, often hyped as a fantastic investment opportunity. However, the hype has always focused on properties on the coast or in and around Bulgaria's ski resorts.
They hype has led to an oversupply of properties in those two off-plan markets, makling them impossible to sell and keeping prices low. Not only that, Bulgarian property in ski resorts and on the coast are near-impossible to let - investors can't sell, nor can they achieve positive cashflow.
WHY BUY IN BULGARIA THEN?
What many investors don't realise is that there are THREE property markets in Bulgaria. The aforementioned beach and ski resorts - and the capital, Sofia . It is the capital where real investment property can be found, where capital growth is strong and the rental market will take off.
Find out more about the Sofia property market here »
WHAT BULGARIA HAS TO OFFER
Bulgaria is attractive to business investors largely due to its stable political, economic and social climate as well as the introduction of the currency board in 1997 The Lev is pegged to the euro. The Lev will be phased out, probably around 2010.
Bulgaria has some of the lowest operational costs and tax rates in Europe. The corporate tax is just 10%, with VAT remaining at 20%. There are VAT exemptions on imports to support investment projects over €5 million.
The country, in comparison to the rest of Europe, is poor, but since around 2000 and following tough economic measures preceding EU membership Bulgaria has seen strong GDP growth (4-5% / year - with 5.7% in Q4 06) and a growing wave of optimism for the future.
It is accession to the EU in 2007 that really made Bulgaria property a viable investment though. More than €11 billion from EU cohesion and structural funds is due to be pumped into Bulgaria between 2007-2013 - money that will go towards upgrading infrastructure.
With big business recognising Bulgaria's potential even before accession, there is now significant Foreign Direct Investment (FDI) into the country - and into Sofia in particular -and, more importantly for the the property investor, rapid wage growth.
FDI
In 2006 Bulgaria attracted over EUR 4bn in FDI with much of it heading, as is to be expected, for the capital, Sofia. The country's decision to cut business profit tax rates to just 10% played a major part in this, of course.
That FDI has gone to property and related business services, processing industries, financial services, trade and construction, creating huge numbers of jobs and reducing unemployment significantly (down to 9% in 2006 from 18.1% in 2000).
WAGE GROWTH
Wage growth over the last few years has been:
- 2004: 7%
- 2005: 8.6%
- 2006: 8%
- Q1 2007: 10.9% (y/y)
Increasing wages - and a growing availability of credit - has seen consumer spending increase and top of many Bulgarian's lists is a new home in new-build developments near where they work.
THE PROPERTY MARKET
The real opportunity for property investors in Bulgaria is Sofia property , not the Black Sea coast for ski resorts. With over-supply, inflated prices and an almost certain price correction due for the resorts, only Sofia offers a sound investment. Here's why:
- Business investment creating jobs and salary growth
- A new aspirational middle class emerging
- The development of a mortgage market
- Demand for modern housing
- Supply lagging demand leading to exceptional price growth results
All this is happening in Bulgaria and, in particular, Sofia right now.
