News

2004 in Review-Booming domestic real estate

Investors have been turned off by high prices and overdevelopment in much of the Mediterranean and are looking at Bulgaria's Black Sea coast and unspoilt inland lakes and mountains. They are focusing on Bulgaria, where real estate prices rose more than 20 per cent in 2004 and are expected to increase by an annual average of 10 to 15 per cent for the next few years.

Bulgaria has turned into the new hotspot for prospective holiday home buyers who cannot afford the inflated prices of Spain, France and Italy. Property investors and those looking for a second home for themselves are following hot on their heels, buying a range of property from new beach and ski developments to dilapidated farmhouses.

Developments vary from apartment blocks and hotels to modern luxury complexes with swimming pools, solariums, restaurants and a host of other facilities. Some property experts worry about the lack of clear regulations to ensure development does not ruin the qualities of the scenery.

From the point of view of the local businesses, the main problem facing local construction companies is that most of them are small (60 to 70 per cent of them have an annual turnover of up to five million leva). A small company is not competitive because it does not have the necessary technical and financial resources and borrows from bigger companies to carry out orders.

One chance for them is to set up joint ventures with foreign companies that are more and more convinced of the advantage of coming to Bulgaria. They should preferably select one that is ISO certified.

Currently only about 25 to 30 per cent of local construction companies meet the standards but these are only the large companies. Small firms cannot spend

$10 000 or more to comply and be certified with the international standards.

Real estate prices are expected to go up by 40 per cent year-on-year in cities and towns, where real estate prices are currently lower in Bulgaria. The mortgage credit expansion of local banks and the rise in number of signed mortgage contracts will influence the development of the domestic real estate market in 2005.

The 2004 development of the real estate market in Bulgaria represents a typical example of the relationship between consumption and income but even most prominent economists would have found it difficult to predict the high prices.

The past year saw a continuation of the upward trend in housing prices in the capital Sofia and most of the big cities in Bulgaria.

The average selling price of flats in Sofia exceeded 1000 leva a sq m. In the second half of 2004, prices of flats in Sofia went up achieving an average market price of more than 1200 leva a sq m, while in the beginning of the year it was 900 leva.

The rest of the big cities also saw an increase. Top scorers were Varna and Bourgas, where the prices surged by more than 50 per cent, due to the Black Sea coast location of the two cities.

What was observed in 2004 was only a continuation of a trend, during which over the last two years, the prices of housing in big cities has gone up by 20 to 100 per cent, and of flats in housing and resort areas by 100 to 200 per cent.

The biggest question that remains is what is going to happen to the agricultural land. Farm land sells cheap since it is strongly fragmented and since it is impossible to sell such land to foreigners (which is going to change when Bulgaria joins the EU).

Owners of agricultural land in Bulgaria obviously understand what the problem pushing its price down is, as more than 85 per cent of the Bulgarians who own plots of agricultural land want their consolidation.

The results of the concluded first stage of the land consolidation project show that most of the owners of agricultural plots not only want re-allotment, but would like to speed up the process. It is up to the state to undertake the necessary measures for ensuring a legislative framework for re-allocation of agricultural land because the recent situation with many small lots drive the price of land down, and seriously restricts farmers' opportunities to buy or rent plots of sufficient size for efficient agricultural production.

Land plots in Bulgaria are becoming one of the most attractive investment goals for foreigners despite complaints that the small sizes of most properties are an obstacle to their successful sale.

After the large Black Sea resorts of the country were recently turned into construction sites, the eyes of foreign leisure seekers have turned to other sea side areas. Land plots suitable for building holiday villages, golf links or just country houses have become more valuable, especially after Bulgaria completed its accession negotiations with EU and is expected to join the union in 2007.