Bulgaria is situated at the crossroads between Europe, Asia and Africa. Moreover, four common European transport corridors meet here, linking Western and Northern Europe with the Southern and Eastern parts of the continent.

Apart from its strategic geographical position, Bulgaria is also famous for its exceptional natural landscape. Even though the territory of the country is comparatively small (110,993 square kilometres), its landscape is various and diverse - spacious lowlands, gorgeous hills and high mountains. Moreover, magnificent sandy beaches lay along the Black Sea coastline.

Throughout the past decade Bulgaria has been successfully moving towards political democracy and a market economy, while combating inflation, unemployment, corruption, and crime. The country joined NATO in 2004 and today reforms and democratisation keep Bulgaria on a path towards integration into the EU.

Macroeconomic Framework of the Country

First of all, I would like to present the basic indices of the Bulgarian economy. Actual growth of the GDP for 2004 has been 5.7 per cent, against 4.3 per cent in 2003. For the year 2005 it is expected to be somewhere around 5.2 per cent.

Analysing the data, the following significant conclusion is to be made - 2004 is unprecedented in terms of foreign direct investments (FDIs) attracted to Bulgaria. Their volume accounts for 25 per cent of the total of investments made in the last 13 years, 37 per cent of the total privatisation investments and 19 per cent of the total of green field investments. The preliminary statistical data shows that the FDI in 2004 represent 9.2 per cent of the national GDP, reaching the highest level compared to other countries in Central and Eastern Europe. Ten per cent of the FDI was contributed by transactions in real estate - the third most successful industry in Bulgaria. Furthermore, in 2004 Bulgaria has attracted 10 per cent of the total of foreign direct investments in Central and Eastern European region, as well as 30 per cent share of the FDI on the Balkans.

Regarding the countries which are the leading investors in Bulgaria, the statistics shows that the traditional leader Greece has now been replaced by Austria. Austrian companies have invested a total of USD 1.67 billion in the period 1992-2004. The second biggest investor in this 13-year period is Greece (USD 1.03 billion), followed by the Netherlands (USD 928 million), Germany (USD 917 million) and Italy (USD 715 million).

Inflation level for 2005 is expected to be 4.1 per cent and 3.8 per cent in 2006.The unemployment level in 2003 was 13 per cent, 12.2 per cent in 2004, and in 2005 it is expected to fall to10,9 per cent.

During 2004, in general, 1376 privatisation transactions were concluded and till now 57.4 per cent of the state’s fixed assets have been privatised. Corporate taxes are 15 per cent, and taxes on physical persons are 22 per cent.

Real estate investment statistics

I have to point out with some satisfaction, that over the last few years, we have experienced a dynamic and aggressive improvement of the real estate market. Another important factor in the development of this immense market is the active participation of the banks in the sphere of the mortgage credits, and the facilitation of the procedures related to loan granting for real estate purposes. Banks’ credits for corporations and individuals are granted with interest rates of between 8.5 and 11 per cent. In addition, our country is continuously associating more and more with the European structures and the legal framework is also becoming more stable. As a result, the interest of local and foreign investors in different venture capital projects is steadily increasing. The prices of real estate in Bulgaria are still several times lower than those in developed countries, which serves as another incentive for foreign capital to be injected into the country.

In 2004 a record number of real estate transactions were concluded - nearly 196,000 - for about €3,300 billion, showing a 31 per cent growth in comparison with 2003.The increase of property prices was between 20 and 70 per cent for the last year. In Sofia and Varna the prices of real estate in the city centre are now up to €1,000 per square metre - nearly 40 per cent higher than the 2003 prices. In less central city districts prices of real estate vary from €100 to €600 per square metre. In Sofia alone, the housing area under construction at the moment is 500,000 square metres. House prices in the city centre are raging from €500 to €1,500. For comparison, the average price of a house in Sofia is €600 per square metre, in Bratislava - €750 per square metre, in Bucharest - €850 per square metre and in Prague - €1500 per square metre.

Prices of commercial real estate vary from €400 to €3,000 per square metre. Rental prices are between €25 and €120 per square metre, depending on location and conditions. The value of plots of land on the Black Sea coast, vary between €30 and €300 per square metre and are influenced by the distance from the beach. Several local and foreign companies are now starting construction of several thousands apartments, which will be sold to foreigners later.

Some examples: An Israeli company Engel Resources will invest €45 million in offices and warehouses.The German company Lindner, in a period of five years, has already invested €100 million in several projects. Lindner, together with the American company Tishman, is now in the process of establishing a Property Investment Fund with a venture capital of €50 million. Most of these projects are devoted to the development of the industrial and trade area around Sofia. Official statistical data shows that the return on the real estate investment is approximately 18 per cent, which is more than the return on the banking sector.

Why should you invest in real estate in Bulgaria?

• There is a firm presence of a steady tendency of the Bulgarian real estate market towards development and improvement through balanced reformation and law regulations conforming to the European standards, and introducing more transparency and a better way of doing business.
• Investors are now looking for reliable, long term investment perspectives and a secure income. In addition, there is a shortage of financial markets and institutions, which provides stability, permanent earnings, and a good rate of return.

The expectations for successful future investment opportunities are relatively high due to the following reasons:

• Before the end of the year, the government is actually intending to introduce a unified corporate and individual tax rate of around 10 per cent.
• Buying real estate in Bulgaria at this very moment is considered to be a very good investment, since Bulgaria will be joining the European Union, prices will sky-rocket after its admission. The construction and labour costs are relatively low when compared to other European countries.
• All over the world, it is widely known that Bulgaria has a beautiful countryside and some outstanding summer and winter resorts. In 2004 _ significant increase of the tourist flow has been recorded - a 67,5 per cent growth in tourists coming from Great Britain, 32.5 per cent growth in tourists coming from Sweden, 29.8 per cent growth in tourists from Denmark, 19.1 per cent growth in tourists from Finland, and 34.1 per cent growth in USA tourists. The total growth of foreign tourists is estimated to be about 20.3 per cent.
• A lot of attractive places of municipal or private ownership around the country and in Sofia and are now being sold and investors can expect a steady profit of 30 to 100 per cent in buy-to-let operations, and a ROI corresponding to several times the initial investment if land is purchased and construction carried out by the buyer.
• In the whole region, investors (local and international) are now looking for low risk ventures promising steady and high rates of return. Property Investment Funds and real estate investment in general will provide a much higher income than the other financial vehicles available. That is the reason why there are a large number of foreign investors buying a great deal of real estate in our resorts. Moreover, many of them are even settling in Bulgaria because of the low cost of living. For example, in Bansko (the most famous Bulgarian ski resort), UK investors are buying all they can get, with hopes of future high profits.
• Not only that, but in 2007 it is expected that foreign citizens will be officially allowed to buy land in Bulgaria. Presently, they are required to register a company in order to do that (it is only applicable to land, not to property).

Conclusions

The economic environment in Bulgaria at this moment is extremely favourable for investment in real estate. With the arguments presented above, we prove that through such ventures (trading with land and buildings, construction, and renting activities) great financial resources can be accumulated, and considerably high rates of return can be achieved, without undertaking any excessive risks.

Biography

Orlin Vladikov is Chairman of National Real Property Association (www.nsni.bg) and President and CEO of ORVITEX Real Estate Company. Mr Vladikov is also a Member of Managing Board, Bulgarian Chamber of Commerce and Industry. Country Focus Bulgaria