All that
Glitters is Not Gold - Where is it possible to buy a property on your
credit card? Bulgaria, of course! With thousands of potential property
buyers seduced by Bulgaria’s bargain property prices, the temptation is
to think that making a solid return is a no-brainer! Searching the
Internet, dozens of articles and property websites boast about the 100%
capital growth that can be achieved on Bulgarian property investments in
the space of 12 months. For first time investors with small budgets looking
for a step onto the property ladder, this seems like an opportunity almost
too good to be true! The result is that thousands of novice speculators
and second homebuyers are flocking to Bulgaria to cash in on the investment
opportunities it offers. But as the saying goes, if it sounds too
good to be true, well then, it probably is too good to be true.
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Until recently
Bulgaria was a little heard of, little talked about country tucked away
in a dark corner of the Eastern Block so what has changed? Bulgaria’s
success in attracting thousands of property investors could be put down
to two key factors.
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Firstly, the
past two years have seen a decline in rental yields in many of Europe’s
more established property markets. The UK, Ireland particularly are
seeing rental yields drop to under three per cent. Combined with
the over inflated cost of property in these countries, the Western Europe
investment market is a tough one to work.
This has
resulted in thousands of investors, turning to Europe’s emerging economies,
seeking out markets that can work their funds more profitably. Close
behind them follow hundreds of amateur investors and holiday homes buyers
ready to buy up the new properties being built by professional developers.
However, foreign
interest in new markets alone doesn’t explain Bulgaria’s success. Investors
seeking new pastures could in theory take their funds to any of the former
Communist countries and many of them do. The second factor that has attributed
to Bulgaria mass appeal is its versatility. Bulgaria is such an attractive
investment opportunity because it has something for everybody’s tastes
and offers the investor and holiday homebuyer plenty of choice. Right now
dozens of new developments are springing up along the beautiful Black Sea
coastline and sun soakers from all over Europe flock to Bulgaria for cheap
and affordable beach holidays! Further inland, Bulgaria’s main ski
resorts have become some of the most fashionable in Europe, particularly
Borovets and Pamporovo.
Top quality
ski chalets, hotels and complexes are being built to facilitate the new
influx of European skiers, all at amazingly affordable prices. A
ski chalet in the centre of Bulgaria’s ski resorts can be bought for a
quarter of the price of a similar chalet in France or Italy. Finally,
the natural beauty of Bulgaria’s mountain ranges and valleys has made it
an appealing location for walking, cycling and adventure holidays.
From the cosmopolitan appeal of the Sofia, the countries capital, to the
small villages of the Rhodope Mountains, Bulgaria has something to offer
every taste at some of the most affordable prices in Europe.
Two or three
decades ago, Spain was experiencing the type of interest that Bulgaria
is receiving now. With the rise of the foreign holiday as a luxury
the masses could afford, Brits began to flock to sun soaked Spain.
Their interest
promoted an influx of developers who took advantage of Spain’s popularity
with tourists and built affordable holiday homes. This encouraged many
of the tourists to invest in their own little piece of paradise, with the
advantage of being able to extend their own stay and encourage others in
by letting their property.
The result
over the years was a continuing rise in property prices but also a strengthening
tourist economy, a well-developed infrastructure and growing opportunities
and financial benefits for native Spaniards.
Property
prices in Spain are now so high that buyers are forced to look for cheaper
alternatives. In turning to Bulgaria, the cycle will begin again.
In fifteen to twenty year’s time, the Bulgarian property market may well
be over-priced for second homebuyers and once again the search will begin
for new and cheap destinations. In the mean time Bulgaria will have
grown on the strength of its EU membership.
It will have
pumped millions of euros into improving infrastructure. Tourism will
have generated huge amounts of wealth for the economy and the poverty that
characterises the country now may well be very much a thing of the past!
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Should all
investors and second-home buyers follow Rosie Murray-West’s logic and choose
not to invest in Bulgaria because it is ‘tasteless’ to take advantage of
the poverty there, Bulgaria may well remain a neglected and overlooked
economy, characterised by deprivation and stunted economic growth.
So while Bulgaria
is proving to be a wise investment option with some properties offering
up to 80% capital appreciation in one year, it is still necessary to be
very cautious when choosing where to invest. Property prices are
rising significantly but largely in the more established and more desirable
tourist hotspots. Investing along the Black Sea coastline and areas
within 10km of the two major ski resorts, Barovets and Pamporovo, is likely
to yield a healthy 60-80% capital growth in one year. Buying
a new apartment in these areas can cost as little as €30,000 and is
likely to be solid investment, since they can be easily let to the increasing
number of tourists coming to experience the delights of Bulgaria.
A quick trawl
through the Bulgarian real estate portals and you’re likely to find 100’s
of properties under €15,000. With prices like this, the
temptation is to rush in and buy, sometimes without even seeing the property.
But in Bulgaria, all that glitters is not gold! It is wise not to be carried
away by the prospect of a property at this price doubling its value in
one year. The problem with many of these properties is that they
tend to be located in Bulgaria’s most isolated and rural areas. These
areas are often weak on infrastructure and services and may lag behind
the rest of Bulgaria for many years to come.
Investing
in Bulgaria’s more established locations, such as Varna, Sofia or Barovets,
may seem more expensive for the budget investor. But when you
consider the headaches and additional expenses that come with renovating
an old property in rural Bulgaria, as well as the language difficulties,
your budget buy could prove not to have been such a bargain after all!
Also, these properties could very well be difficult to rent. Although
Bulgaria is growing in popularity with eco-tourists, this tourist sector
has not taken off to the same extent as the more traditional ski or sun
holiday destinations. Consequently, the likelihood of property prices
rising as dramatically in isolated areas is very slim. Even if property
prices take a huge leap upon Bulgaria’s entry to the EU in 2007, the chances
are that they will increase in rural areas by 20-30% at most.
Again Spain
makes a good example. Though Spain saw property prices increase by over
100% on joining the EU, it is still possible even now to find properties
in the most isolated, inland areas for as little as €35,000.
These areas are only now gaining the interest of property buyers priced
out of Spain’s more desirable locations.
The situation
will be similar in Bulgaria. Tourists will flock to the ski resorts,
the Black Sea coast and the more popular mountainous regions. Consequently,
developers will continue to invest in these areas. New developments
will attract more buyers and more tourists and the areas will see continued
capital appreciation on investments. Isolated areas, lacking amenities
and services will be overlooked and property prices in these areas will
remain significantly lower than the rest of Bulgaria.
For intrepid
investors willing to take a long-term view on their investment and wait
15 to 20 years to see significant returns, then cheap isolated properties
may be worth considering. But the certainty of a return and the ability
to approximate what that return will be is far more likely with properties
in the more established Bulgarian destinations.
