Bulgaria

Bulgaria is one of the most talked about of the “emerging market” destinations. Go to any foreign property show and a substantial proportion of the exhibitors will be selling Bulgaria. It is also the probably the country which provokes the most polarised opinions among those in the know.

For some people, and not only for agents selling there, Bulgaria is the “New Spain” and the best thing since sliced bread. The sharp rise in property prices since the market first began attracting international attention in 2002 have reflected that: although starting from an extremely low base, they shot up by an average of 45% in 2004 and, according to Bulgaria’s National Association of Real Estate Agencies, were due to put on another 14-24% in 2005. Of the 204,000 property deals done during that year, 37% involved foreigners, many of them British. This growth has been underpinned by the Bulgarian economy’s impressive performance: GDP was expected to have grown 5.7% in 2005 and remain above 4% in the following year and in 2007. The prospect of EU membership, likely in 2007, appears to provide another incentive to buy.

Others are deeply suspicious and see the whole business as little more than a get-rich-scheme that will inevitably end in disaster. Generalisations are dangerous. From an investment point of view, there are four Bulgarias: the Black Sea Coast, the Ski Resorts, Sofia, the capital, and the Countryside, each of which exhibit different characteristics.

The Black Sea Coast The hype begins already on the plane from Britain: pick up a copy of the in-flight magazine of Bulgaria Air, and almost every other page carries an advertisement for the latest Black Sea apartment complex, each apparently more glittering, splendid and - above all - profitable than the last. Pitch up in Sunny Beach, the brash heart of the coast, and the streets are full of estate agents peddling luxury flats and seaside villas. People go on holiday to Bulgaria these days, it seems, as much to snap up property bargains as to lie on the sand.

"There must be 40 or 50 agents here now, but very few of them have any experience or know what they are doing," I was told during a visit in summer 2005 by Mihail Chobanov, 30, co-founder of Bulgarian Properties, one of the country's best established agents, whose little office in the resort is already surrounded by several clones. "You get one kiosk selling clothes, the next one selling hamburgers and the one in the middle selling property."

The Bulgarian property market is booming. Old-style communist resorts that were once the summer playground of Russian, Czech and Polish workers are being demolished and replaced by a Balkan version of the Costa del Sol. In scenes familiar from the Spain of the 1970s and 1980s, virgin coast is filling rapidly with apartment blocks and prices are climbing steadily. The price of land, meanwhile, is going through the roof: plots five or 10 miles inland are being snapped up even if the sea views are so distant that you need a telescope. Many of the developments are being bought by the British and the Irish: go to any property show and a substantial proportion of the stands will be for Bulgarian property. The internet is also full of companies trying to sell houses and apartments there. (Try typing ‘property’ and ‘Bulgaria’ into a search engine: when I did so on Google, it came up with a staggering 8,130,000 entries, including two page of sponsored links.)

The Bulgarian coast, stretching for more than 100 miles between the Romanian and Turkish borders, certainly has much to offer, even if it lacks much of the charm of the Mediterranean. Those seeking sun, cheap beer and noisy nightlife will make for Sunny Beach, near Burgas, or the slightly leafier Golden Sands, further north; known respectively as Slanchev Bryag and Zlatni Pyasatsi to Bulgarians, they have been rebranded under English names for the British market. Other more upmarket resorts are springing up in quieter coastal locations. And in the ancient city of Nessebar, about a mile south of Sunny Beach, the Bulgarian coast can boast a world heritage site that was already a Greek colony in the 6th century BC. Worth considering, too, is Varna, which, as Bulgaria’s third largest city, has a commercial life of its own and is not exclusively dependent on tourism.

Golf, the great motor behind much Spanish property development, is also on its way. It would be an understatement to say Bulgaria cannot boast a great golfing tradition: the Communists who ran the country until 1989 frowned on such bourgeois leisure pursuits, preferring athletic or weight lifting (even if the generous use of hormones meant there were often doubts about the sex of some of the competitors). Even by late 2005, the entire country had just three 18-hole courses and one nine-hole one. That is all changing rapidly. Gary Player, the South African veteran, is involved in two courses near Kavarna, north of Varna on the Black Sea coast. Ian Woosnam, the leading British professional, is developing two others, one in nearby Balchik and another close to the ski resort of Bansko. Others are planned with a mixture of foreign and Bulgarian backers. There is also talk of exploiting the country's traditional spas and exotic mud treatments.

Despite annual increases of 40%-50% or so, property remains remarkably cheap by Spanish, let alone British, standards. It is still possible to buy a studio in Sunny Beach for as little as £400 per square metre, although the view from your window will be of concrete rather than sea or sand. Remember to check out the soundproofing: at the height of the season, the music in the open-air bars is still pounding at 3am. The nearer you get to the coast, the higher the prices, but even front line property, close to the beach with uninterrupted sea views, can still be bought for well under £1,000 a square metre.

With prices this low, many investors buy in cash, perhaps by remortgaging at home. It is now possible to obtain mortgages, although there are relatively few lenders and borrowing in Bulgaria is not especially cheap or attractive – around 7% in euros was the prevailing rate at the time of writing – with a maximum loan-to-value of around 70%. For some time, the only lender was Greece’s Piraeus Bank, which did not lend on off-plan properties, obliging buyers to find some other interim financing solution until the development was completed and signed off. Bulgaria’s DSK Bank, which has since entered the market, is more flexible. Given the amount of interest from Britons and other foreigners, more banks are likely to move in as time goes on.

Matters are more promising on the taxation side. Bulgaria has embraced the ‘flat tax’ revolution sweeping Eastern Europe and looks likely to continue on this path. If you let out your property, you are liable to a flat 15% tax on the proceeds. Although this is low, it is not possible, as in other countries, to reduce your liability by offsetting mortgage interest and other costs against income. The local equivalent of stamp duty and other purchase costs amount to around 3%. Even though Bulgaria is not yet in the EU, it is possible to buy apartments in your name. If you wish to buy a house or just land (which can be an extremely profitable investment), you must first form a company. This is relatively straightforward and should cost around £500 or so. Before getting too carried away with all the hype, you should ask a couple of important questions: who is going to rent your shiny new off-plan apartment from you and how easy it going to for you to sell it when you want to realise your profit? Let us deal first with the rental issue. The most striking thing about these developments is that most foreigners – or indeed Bulgarians – buying into them are doing so purely as an investment and not because they are looking for a holiday home for their own use. Their hope is that they will be able to rent them to tourists. Bulgaria’s tourism figures are indeed impressive. The number of people visiting Bulgaria grew from 2.76m in 2001 to 4.01m in 2004 and is likely to have gone on rising in 2005. The growth in the number of Britons has been particularly dramatic: more than 250,000 of us went on holiday there in 2004, 62% more than the previous year and more than three times as many as in 2001. The overall number of visitors in 2004 was up 13.6% on the previous year. Some of the British visitors might actually have been potential property investors, but they too needed somewhere to stay during their search.

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