Eastern Europe Property

Obelisk says Sofia property investments are attracting the attention of Hollywood celebrities and pop icons, prompting the emergence of a new luxury market.

Cheap holidays, cheap skiing, cheap flights, cheap food and drink, and of course cheap property - ‘Cheap’ has been the main attraction for British investors buying into Bulgaria.

However, big changes are in the air with an increasing number of foreign investors and Hollywood A-listers buying up the more exclusive high-end property.

Antonio Banderas, who already owns property in Spain, is amongst “Hollywood royalty” spending many months in the capital filming The Code, due for release this year, along with Morgan Freeman who has revealed his interest in purchasing a block of executive apartments in Sofia.

The newly renovated film studio in Sofia has created a house-hunting frenzy from top filmmakers and celebrities. Nu Image has strategically snapped up the previously state-run film studio in Sofia for US$9.2 million in a bid to cut massive production costs that the company faces in the US.

Rock legend Lenny Kravitz has also put Sofia firmly on the superstar map. The “Get on the Bus with the Love Revolution” tour will descend on Sofia’s Akademik Stadium on 27th July 2008. Huge interest for the £15 tickets has been created, with international fans taking advantage of a cut-price city break. Pink is also due to hit the city in July along with Marilyn Manson, Michael Bolton, and Vanessa Mae.

Sofia is home to the majority of the country’s 200,000 millionaires with many ready to pay over €3,000 per sq. m. for a city centre complex. The rich list is prepared to buy an entire floor for 2000 sq. m of complete exclusivity with the added bonus of a specially commissioned ramp for sports cars such as Ferrari and Lamborghini in the underground car park.

Overseas property writer, Zoe Dare Hall, suggests that British property investors, who make up 67% of all foreign buyers in Bulgaria, are missing out on hugely bullish Sofia property investments.

The need for larger, more luxurious properties in prime city, beach and ski locations dictates the market evolution. Additionally, rising demand is originating from foreigners working for the big multinationals in Sofia and from Bulgaria’s emerging middle to high classes, for properties within commuting distance of the capital.

James Gonzalez, Market Analyst at Obelisk comments, “Luxury properties are still within an affordable range for many overseas buyers, compared with more traditional markets (such as Spain or Portugal). A luxury apartment in Sofia’s commuter belt averages around £100,000 - you would be hard pressed to find a good apartment in the Costa del Sol for that price.”

The growing demand for top-end properties is prompting developers to raise the quality levels of new properties, with a number of developments now offering well-executed design and superior build qualities. Generally, property prices have remained very competitive.

Sofia is an excellent commuter base with budget airlines, such as Wizz air, servicing routes all across Europe. The airline will also be offering internal flights to the town of Kavarna - known as the ‘Rock Capital of the Balkans’, with headline acts such as Motorhead, Led Zeppelin’s front man Robert Plant and musicians from Black Sabbath, all kicking off the Kaliakra Rock Fest in July.

The country is also upgrading ski facilities including a £345 million Super Borovets project - a major development in the country’s most popular ski resort. Spa tourism is also on the up and steering the market further towards the more upmarket investors and holidaymakers.

“Since Bulgaria’s EU accession foreign buyers’ confidence in the country has grown immensely. British buyers, who still believe Bulgaria to be a destination for low end investment rather than a second home or luxury rental investment, need to revisit the market.”

“With the rising demand and the low supply of quality new builds, British overseas property investors need to look at why the rest of Europe views Bulgaria, and in particular Sofia property investment, so differently.”

Obelisk strongly recommends that investors should do their research before embarking on an overseas property purchase.

AN overseas’ property expert has warned that UK investors can make many mistakes when buying a home in Bulgaria.

David Hollands said: “There can be a few gems to be found, but you have to know what you are doing or have a tried-and-trusted partner with you all the way to the bank.

“It is more difficult to buy now because there are many more rules and the legal administration is better managed.

“The most popular locations to buy that will bring the best returns will be the rural affluent regions, those that compare to middle Italy and mid-France.

“Newly-built cottages and farmhouses with gardens and stunning views start at £35,000.”

Here are some tips from David to help avoid problems.

As Bulgarian property is cheaper, what seems a bargain and too good to be true, often is. Just because you can afford it does not mean you have to buy it.

The legal title to land and building rights has to be clearly confirmed by independent lawyers. You may be buying what seems a smart villa but is it being built legally? Most contracts will not state this. Beware.

Commission payments. All included fees and costs are another thing to be aware of. What this normally means is that you are paying over the market price for the property – in a lot of cases well over.

Off-plan property can be tricky as you do not know what the finished quality will be. Be sure never to release any funds unless you have had real proof of the building progress and have also visited the property during building work.

Contracts are often lengthy and of course are written in Bulgarian. Make sure you have a full and authorised translation of the contract and have it independently checked.

Don’t believe all you read on the internet. It is what you don’t see in the lovely picture that will determine the value of a property, not the property itself.

Find an agent that has experience and shows you all the downsides of an investment as well as the upsides.

Do not believe all you hear. Make comparisons of property quality by demanding to visit property that is already finished so you can see what the end result may be.

Do not believe guaranteed rental. This quote is nearly always a false guarantee. All you will receive is a few thousand euro back over the next two years, no real rental at all. You have paid over the market price and you are getting back your own money.

Do get sight of the developer’s holiday rental agreements with tour operators.

Do understand the demands and tourist trends that will increase the value of your holiday home. Think of the future, not what has happened in the past.

Don’t go on a weekend two-day trip to buy the only property the agent has on offer.

Don’t pay any deposit or sign any documents on your initial trip that will tie you into a contract that you haven’t understood.

Don’t accept a promise that the property can have a mortgage on it. Many properties do not qualify for mortgages.

Don’t expect to re-sell your coastal flat within the first year or re-sell before it is finished, thinking you will make a profit.

Here is what BulgarianProperties’ statistics for 2007 compared to 2006 shows for the rural properties around the following regional centres (the figures reflect only the rural properties price increases):

Plovdiv and Stara Zagora:
2007 price increase: 37% ; Average price in 2007*: 14,000 Euros

Elhovo, Yambol and Sliven:
2007 price increase: 26%; Average price in 2007: 13,600 Euros

Varna:
2007 price increase: 24%; Average price in 2007: 55,260 Euros

Burgas:
2007 price increase: 19% ; Average price in 2007: 31,000 Euros

Montana:
2007 price increase: 19%; Average price in 2007: 6,230 Euros

Kardjali:
2007 price increase: 17%; Average price in 2007: 16,000 Euros

Vidin:
2007 price increase: 16% ; Average price in 2007: 10,500 Euros

Central Balkan area:
2007 price increase: 13%; Average price in 2007: 14,200 Euros

*These are all average prices which serve as indicators for market analysis. There are more and less expensive properties in any of the listed areas.

With almost daily news about negative impacts of the credit crisis on world’s economies and the possibility of a US recession, what is the likely effect on property investment in the high growing emerging markets in the “new” Europe?

For Central Eastern Europe (CEE) 2007 has been a good year. That is even more true about Slovakia. Following very fast growth over the last several years, Slovak economy again broke all records in 2007.

Unemployment has been constantly slashed since the beginning of the decade, annual GDP growth has been approaching 10%, the wealth of the population is increasing at fast pace and the country keeps attracting significant foreign investments.

All this coupled with the Slovaks’ desire of home ownership and massive demand for better quality housing, plus a low supply of such homes, as well as more accessible finance. Here we have the explosive combination that has been fueling the local property boom in the last few years.

And indeed much of Slovakia has seen a strong growth in property prices - between 10 and 20% p.a. depending on region and type of property.

Yet Slovak property is still some of the cheapest in Europe, and conditions for further growth are very good indeed. Also, significantly for any investor, the Slovak property boom is based almost wholly on the local demand from keen home buyers (as compared to many other markets that have been inflated by foreign investors and became dependent on the continuity of such investment). With still affordable prices and growing incomes the Slovak housing market is unlikely to slow down any time soon.

And then there have been further good news for Slovakia and the CEE markets…

Late last year Slovakia (as well as Poland, Czech republic, Hungary, Estonia, Lithuania, Latvia, Slovenia, Malta) joined the passport-free Schengen zone. This move is expected to significantly boost business and tourism.

Now of course the most eagerly awaited event is the euro adoption. Slovakia is to join the single currency in January 2009, several years ahead of its Central European neighbours.

The country has been well on track to meeting the Maastricht criteria and few economists have doubts about the euro being indeed successfully introduced in Slovakia next year.

Does it mean the current global financial turmoil will have no negative impacts on Slovakia?

Well, of course, no country in today’s globalized world can be considered completely immune. However, as we know, the credit crunch and recession fears are really a problem of the developed world (primarily US, UK, etc) and not the emerging markets.

While the impact of the financial crisis may result in some cutting down on investments in CEE and other emerging markets, it’s important to remember that the fortunes of the “old” and “new” Europe depend on each other and the economic ties go both ways.

So in the worsening financial situation the developed euro zone economies and the new European markets will look to further deepen their already strong trade relations.

The CEE countries have relied on foreign investments (mainly from the eurozone) to accelerate their economic growth. And, in turn, they have been one of the main pillars of growth for the developed Europe.

In particular strong exporters will, amidst a possible US recession, increasingly rely on their emerging neighbours. The “new” Europe has in fact been as important as the US for eurozone’s exporters (such as Germany, France, etc) in this decade.

So… yes, the credit crunch could see some investors and banks pull back from these emerging markets. However, the eurozone also knows of the growing significance of its CEE neighbours for its own exports and growth.

Slovakia and other CEE economies are considered to hold up well and further strong growth is expected in the region for the coming few years - including continuing high growth in wages, falling unemployment and strong and steady investment activity.

A report by the global property consultancy King Sturge comments: “Despite some uncertainties in the financial markets, continental Europe is underpinned by positive long- term fundamentals: a strong macro-economic outlook, healthy businesses and improving occupier markets.”

King Sturge expects France and Germany to supersede the UK as Europe’s busiest investment hub in 2008 and also sees a momentum for growth building in emerging markets like Slovakia, Poland, Turkey and Bulgaria.

And although the Slovak financial markets are not immune to the developed world’s problems, local economists consider the positive impact of the planned 2009 euro adoption to be far more important than any negative consequences of the credit crunch.

The credit issues themselves are the developed world’s problem, and while several European banks have been hit, the US shock has not been repeated on the old continent.

As a result European consumers (with the exception of the UK perhaps) have not been largely affected by any US- style tightening of credit.

In fact the European Central Bank (ECB) has informed an increase of business loans granted in the eurozone last December by 14.4% (compared to November) - the highest monthly increase since 2000. The volume of personal loans and mortgages grew by 11.1% y/y last December.

So, how will all this affect the Slovak property market?

Not much is the likely answer. Slovak property is still attractive for growth and value oriented investors - in fact perhaps even more so today.

As explained at the beginning of this article, Slovakia is looking to continuing high economic growth and the increase in incomes and prosperity that goes hand in hand with it.

On the property side, low prices, strong and still growing local demand and insufficient supply of quality housing (with some of Europe’s lowest construction rates) will keep fueling capital growth. And, of course, the market doesn’t depend on investors or speculators but is driven by the strong desire of Slovaks to own a (better quality) home.

The main villains that have caused the US credit crisis are not present in the Slovak market, be it aggressive lending practices, unsustainable and inflated property prices or increased costs of borrowing.

Most of the western economies are highly leveraged (huge amount of consumer debt as well as business, bank and government debt) and hence vulnerable to any changes in lending criteria.

While Slovaks have become more acquainted with loans over the last few years, the mortgage market is still comparatively very new and many home buyers use savings instead of loans when buying a property. As opposed to Americans or Brits, most Slovaks are prudent savers and credit card debt is almost unheard of (although this might of course change in the years ahead). Consumer debt in Slovakia is one of the lowest in Europe.

And those who have used a mortgage to purchase their new home have little to worry about interest rates in the short-medium term. With the base rate at just 4.25% p.a. since mid 2007, and the expectation of further rate fall before the euro adoption, mortgages in Slovakia are both cheap and accessible. (Currently mortgage rates range from approx 5-7% p.a.)

So, in summary, the financial crisis may affect the Slovak finance market to some degree, however, the country is still in a very enviable position. And so is the local property market.

That of course is excellent news for you, the investor… whether you have already purchased a property in Slovakia or are still looking for the right opportunity. In which case we’d advise you to move fast.

Because while you may decide to wait to see what happens in the US and UK economy, the local property market - and prices - in Slovakia will most certainly not wait for you.

http://www.slovakiainvestmentproperty.com

The Slovak economy grew by 9.4% in QIII 2007, according to the Slovak Statistical Office. This means 0.4% higher growth than in the same quarter of 2006.

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The unemployment rate in Slovakia was 7.99% at the end of 2007, (according to the Central Office of Labour, Social Affairs and Family). That is a decrease by 1.4% compared to the end of 2006.

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The average nominal wage in Slovakia grew by 6.8% y/y to SKK 19,514 (588 euro) in QIII 2007. Real wages increased by 4.2% (Slovak Statistical Office).

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In 2007 foreign direct investment in Slovakia doubled (compared to 2006) to 1.28 billion euros, according to Sario (Slovak Investment and Trade Development Agency).

This came from 64 investments creating 14,738 new jobs. Sario is working on 146 new projects this year worth around 4 billion euros. Most of the investors come from Germany, US, UK, Belgium, South Korea, Austria and Italy.

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Slovakia’s 2007 budget deficit dropped below 2.5% of GDP (preliminary data from the Ministry of Finance of SR), which was considerably lower than the 2.9% predicted last year.

The Slovak economy ended 2007 with a deficit of SKK 23.53 billion (704.43 million euros), which was SKK 14.86 billion (444.85 million euros) less than budgeted. The economy improved by SKK 8 billion (239.52 million euros) y/y mainly thanks to higher tax revenues. (The 2006 deficit was SKK 31.68 billion.)

In 2008 the deficit is expected to be below 2.3% of GDP.

The country is therefore well on track to meet the conditions for adopting the euro in 2009, as planned.

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In 2008 Slovakia will be preparing for a new currency.

According to surveys 90% of Slovaks believe that the country will adopt the euro in January 2009 as planned. The predictions of economists and analysts support this. (According to INEKO foundation 75% of economists expect a successful 2009 euro adoption.)

The slovak crown (SKK) will remain in the European exchange rate mechanism ERM II until a final conversion rate is set (to be known in July). The exchange rate is expected to be SKK 32 to 33 for 1 euro. Some analysts predict an even better rate.

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A survey by GfK shows that Slovakia has the 4th highest internet penetration in CEE; 42% of Slovaks use the internet.

http://www.slovakiainvestmentproperty.com

Bulgaria is quickly becoming a haven of style, culture and opulence……

According to Quest Bulgaria, words associated with Bulgaria such as cheap, bargain and low-cost, are slowly being replaced with boutique, luxury and designer.

With developers chasing a wealthier clientele and Bulgarians become richer, a different type of tourist is exploring the treasures of the country.

Chris Goodall, managing director of Quest Bulgaria, said: “The evidence for this is overwhelming. Everywhere you look there are boutiques, designer shops and even the wine industry is taking on a new look. The evidence of Bulgaria’s re-branding is all around. Golden Sands, once the darling of discos and “kiss-me-quick” tourists has undergone a dramatic change – and it’s good to see.”

One driving factor is the construction of professionally designed golf courses from the Black Sea to the capital, with associated properties built to a lavish standard.

Luxury living

The cost of a four bed-roomed cliff-top home is up to about £330,000 but this has had the effect of pushing up prices of high quality property in the area. But there are still bargains to be had in the villages.

Marinas are another classic example of re-branding. Last year the country’s first private – and biggest – yacht port, the Marina Dinevi, opened in St Vlas on the Southern coast.

This state of the art port has moorings for 300 boats and can even accommodate the enormous King Class craft of over 75 feet. Boat International, the leading magazine serving the yachting industry, included the port in its annual catalogue of leading marinas which features similar complexes in the Seychelles and Paradise Islands.

In major cities, such as the capital Sofia, boutique hotels like the Maria Louisa, offer stylish surroundings and luxury living. Last year the Association for European Boutique Hoteliers held its annual conference in Sofia in recognition of its efforts.

Robin Barrasford of estate agency Barrasford and Bird said: “Since Bulgaria entered the European Union confidence in the country has grown. The demand for bigger, more luxurious front-line accommodation has increased enormously.”

Named the world’s strongest price riser in 2007, Bulgaria’s property market is successfully keeping up its momentum in the first month of the new year, realtors said.

The capital city of Sofia and the Black Sea town of Varna are recording the most impressive growth with asking price levels in the most expensive districts nearing EUR 1500/m2, shows data of the local real estate site www.imot.bg.

The districts of Yavorov, Ivan Vazov and downtown Sofia remain the costliest residential areas in the capital, commanding prices of EUR 1467/m2, EUR 1466/m2 and EUR 1425/m2 respectively.

Prices of residential property in the most expensive districts of coastal Varna, such as the Greek neighbourhood, overtake those in the capital with offers averaging EUR 1561/m2.

Experts point out that the sale prices levels are usually from 5% to 10% lower that the asking prices.

Bulgaria recorded the world’s strongest house price growth last year amidst a global cooling of the property market. A study carried out by Global Property Guide (GPG) set the country’s house price growth at 30.6% (15.4% in real terms) to end-Q3 2007 from a year earlier.

BRUSSELS (Reuters) - Luxembourg citizens are the richest in the 27-country European Union, over seven times more than the bottom-ranked Bulgarians, data showed, underlining the wealth divide between the bloc’s new and old member states.

Luxembourg’s gross domestic product per capita, expressed in purchasing power standards, was 280 units — two and a half times the 110 average of the 13-member euro zone in 2006, the EU statistics office said.

In Bulgaria, GDP per capita in purchasing power standards was 37 units. The EU average was 100 units.

The Luxembourg result is partly thanks to large numbers of cross-border workers who contribute to its GDP, but are not taken into consideration as part of the resident population used to calculate GDP per inhabitant of the land-locked Grand Duchy.

Ten eastern European, mostly former communist states joined the EU in 2004 while Romania and Bulgaria entered the bloc this year, expanding it to 27 countries.

All the new members, as well as older counterparts Greece and Portugal, have GDP per capita well below the EU average.

Non-EU member Norway came second in wealth terms in Europe with 186 units while Ireland, once among the poorest European nations, was third-richest with 146 units.

The biggest of the EU states that joined in 2004, Poland, had only half the average EU GDP per capita. Cyprus, Slovenia, the Czech Republic and Malta were closest to the average with scores between 77 and 92 units.

Europe’s biggest economies — Germany, Britain, France, Italy and Spain — were slightly above the EU average in a range of 118 to 103 units.

The purchasing power standard is an artificial reference currency unit that eliminates price level differences between countries. One PPS buys the same volume of goods and services in all countries, allowing volume comparisons of economic indicators across countries.

In their new residential market overview, commercial real estate consultants Colliers Partners Bulgaria said on October 17 that there had been an increase in average asking sales price in some Sofia areas of about 20 per cent in the first half of 2007.

Average selling prices in emerging neighbourhoods in Sofia were approaching 1000 euro a sq m, according to the company’s latest research.

Meanwhile, established areas in Sofia such as Doctors’ Garden between Shipka and Oborishte streets, Ivan Vazov and Lozenets districts saw solid double digit growth levels in the first half of 2007 with an increase in average asking sales prices of 19, 11 and 19 per cent, respectively. After a decrease in the second half of 2006, Doctors’ Garden compensated in 2007 and is now just below 2000 euro a sq m. Real estate prices in the Iztok area increased by an impressive 51 per cent on average by the end of June 2007.

Rental rates in Sofia, however, increased only marginally compared to sales prices. According to the latest Colliers Partners Bulgaria Residential Market Overview, levels varied substantially even within the same neighbourhood, and depended on location and surroundings, quality, amenities and furnishing.

“The supply of residential properties continues to increase at a steady pace, and the focus remains on planned communities and compound developments,” said Colliers Partners Bulgaria managing director Atanas Garov. According to the company’s general manager Ivan Velkov, demand for premises in residential complexes offering higher level of comfort through added services and amenities was increasing, and would be one of the main driving forces of the market.

The online English-language edition of Dnevnik reported on October 23 that the prices in Sofia for the first nine months of 2007 rose by 34 percent, higher than the country’s average increase of 22 per cent.

Real estate prices in Vidin recorded the biggest increase in Bulgaria, growing by more than 45 per cent for the same period, according to data from the National Statistical Institute in Sofia.

For the period July-September, prices in Sofia jumped by 15 per cent, followed by 12 per cent in Blagoevgrad. The leader was again Vidin with 20 per cent for this three-months period.

Sofia remains the most expensive city in Bulgaria with average price of 2000 leva a sq m, leaving behind the Black Sea city of Varna. In the past two years, prices of apartments in Varna were slightly higher than those in Sofia, but the trend has changed and Sofia is more than 150 leva a sq m ahead of Varna.

Brokers said that the main reason for the price increase was the record of the real price of the deals in the registry offices. Imoti BG real estate agency owner Lybomir Stanimirov said about 80 per cent of the market was based on loans and banks preferred to record the real prices of deals.

B&H Imoti owner Hristo Boikov said that besides this, taxes were now reaching normal limits and there was no sense in hiding real figures. Increases in tax assessments of properties also influenced the trend of announcing the real prices of concluded deals. According to Boikov, inflation, the rise in prices of main foodstuffs and other factors additionally were prompting people to put their money into real estate instead of “eating and drinking it”.

Stanimirov said the main factor for the increase in prices of apartments in Sofia was new construction. In the Sofia districts Malinova Dolina, Manastirski Livadi, Studentski Grad and Vitosha, about 70 per cent of apartments for sale are newly built.

Stanimirov said that at the beginning of 2007, prices in these Sofia neighbourhoods were 800 euro a sq m but had now reached 1200 euro a sq m. According to Boikov, the reason was that when an investor returns the initially invested money or the credits to the financial institutions, this leads to an increase in the prices of unsold apartments in the same building.

Nevertheless, if the prices in Sofia are higher than 1000 leva a sq m, comparatively cheap homes could be bought in small towns around the city, where the price a sq m is about 500 leva.

Developer Orco Property Group has acquired a plot of land to build a new office building in Prague district of Vysocany with total investment estimated at 450 mln crowns and with total leasable area of 10,506 square metres.

Construction works started last month and should be completed in April 2009, the company said.