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.

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.

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.

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.”

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.

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.

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.

Bulgaria will never match the average GDP per head of the EU 25 if productivity continues to grow by just 2 pct per year, said World Bank economist Satu Kahkonen, but the country will attain parity with the rest of the EU if it increases the annual growth rate to 5 pct.

To this end, Bulgaria must put in place modern technologies and reform its research and education sectors, the World Bank said.

It also highlighted a lack of flexibility in the job market, criticising the “restricted” mobility between the various employment sectors, working hours characterised by “rigidity” and relatively high working costs.

“Only a few investment transactions have been recorded on the market to date involving relatively small distribution facilities. The yields for these deals are estimated at 10%,”, says the market overview of leading real estate company Colliers International.

Experts point out that yield levels will be compressed as a result of more investment grade transactions, which are expected to take place with the further development of the sector.

The total inventory of contemporary owner occupied and speculative industrial space
in Sofia and the region around the city is estimated at 1,200,000 m2.

Rental rents for industrial space in Sofia remains stable and continues to range between EUR 3.5 – 5.5/m2/month for prime and secondary rents.

In Varna, the third-largest city in Bulgaria, the prime rental rates have decreased slightly because of Logistics Park Varna, which forms most of the prime supply and offers warehouse space at EUR 5/m2.

More than a third of the total inventory in Sofia is located in areas close to the international airport. Kazichene and Bozhurishte, located respectively just outside the eastern and western parts of the city, are the fastest developing new industrial zones.

The forecast is for new industrial developments to concentrate in the eastern part of the city (along the Ring Road between Trakia and Hemus Highways all the way to the town of Elin Pelin) and the western part of the city (along European Transport Corridor 10).

The figure is a 79% increase over the same period of last year, when foreign buyers paid EUR 457 M for real estate in the country.

Real estate buys accounted for nearly 40% of all foreign direct investment in January-June, helping offset flagging inflows, according to the BNB figures.

Bulgaria has attracted foreigners for years with its warm climate, seaside and winter resorts and relatively low-priced properties, but interest grew into a boom last year.

Foreigners spent a total EUR 1,13 B on Bulgarian real estate in 2006 and will almost certainly spend even more this year, although overconstruction is turning some of them off.

Brits remain the driving force of the boom and paid, as a whole, more than anyone else to buy houses in Bulgaria, focusing on seaside properties and accounting for 15,9% of the total money spent.

Austria and Luxembourg follow in the rankings, with 13,2% and 11,8%, respectively, while Spaniards spent 7,5% of the total sum.

Bulgaria joined the EU in January, but that had no effect on the market, as foreigners could buy real estate long before the accession, with the exception of the land itself.