Eastern Europe Property

Bulgaria, the poorest EU member state, must double productivity if it is to match the average GDP of the 24 other states by 2040, according to a World Bank presentation.

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.

Foreign individuals and companies with foreign shareholders bought real estate worth EUR 817 M in the first six months of the year, Bulgarian National Bank (BNB) data showed on Tuesday.

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.

The trend of the past four years of a steady increase in prices of holiday property at the Black Sea coast has started to drop off.

Prices in the past three to four years initially increased by to 20 to 30 per cent and even 50 per cent in a year, but this had not been the case in 2007, investor.bg reported.

The average price of bachelor flats and two-bedroom summer apartments in Sunny Beach dropped by four per cent between July 2006 and July 2007, according to a survey commissioned by investor.bg.

A trend of falling holiday property prices has been evident in other southern Black Sea resorts in Bulgaria, including Ahtopol where prices of bachelor flats went down by five per cent and that of three-bedroom apartments by eight per cent. Other resorts where prices decreased were Primorsko and St Vlas.

Investors have focused their interest on smaller inland villages and towns. Prices of some properties in Lozenets, Chernomorets and Golden Sands have gone up by more than 20 per cent.

Investors in holiday property would benefit from selling rather than renting out, specialists said.

A large number of Bulgarian seaside hotels could face bankruptcy already this year, the head of Bulgaria’s Tourism Agency Anelia Krushkova said.

Low prices have made Bulgaria an attractive destination in the past decade, with German, Russian and Scandinavian tourists being the most numerous.

But the rising number of tourists sparked a construction boom all over Bulgaria’s Black Sea coast, to the extent that supply now far outweighs demand.

Although Bulgarian hotel owners have lowered prices for foreign tourists, they are still to do so for local residents and could fail to attract enough revenue to pay off the bank loans used to build most hotels, Krushkova forecast.

The ongoing construction, which goes on even during the tourist season, has turned away some foreigners, the agency’s data shows.

After years of solid growth, the number of foreign tourists has fallen by 0,37% in the first five months of the year, compared to January-May 2006.

Even so, revenue from foreign tourists grew by 16% compared to the same period of last year, reaching EUR 532 M.

But the cramped conditions and the interminable construction is driving away even Bulgarian tourists, who spent EUR 497 M in the first five months of the year on vacations abroad.