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The Emergence Of The Bulgarian Real Estate Market

Buy-to-let investing in this country does not look particularly appealing as property prices and mortgage rates are high. So, if you are keen to plough money into a second property for the purpose of letting, you might want to consider a flat in Estonia, Poland or Bulgaria as an alternative.

Growth in residential property prices is slowing in most parts of the world because of the rise in interest rates and the tightening of lending criteria. But there are still countries where sterling goes far and value can be found in property.

"It's not all bad news for the global market," says Liam Bailey, head of residential research at Knight Frank, the international estate agent. "The Baltics, for example, have seen incredible growth over the last two years. And prices there are still at least 50 per cent less than those of properties in western Europe. In Estonia, Poland, Romania and Hungary, the feeling is there's much more room for potential growth."

A decade ago, when British property investors suffered a bout of wanderlust, they tended to buy villas in southern Spain. These days, however, more property investors are flocking to France, Portugal, eastern Europe and the coast of southern Turkey, where property prices have jumped 40 per cent in the past three years.

"Investors seem to be steering clear of Spain as they feel that the relentless modernisation along the coast has robbed the country of its rustic charm and that the volume of property to let has now reached its saturation point," says Matthew Weston, manager of overseas mortgages at Blevins Franks, the financial services group.

This year, the average value of a two-bedroom villa in Mallorca fell 20.5 per cent from 2006 while the value of a three-bedroom home dropped 12 per cent, according to Kyero, a Spanish property group. Prices also fell in Valencia and showed only a slight rise in Murcia.

Analysts claim Praia da Luz in Portugal, Nice, Cannes and even Paris are now far more attractive to Brits, with the price of properties in these areas ranging from €250,000 (Ј173,300) to €1m. The wealthy are also increasingly drawn to French ski resorts in Les Trois Vallйes. While the price of a property in Courchevel is as much as €20,000 sq m, demand remains high as yields on properties hover between 5 and 7 per cent per year. Capital appreciation on homes in Chamonix ranged from 5 to 10 per cent over the past decade, according to Blevins Franks.

For many, the Baltics and eastern Europe - where prices tend to be a quarter of the price of UK properties - are even more enticing. In Poland, scores of new developments are sprouting up in Warsaw and Krakow, for example. A two-bedroom flat in the centre of Warsaw costs Ј75,000. Annual yields on properties in the city range from 6 per cent for more expensive developments to 8 per cent for starter flats.

In Tallinn, Estonia, the average price of a twobedroom apartment jumped 10 per cent this year from the same period in 2006, reports Blevins Franks. Rental prices rose almost 16 per cent in the city's centre.

"There's always an element of speculation in markets like Estonia and you've got to do your research. But if you buy a quality product near a centre of employment, it should be relatively easy to let," advises Weston.

One point to consider before investing overseas is the cost: buyers need more money upfront - about 35 per cent of the purchase price in cash for a deposit and expenses, according to Ray Boulger of John Charcol, the mortgage adviser. Also, securing a mortgage may pose more problems outside the UK as lending requirements tend to be stricter (mortgage brokers advise taking out a mortgage in the country's currency to hedge risk). Mortgage rates vary widely from one country to another, but there are still good deals around, according to Conti Financial Services.

In France, a five-year fixed mortgage and interest repayment can be secured at a rate of 4.30 per cent with a maximum loan-to-value (LTV) ratio of 80 per cent. Variable rate, interest-only mortgages are available for 6.15 per cent with a maximum LTV of 80 per cent.

In Croatia, rates for variable mortgages are much higher and investors face a minimum rate of 8.5 per cent. In Bulgaria, rates for variable mortgages are also high at 7.5 per cent