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Uncertain Times For Bulgarian Property Investment

A great weight of data has been released relating to the Bulgarian economy recently and it has been being analysed by financial experts; the resultant data coupled with opinion leaves quite a confusing picture in the minds of many would-be property investors about whether now is an uncertain time to commit to the property market in Bulgaria or not.  There are those who are staunchly defending the robustness of the economy, those who are claiming overseas investors are backing away from Bulgaria and then there appears to be a fiscal landscape that could go either way.

We’ve been attempting to sift the facts from the opinions to present a clearer picture to you of what’s going on in Bulgaria - and to be honest, we see uncertain times ahead for Bulgarian property investment. 

In 2007 things on the foreign direct investment (FDI) front appeared to be going well for the nation.  FDI was up 30% year on year compared to 2006, but it only managed to account for about 92.1% of the account deficit, whereas in 2006 FDI amounted to 110.9%, suggesting quite determinedly that Bulgaria’s current account balance of payments deficit is spiralling rather rapidly.  According to a report in The Guardian, the account deficit widened by 57% in 2007 compared to 2006 and that one of the key reasons for this was an increase in imports.

Now Bulgaria is importing far more than it is exporting because of growing consumer demand.  In 2007 there was an 18.7% increase in imports which equated to an outward spending of 20.8 billion euros compared to a 13.4 billion euro increase in export income coming into Bulgaria.  This fact coupled with the widening account deficit has analysts in a bit of tizzy about investment into Bulgaria.  Clearly the nation is relying heavily on its attraction for foreign direct investment, but if a worsening of the global credit situation is encountered, this could impact negatively on the amount of FDI flowing into the nation and seriously undermine the health of the economy.

Added to this is the fact that some are predicting many individual British, Irish and European investors with property in Bulgaria are now dumping their real estate assets and that fewer new investors are likely to enter the market in 2008.  There is no concrete evidence to back up these opinions however, but the reasons cited relate to a tightening of yields, a slowing in terms of price appreciation and the fact that some regions of the nation now have a reputation for unattractive property assets.

Countering this argument is the chief executive of UniCredit Bulbank, Levon Hampartzoumian.  UniCredit Bulbank is the largest Bulgarian bank and Levon Hampartzoumian is determined that there is room for consistent long term growth in many sectors of Bulgaria’s real estate market.  He also advised journalists at a recent press conference that because the business climate and economic models in Bulgaria follow a different pattern to those in the likes of the US and the UK, the nation would be spared any serious knock-on effects from a downturn in leading economies in the world – this doesn’t sound very realistic, but who are we to comment!

Mr. Hampartzoumian did admit that there was far less room for profitability in the residential property market in Bulgaria now, but he said this just meant that investors’ approaches to the market were adapting with focus now on a longer-term strategy.  He suggested that there was far more room for consistent and solid yields in other sectors of the property economy such as in retail, office and logistics.  According to UniCredit, yields of 7.5% are achievable upon average in the office sector, 8.5% in retail and 9% in logistics with the latter sector of growing interest because of the amount of EU money going into the construction and development of five transport corridors across Bulgaria.

The towns and cities of Sofia, Varna, Plovdiv, Bourgas, Pleven, Rousse and Vidin are most likely to see a positive knock on effect in terms of demand for real estate and price appreciation as a result of the development of the transport corridors, and they may therefore be the best locations for property investors who are still interested in Bulgaria but who are prepared to look to the longer-term for profitability.