On June 9th Guardian Unlimited carried a thought provoking article by Nikolai Chavdarov about the influx of UK investors in the property market of his native Bulgaria (A New Place in the Sun ). Taking as his starting point the results of the market survey by the Association of International Property Professionals (AIPP) on where UK citizens are buying property abroad, which ranked Bulgaria third after Spain and France, he raises important questions about the country spoiled by indiscriminate development and, by inference, the soundness of the investments that property purchasers are making.
Although, as the AIPP says, the growth in interest in Bulgaria has been extraordinary, their survey is for one year only – 2006. Total direct overseas property investment by UK citizens they estimate to have been in the region of £20bn with Bulgaria receiving 7.7% of that or £1.54bn. It’s worth noting that Spain and France between them accounted for about 50% of the total level of investment. It’s also important to remember that both these countries have long been favourites for property investments by the British.
The significance of British interest in Bulgaria becomes starker when one considers the level of overall investment in Bulgarian property, which BulgarianProperty.com estimated at 5bn Euros in 2006. The proportion of this investment being made by UK citizens is indeed massive, especially when one considers that the number of households of UK citizens in Bulgaria only passed the one thousand mark last year.
On a positive note, there has been an encouraging increase in UK tourism to Bulgaria (up 12% last year on 2005 statistics with about 425,000 visitors). Another attractive feature of the Bulgarian property market has been good rental values in both the residential and commercial sectors. However, rental yields are likely to decline as property prices rise and it is also important to consider location and the quality of building work when gauging rental potential. In the future, the true health of the property market may be evidenced by a robust market in holiday lettings for better off Western Europeans.
The country with the biggest increase in visitors to Bulgaria was Ireland, up by just over 100% from 2005 at about 60,000. a fortnight ago the Irish Independent reported that Irish citizens made up 5% of the non-nationals investing in Bulgarian property in the first quarter of this year. Last week the same paper reported a plot uncovered by the Garda to acquire Bulgarian property with fake notes with a face value of 500,000 Euros.
Bulgaria is hoping to join the Euro zone in 2009 but in the meantime there are fairly tough hurdles to be overcome in reducing the rate of inflation and the current rapid expansion of credit. Property prices, having risen by approximately 60% in the two years ended last December, are now rising by a more sober annualised rate of 15%. At a macroeconomic level Bulgaria has experienced an unusually high degree of population decline in recent years which may well come to affect residential property demand in the medium term.
As for the Bulgarian environment and scenery that UK investors may hope they are buying a stake in, all be it indirectly, serious problems of flouting planning law have come to light such as that at Varvara in the Strandzha Nature Park on the Black Sea Coast. The WWF warns investors that the Bulgarian authorities are beginning to take a tougher stance on violations of the laws regarding planning and environmental protection, especially in locations that Bulgarian nationals regard as part of their natural heritage.
In conclusion, Nikolai Chavdarov’s advice to visit the country to see what you’re buying seems obvious common sense for a country that most people in the UK know little about. Perhaps the point made by the Times online (where to get a house for the price of a car) that a house in a remote rural location in Bulgaria could be had for as little as £5,000 and that the time to flex plastic should be treated with more caution. Smaller, remoter Bulgaria doesn’t seem destined to become the new Spain so the property market does seem rather ‘over-marketed’.