At present, Bulgaria is one of the least populated European states. Bulgaria isapproximately the size of England, but with a population of only eight millionpeople. As well as eleven blue flag beaches, Bulgaria has 354 km of BlackSea Coastline, 37,000 km of hikingpaths in the mountains and a series ofalmost unpublicised Roman, Greek and Thracian historical attractions, including nine UNESCO world heritage sites.

In the mountain and coastal regions, high quality, branded golf resorts and spa health centres are in development which will create year-round rental potential.

The property market in Bulgaria isundergoing rapid change moving towardshigher quality developments; only granting planning permission to thehighest quality projects, and taking care to protect the national parks and naturalresources which have proven such anattraction. Over the past four years the number of foreign tourists to Bulgaria has increased almost 50 percent, with numbers from the EU growing by nearly90 percent.

The world trade organisation forecasts that by 2010 Bulgaria will bevisited annually by 20 million tourists – the forecasts make Bulgaria one of the world’s most promising international tourist destinations. Marriedto the strong economic growth and political stability described below,Bulgaria continues to be a strong investment prospect in 2005.

After emerging from Communism in 1989, Bulgaria existed under a seriesof weak coalition governments, a situation which persisted until theelection of a government devoted to free-market principles in 1997. This was a key turning point for Bulgaria: also seeing the creation of a currency board which tied the Bulgarian Lev first to the German mark and then tothe Euro, a move which has contributed materially to economic stability.

After 1997 Bulgaria performed well in three-year programmes with theInternational Monetary Fund (IMF) and the World Bank. Under the three-year agreement with the IMF which ended in 2001, Bulgaria received total financing of about $860 million, while the World Bank supported various projects with an amount of over $500 million for the years 1997 – 2001. Since 1990 the bank has allocated $1.54 billion for 27 further development projects in Bulgaria.

This structural investment has recreated the Bulgarian economy as one of the strongest in the region, impressively out performing expectations andmoving ahead of Romania. Based on information from the World Bank, GDP growth between 1998 and 2004 has been between 4 and 5 percent. In 2004 growth stood at 5.3 percent and has risen to 6.4 percent in thesecond quarter of 2005 as predicted by the Institute of International Finance. This is better than forecasts for any other Eastern European Country, and significantly better than Hungary, Poland or Czechoslovakia.

These figures have helped the international community to become very bullish on Bulgaria: inflation has decreased almost to 0 percent and privatisation programmes are moving quickly. The World Bank’s director for Romania and Bulgaria has identified Bulgaria as “a good place for investment”, noting that in three years, Bulgaria has risen from being the Bank’s lowest-rated country in the region to the highest.

Bulgaria has proven to be ideally placed to take advantage of the recent development of a strong market for emerging market property investment. 40 percent of property buyers now claim to be tantalized by emergingmarkets because of lower costs and higher opportunities for capital appreciation. Bulgaria’s history of communism, combined with the slow start to themarket economy in the 1990s means that in terms of prices, Bulgaria issomething of an anachronism – like finding a house in Kensington that somehow has escaped being done up and consequently sells far below the genuine value. Foreign nationals can buy freehold, but have to set up a company in order to purchase a property with land. In April 2005 a law was passed in orderto bring Bulgarian property legislation into line with the rest of Europe:however, this legislation will not enter into force until 2007.Most developments will be sold as freehold – and can be bought in the customer’s name. Alternatively, it is not difficult to set up a shell company in order to purchase property for a minimal cost; the process takes about two weeks in total. The standardisation of Bulgarian land law in 2007 willprovide an additional boost to the property market contemporaneous with European Union accession.

The country’s history of communism, combined with the slow start to themarket economy in the 1990s means that in terms of prices, Bulgaria issomething of an anachronism – like finding a house in Kensington that somehow has escaped being done up and consequently sells far below the genuine value.

Foreign nationals can buy freehold, but have to set up a company in order to purchase a property with land. In April 2005 a law was passed in orderto bring Bulgarian property legislation into line with the rest of Europe:however, this legislation will not enter into force until 2007.

Most developments will be sold as freehold – and can be bought in the customer’s name. Alternatively, it is not difficult to set up a shell company in order to purchase property for a minimal cost; the process takes about two weeks in total. The standardisation of Bulgarian land law in 2007 willprovide an additional boost to the property market contemporaneous with European Union accession.

The property market in Bulgaria remains strong in 2005, with growth in thefirst quarter at 10.6 per cent. If prices continue to rise at the same level, Bulgaria should achieve similar gains in 2005 as in 2004: between the fourth quarter of 2003 and the fourth quarter of 2004, an average increase of 47.5 per cent was recorded nationally.

Property Market

Capital appreciation measured 47.5% on average, nationwide in 2004. ByJune in 2005 prices had risen by 24.6% in some mountain areas. The Bulgarian tourism industry has the dual attractions of coast and mountains, and international property buyers have been tempted towards both destinations. Prices are higher on the coast with apartment prices inVarna rising 10.8 per cent in Q1 to an average 1200.5 Lev per sq. m (GP407.8) Bourgas is the third most expensive destination which, after an 11.2% increase in Q1, saw apartment costs rise to an average of 1069.5Lev per sq. m (GP363.2).

Tourism

Over the last years the Bulgarian tourist industry has emerged as a Cinderella success story, being identified by the WTO as one of the most appealing ‘new faces’ in international tourism. In 2004 over 4.6 milliontourists visited Bulgaria. The strength of the industry was demonstratedduring a baptism of fire in 2002; a year in which tourism plummetedinternationally, yet Bulgaria recorded a 20 percent rise in visitor numbers.

The market has remained seasonal; with research over the past three years showing that fifty per cent of visitors arrive in Bulgaria inthe peaksummer months, with only fourteen per cent visiting between January and March. The peak season on the Black Seacoast lies between April and October, with letting in theski resorts strongest between December and April.

Statistics from the Ministry of Economy also suggest that consistent goodpublicity for Bulgaria is appealing to a more exclusive market. In 2004, Bulgaria attracted impressively high numbers of visitors from the EU15.Visitor numbers from the UK increased by 62.60%, and visitor numbers from Ireland increased by a remarkable 83.79%.

Despite this,there is stillsignificant potential within the Bulgarian tourist industry. The governmenthas a strongcommitment to tourism, whichaccounts for 12% of GDP. Government statements suggest that Bulgaria is keen to develop ina structured and thoughtful way.An obvious model is Austria, which attracts high numbers ofvisitors throughout the year to the mountains.

The huge investment by the Bulgarian Government in Borovets is testament to the commitment the country has made to hosting the Winter Olympics in 2014. Bulgaria has been short listed, seeing off competitionfrom established winter resorts in France, Scandinavia and the United States of America.Securing the bid would signal a huge success for Bulgaria as a country but irrespective of the outcome, the “Super Borovets” project will ensure huge growth for investors.

The first phase, expected to be completed by 2007, should double the accommodation capacity of the resort. The second phase concentrates on constructing tourist facilities in the area enclosed by the Iskur River,Samokov and Borovets. This will be preceded by approving a cadastral plan, an environmental impact assessment and a comprehensive spatial development plan. Building of more facilities at an altitude above 1400 m above see level is planned in the third phase of the concept.

2014 Winter Olympics

The Former Sofia Regional Governor Olimpi Kutev said the concept takes into accountBulgaria’s bid to host the 2014 winter Olympics. Meanwhile, the other twoleading winter resorts of Bulgaria – Bansko and Pamporovo – are scoring points.

In its February 5 issue, The Financial Times ran a story about Bansko. Thenewspaper’s correspondent Kerin Hope wrote that investment in Banskoand its surroundings had transformed it into “one of the shiniest ski resorts in new Europe”.

There are 17 ski runs in the resort, including a 16 km run from beneaththe Todorka peak down to the outskirts of town. As foreigners grow more familiar with Bulgaria, pouring money into holiday homes along the BlackSea coastline and investing instead of renting as expatriates in Sofia, itseems only natural that ski resorts would be next in line for a propertyspending spree, the report said.

The medium-term strategy was to bring the ski facilities up to a standard that would enable Bulgaria to host the 2014 Winter Olympics, the article said.

Meanwhile, hotels in Pamporovo were almost 100% full, the Pamporovo 21 Century hoteliers’ association said. This is the most successful winter season in five years, said Georgi Georgiev, who chairs the association.

The number of tourists has increased by 22% compared to the same period of 2004. The hotels are almost full and 70% of the guests are foreign tourists from the UK, Ireland, Sweden, Serbia and other countries.

Some UK tour operators have already signed contracts for next year, thehoteliers’ association said. The contracts indicate growing interest in the skiing resort and an expected increase of 15 to 30% in the number oftourists next winter.

EU Accession

Together with Romania, Bulgaria will be the next country to be acceptedinto the EU. Bulgaria has fulfilled the conditions for entry, the accessiontreaty has been signed, and accession should be completed in 2007. Joining the European Union should allow Bulgaria to take advantage of an advantageous geographical position and educated workforce. Bulgariashould also benefit from EU infrastructure and expertise

Bulgaria has already profited from high levels of pre-accession aid: joiningguarantees further aid flowing into Bulgaria which will be directed toimprovements in infrastructure. Finally, accession will offer someguarantee of stability. The remaining weaknesses in Bulgaria’s economy should be mitigated, with property prices responding accordingly. Significant price increases were recorded after accession in Cyprus, theCzech Republic, Hungary, Malta, and Poland: Bulgaria should follow suit.

With the accession treaty signed, further legislative change will be gradual.Bulgaria and Romania will not immediately adopt the Euro on accession;neither will the internal borders be lifted: instead, controls will graduallydisappear when the countries are deemed to be ready.

Forecasts

Prices continue to be comparativelyverylowinBulgaria.Competitor nations in Eastern Europe are becomingmore expensive, which will ensure that Bulgaria’scompetitive advantage remains despite the price rises of 2003and 2004. After joining the European Union Warsaw, Prague and Bratislavaall jumped more than ten places in theMercer Global Cost of Living Survey. This ensures that property in Bulgariaremains up to 40 per cent lower than in neighbouring countries.

As in 2004, price increases in 2005 will be more arresting in certain areas: the propertymarketinBulgariais predicated on tourism and for thestrongest combination of rental yield and capital appreciation, buyers should continue to invest in the ski and coastal resorts. A recent trend is for interest in gated and luxury developments; high quality builds by reputable developers are likely to prove the best investment.

The forecasts suggest that prices in Bulgaria will continue to rise until EUaccession in 2007. Accession will then give property an additional boost, followed by an initial levelling of the market before steady year on year growth.