ABSOLUTE gUIDE sERIES to Investment Property
Bulgaria
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Date of Publication: September 2008 © Obelisk 2
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Contents 5. Welcome to Bulgaria
Dedicated to providing impartial information.
6. Economic Growth & Stability Bulgaria boasts the
3rd
highest growth rate in the EU.
7. Currency & Banking Banking system remains stable and well capitalized.
8. Foreign Investment 2007 was a record year for FDI.
9. Political Situation & Stability
Bulgaria has remained politically stable since its EU accession.
10. Tourism
Bulgaria will attract 16 million visitors per year by 2017.
11. Infrastructure
16. Mortgage Market
Bulgaria’s mortgage market is evolving rapidly.
17. Market Risks
Investor confidence is set to continue into 2009.
18. Purchase Process
Foreign investors can purchase Bulgarian properties.
19. Investment Costs
State tax is between 2% and 4% of the purchase price.
20. Summary
Bulgaria is the No. 1 place in the world for property price growth.
21. Verdict
Bulgaria provides a number of advantages for the
Road and rail networks are to be revamped.
investor.
12 - 13. Property Market
22. Obelisk Advantage
Property prices increased by 68% over the last 2 years.
14 - 15. Secondary Market
Obelisk approaches its projects purely from an investment perspective.
Credit opportunities create demand for quality housing.
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Ruse Dobrich Razgrad Shumen Vratsa
Pleven
Veliko Tarnovo Sliven
Gabrovo Sofia Pernik Kyustendil
Bansko
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Stara Zagora
Yambol
Stara Zagora
Pazardzhik Plovdiv
Blagoevgrad
Varna
Haskovo
Burgas
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Bulgaria forms part of the Obelisk Absolute Guide Series, dedicated to providing impartial information to numerous property investment destinations worldwide.
Welcome
to Bulgaria
As the market leader for overseas investment property,
provide you with in-depth, clear-cut knowledge on the
we are committed to providing cutting edge information
most important factors influencing your property
for property investors, one aspect that has earned us
investment decision in Bulgaria.
the award of International Property Specialist 2008 by Business Britain magazine.
In this guide you will find recent economic performance and predicted growth, a profile of the current
We are therefore pleased to present our latest
property market and its future potential, along with
Property Investment Guide to Bulgaria, an essential
tourism trends and infrastructure improvements. The
tool for the investor planning to buy property in this
guide also includes information about Bulgaria’s
country. This guide forms part of the Obelisk Absolute
mortgage market, the buying process and buying costs.
Guide Series, dedicated to providing impartial information about numerous investment destinations
Obelisk’s Absolute Guide to Bulgaria offers investors
worldwide.
objective and authoritative information to facilitate an informed decision about investing in Bulgaria. We trust
At Obelisk, we are only too aware of the importance of
that you, as an investor, will find this guide
extensive research into an investment destination and,
indispensable.
as part of our policy to offer investors the definitive service, this guide has been rigorously researched to
Here’s to successful investing!
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GDP Growth (Q2 2008): 6.3% GDP Per Capita (2008): US$11,008 Inflation (July 2008): 14.5% Unemployment (July 2008): 5.95%
Economic Growth
& Stability Having performed excellently in Q1 of 2008,
Standard & Poor have confirmed Bulgaria’s long term
Bulgaria’s economy is in good shape. Gross
rating as BBB+ and short term rating as A2,
domestic product (GDP) increased by 6.3% in Q2 of
acknowledging Bulgaria’s attempts to manage fiscal
2008 - this South-eastern European country now boasts
policy, management policy and to reduce public debt
the 3rd highest growth rate in the EU. According to
in order to prevent long periods of high inflation and
The Economist, GDP is set to stabilise at just over 6%
loss of external competitiveness. All of which could
between 2008 and 2010.
affect Bulgaria’s future credit rating. However, according to research by Moody’s Investors Services,
Inflation in Bulgaria has risen significantly during the
Bulgaria’s banking system is strong enough to
first half of 2008. This rise has been primarily
withstand a significant financial or economical shock,
attributed to the increase in food prices. However, The
rating the country Baa3 for Bulgaria’s “prudent fiscal
Economist predicts that inflation will reduce in 2009,
policy and low and declining debt levels”.
a sign that is already showing; inflation decreased to 14.5% in July 2008 from 15.3% in June 2008. Statistics for July 2008 showed that Bulgaria’s unemployment rate stood at 5.95%, a 1.28% reduction on the same period of the previous year.
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Currency
& Banking Bulgaria’s currency, the Lev, was pegged to the Deutschemark in 1999. When this changed to the Euro, the Lev exchange rate to the Euro was established at 1.995583 Lev to 1 Euro. Consensus from domestic parties is that the currency board will remain with Bulgaria’s Lev pegged to the Euro until the country joins the Eurozone around 2013-2014. Since the introduction of the currency board, the banking system has remained stable and well capitalised. 85% of local banks are majority-owned by well-established foreign banks. Moody’s Investors Service commented in a Bulgarian Bank report in July 2008, that most banks demonstrate solid profit levels, high business volume, healthy interest margins and acceptable capital. Elena Panayiotou, a Moody’s analyst and author of the report, quoted “Bulgaria’s improving regulatory and supervisory environment and the positive economic cycle are supportive for the franchise development of the country’s banks”.
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Foreign Companies Investing in Bulgaria Carlsberg, Hewlett Packard, IBM, InBev, Microsoft, Nestlé, Siemens
Foreign Investment Immediately after joining the EU in 2007, Bulgaria saw a
and telecommunications infrastructure, meet EU
peak in foreign direct investment (FDI) of around €6 billion,
economic regulation standards, eradicate bureaucracy
with approximately 60% of all FDI in 2007 going into the
and corruption and simplify administrative procedures.
real estate sector.
Bulgaria is working hard to entice foreign investors offering incentives that include low taxes and cheap
According to preliminary data from the Bulgarian
labour, helping industrial investors buy land and
National Bank, the first 6 months of 2008 saw FDI of
co-financing training for employees amongst others. The
€2.078 billion, accounting for 6.3% of GDP. This
Bulgarian Investment Agency has expressed its confidence
represents a decrease from the same period of 2007,
that FDI in 2008 will be around the same levels as last
where FDI accounted for 8.8% of GDP.
year.
Despite the fall in FDI, Bulgaria has secured third place in
A US$20 million investment is being made by ABB, a
the most attractive destinations for foreign investment in
leading engineering company, for its 3rd production
South-eastern Europe, according to independent market
operation in Bulgaria. The Japanese Bank for International
researchers, CSA and Ernst & Young. More than 68%
Development has granted a €230 million loan for the
of the survey’s respondents believe that Bulgaria will
construction of new container terminals at the ports of
regain popularity among foreign investors, but recommend
Varna and Bourgas.
that the country looks at ways to improve its transport
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EU Member: Since 2007 NATO Member: Since 2004 WTO Member: Since 1996 Political System: Parliamentary democracy Ruling Party: Coalition of Bulgarian Socialist party (BSP), the National Movement for Stability and Progress (NMSP) and the Movement for Rights and Freedoms (MRF)
Political Situation
& Stability Since becoming a member of the EU in 2007, Bulgaria has remained politically stable. The President, George Purvanov (who was re-elected in October 2006), and the Prime Minister, Segei Stanishev (who is head of the National Government) have ensured that Bulgaria has met the majority of EU regulations. However, one principal problem, as in many of the countries in this region, has been in achieving the successful implementation and enforcement of existing laws. However, the government is continuing to introduce better monitoring mechanisms, better training and stricter ethical standards. Currently, Bulgaria’s government is a parliamentary democracy and a coalition of the Bulgarian Socialist party (BSP), the National Movement for Stability and Progress (NMSP) and the Movement for Rights and Freedoms (MRF). Prior to the country’s recent EU accession, Bulgaria joined WTO in 1996 and became a member of NATO in 2004.
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Visitor Numbers (2007): 5.15 million Tourism Expected Contribution to GDP (2008): 12%
Tourism Bulgaria has a diverse tourist industry offering perfect skiing conditions during the cold, snowy winters and relaxing beach resorts along the Black Sea Coast during the hot summer months. Bulgaria’s capital city, Sofia, also provides a chic, cosmopolitan tourist attraction. Around 75% of visitors come from European countries, making the EU its main source of revenue within the tourism industry. In 2007, 5.15 million foreign tourists visited Bulgaria generating $3.6 million in revenues, a 10.8% increase on 2006. By 2017, Bulgaria will be attracting over 16 million visitors per year, according to the World Travel and Tourism Council (WTTC). Bulgaria’s most popular ski resort, Borovets, is undergoing major expansion to accommodate a new 20,000 to 30,000 square metre hotel and apartment development. Bulgaria’s air transport sector has been making good progress, with a 13% increase in passenger numbers in 2007. Air travel remains the strongest of Bulgaria’s travel segments. 1.54 million passengers passed through Sofia Airport in the first half of 2008, an increase of 19% on the same period of the previous year. ThomsonFly, My Travel, Wizzair and Hemus Air all fly from a range of European airports to Bulgaria’s major cities.
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Tourism Expected Contribution to Employment (2008): 10.2%
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Infrastructure Plans to transform major road and rail networks €230 million loan to build new container terminals at Varna and Bourgas port Whilst Bulgaria has made efforts to improve infrastructure
The Ministry of Transport signed a deal with German
throughout the country, Bulgaria’s road and rail systems
company, Poyry Infra, in August 2008, for contracts to
are both in need of attention. However, plans have
modernise the main railway lines throughout Bulgaria,
currently been shelved since the EU announced
with a combination of state and private finance.
suspension of €500 million funding for Bulgaria. Plans to revamp Bulgaria’s major roads, in particular Struma,
The Bulgarian Cabinet have recently received a loan of
Trakia, Maritza and Hemus were expected to begin
€230 million from the Japanese Bank for International
construction work in 2008.
Development in order to construct new container terminals at the ports of Varna and Bourgas. Transport
Bulgaria’s national rail network is set to benefit from a
Minister, Petar Mutafchiev, has revealed that the project
facelift. New coaches, repairs and upgrades for the rail
will be completed by 2014, however, the ports have
lines will allow trains to travel at a speed of 160 km per
already seen a 40% increase in container loads,
hour, radically reducing travel times.
compared with the year before.
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“The Knight Frank 2008 Global House Price Index reports that for the fourth consecutive quarter Bulgaria came top of the list with a growth rate of 32.2% for the year up to Q2 2008.” Capital Growth (Q2 2008): 32.2% Average Annual Rental Yield (Sofia): 6.4%
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Property
Market
The Knight Frank 2008 Global House Price Index
Around 90% of housing development is accounted
reports that for the fourth consecutive quarter Bulgaria
for by Bulgaria’s private sector, which also contribute
came top of the list with a growth rate of 32.2% for the
heavily to infrastructure improvements. As the average
year up to Q2 2008. Property prices have risen by an
Bulgarian income continues to grow, more credit
incredible 68% over the last 2 years. Residential
facilities become available and more people move to
property prices continue to rise and look set to
urban locations, demand for high quality residential
experience 10% to 15% growth in 2008 with Sofia’s
property will rise, particularly in the capital, Sofia.
residential real estate market boasting one of the most dynamic markets in the country.
However, there are signs that the property market in some areas is approaching saturation point.
According to a 2008 survey by the Association of
According to the Bulgarian National Bank, the property
International Property Professionals, Bulgaria was
market contracted by 17% from January to June 2008.
ranked as the
4th
most popular destination for Britons
The problem is particularly acute in some Black Sea
purchasing overseas property. 75% of UK mortgage
resorts where property analysts believe that over-supply
brokers expected to see an increase in the number of
means between 20% and 30% of new-build apartments
UK buyers looking to snap up property in Bulgaria over
may remain unsold over the next 2 years.
the next 3 years, according to a NatWest survey. The survey also revealed that Bulgaria is the number one destination of choice for Russian buyers, many of whom purchase resale property from British owners.
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Secondary
Market
Bulgaria has recently been considered as one of the
Sofia presents a highly strategic property investment
world’s top property hotspots. The growing economic
location for investors, due to the massive commuter
stability and increasing credit opportunities are
market. The rise in the number of domestic workers
reinforcing the demand for high quality, residential
migrating to the capital to work for big multinationals,
properties with the emerging Bulgarian mid to high
combined with the foreign workers arriving with the
class market vying for properties within commuting
multinationals, is creating huge demand for both rental
distance of the city. With salaries on the increase - the
and sale property in and around Sofia.
monthly salary in Bulgaria has increased by 24.4% per month compared to the 1st trimester of 2007 -
Letting to the local commuter provides an attractive
demand for property in Bulgaria is likely to continue to rise.
option where gross rental returns are around 6%, although yields tend to be higher for smaller
However, a slowing in the property market compared to previous years has been noted. Despite this, 10% to 15% capital growth is still expected in the property sector for 2008.
Sofia presents a highly strategic property investment
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apartments of 60 to 90 square metres.
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“With salaries on the increase, demand for property in Bulgaria is likely to continue to rise.”
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Mortgage
Market As the Bulgarian market continues to evolve, so too are its mortgage products, remortgages and equity release options. Some of the country’s banks have already cut the tie-in period for mortgages down to just three years, as well as chopping down redemption charges. But securing a mortgage on a property in Bulgaria doesn’t have to be done in the country itself; investors can now benefit from a hassle-free way of completing paperwork as a number of banks in the UK are offering Bulgarian mortgages to British citizens. This makes it easier and less time-consuming with no language barrier to battle with. Mortgage interest rates start at around 6% and capital repayment and interest only mortgages are available. The Bulgarian mortgage term is 25 years or age 70 at completion. Equity release amounts are increasing up to 75% of the appraised valuation, allowing investors to take on other projects and expand their portfolio. Interest only periods have previously been offered for a maximum of the first 2 years, however, this period can now be up to 10 years. A percentage of guaranteed or certifiable rentals can now be included when assessing the mortgage application – one way of increasing borrowing power for investors.
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“ Property in many areas, such as Sofia, still represents excellent investment potential and according to Ernst & Young, investor confidence in Bulgaria is set to continue well into 2009.”
Market
Risks
Property investment into emerging markets may carry
areas, such as Sofia, still represents excellent
some degree of risk. However, the degree that market
investment potential and according to Ernst & Young,
risk in a particular country affects a property
investor confidence in Bulgaria is set to continue well
investment depends largely on thorough due diligence
into 2009.
conducted prior and during the purchase process. Corruption has been a problem in Bulgaria, and the Contrary to fears that Bulgaria’s economy may be at
country is under huge pressure from the European
risk of over-heating, The Economist predicts that GDP
Union (EU) to undertake serious measures against
growth will stabilise at just over 6% between 2008
crime and corruption. Whilst the EU recognises that
and 2010, and that despite Bulgaria’s sharp increase
genuine efforts have been made, particularly in the
in food prices, 2009 will see a reduction in the
judicial system, more work and results are needed,
country’s inflation. Regarding the effects of the global
until which time, the EU has frozen some of the
recession, Moody’s Vice President, Kenneth Orchard,
country’s funding. Tackling this problem is one of the
believes that Bulgaria’s banking system is strong
government’s top priorities and they are committed to
enough to easily withstand financial difficulties.
more concrete results by the end of the year. With the EU keeping a watchful eye over Bulgaria’s progress,
The recent intense construction in Bulgaria means that
and the possibility of losing out on vital EU funds,
the current property market in some areas presents
improvements should be forthcoming in the near
some risk of over-supply. However, property in many
future.
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Purchase Process Bulgarian laws and legal processes may be very different from what you are used to and Obelisk strongly recommends that independent legal advice be taken during a property purchase.
Below is the standard purchase process in Bulgaria and issues that may affect a property purchase. Non-Bulgarian nationals are currently able to acquire buildings but are not permitted to own land in Bulgaria. However, foreigners may purchase land by setting up a Bulgarian limited company. To do this, the purchaser will need to register as a company director, which must be done through a solicitor, which can take around four weeks. The preliminary contract of sale will be drawn up by the purchaser’s lawyer, at which stage the 10% deposit is expected to be paid. The purchaser’s lawyer will conduct the necessary checks on licenses, title documents, permissions, debts on title and terms of contract. Finally, the purchaser will be required to pay the balance of the purchase price as well as land tax and the relevant fees, which will amount to around 5% of the overall purchase price. After payment of these costs, the property will legally belong to the purchaser.
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Investment Costs Bulgaria’s taxation is complex and subject to change. You are therefore recommended to take expert and up-to-date advice on taxation issues affecting the purchase and ownership of property in Bulgaria.
The costs of a standard property purchase in Bulgaria may include the following: State tax is between 2% and 4% of the purchase price, which is not dissimilar to the UK’s stamp duty. Notary fees range between 0.1% and 1.5% of the price in the title deed, with a maximum fee of 3,000 Lev (around €1,500). Land registry costs are 0.1% of the total value. Legal fees are around 1% of the property value. Property tax is payable annually at rates which range from 0.15% to 0.3% depending on the municipality. The rate is calculated based on the taxable value of the property. Income from rental property is taxed as income tax at the rate of 10%.
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Summary The following summary provides key highlights to consider when investing in Bulgaria’s property market: Growing economic stability and
Bulgaria’s banking system is strong enough
increasing credit opportunities are
to withstand a significant financial or
reinforcing the demand for high quality
economical shock.
residential properties. The mortgage market and its products are Bulgaria is the No. 1 place in the world
evolving.
for property price growth, for the fourth consecutive quarter.
New railway lines, container terminals and the upgrading of major road networks will
Inflation is on the road to reduce in 2009.
transform the country’s infrastructure.
Bulgaria is third in the most attractive
Bulgaria will regain its popularity among
destinations for foreign investment in South-
foreign investors, according to 68% of
eastern Europe.
Bulgarian respondents for a CSA/Ernst & Young survey.
Bulgaria is politically stable. By 2017, Bulgaria will be receiving over 16 million visitors per year. The capital city, Sofia, provides a highly strategic property investment location for investors.
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The Absolute Guide Series Rating
Based on our extensive research, Obelisk has introduced a 5 star rating system to summarise the investment potential of a country. The availability of finance, economic stability, political stability, the strength of the local market to provide an exit strategy and the potential to earn from investment are the key criteria that determine the investment grade of each country.
Verdict Bulgaria has recently undergone huge transformation from communism to democracy. Hand-in-hand with this has been a booming property market, one with some of the highest returns in Europe. However, the intense construction in some parts of the country makes this stillgrowing market one to approach cautiously. Until recently, investment in property in many parts of the country brought exceptional returns. However, although homes are still cheaper than in many European countries, investors now need to undertake more research and be more selective in their investment criteria. This ensures the right investment in the right place and avoids over-valued property. If the investor avoids areas currently suffering from over-supply, Bulgaria remains a good investment opportunity. Buying the right property in the right location still represents excellent potential. For example, high-end properties in and around the larger cities, especially Sofia, are highly desirable among foreign buyers, particularly new investors from Russia. Based on thorough research that we have carried out in Bulgaria, we at Obelisk believe that with careful choice Bulgaria is still a good option to explore for overseas property investment.
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Obelisk
Awards Obelisk ‘International Property Specialist 2008’
Advantage
Voted International Property Specialist of the Year 2008 by Business Britain magazine, Obelisk has been recognised as the authoritative voice within the industry and its clients benefit from the company’s uncompromising high standards and professionalism. Obelisk has identified a simple and transparent purchase process for its clients as a simple, four step process: 1.
The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.
2.
An independent lawyer, sourced and appointed for the client by Obelisk, will have already carried out full due diligence on the project. They will issue all purchase contracts and paperwork to the client.
3.
On receipt of this contract, the client will sign and make the first payment. The lawyer will notify the client of all further payments when required.
4.
The appointed lawyer will also represent the client in all aspects legally required within the country of purchase, ensuring that clients of Obelisk enjoy the benefits of simple and hassle-free real estate investment.
For more information about Obelisk’s investment opportunities in Bulgaria, contact us now on info@obeliskinternational.com, visit our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).
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Disclaimer The material contained within this document has been prepared for information purposes only. Information contained herein is not to be relied upon as a basis of any contract or commitment. The information is not to be construed as an offer, invitation or solicitation to invest and opinions expressed are based on market conditions at the time of print and may be subject to change without prior notice. Information contained herein is believed to be correct, but cannot be guaranteed. In case of queries or doubt you should consult an independent investment adviser. No personal recommendation is being made to you and the past is not necessarily a guide to the future. The brochure in its entirety – text, images, marks, graphics, logos, buttons, combinations of colours, and the structure, selection, ordering and presentation of its content – is protected by the legislation on intellectual and industrial property, it being forbidden to reproduce, distribute, publicly disseminate or transform it, except for personal private use. It is also forbidden to reproduce, relay, copy, assign or broadcast, in whole or in part, the information contained in this brochure, for whatever purpose and by whatever means, without written consent.
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Call us free from UK: Tel. 0808 160 0670 Call us free from Eire: Tel. 1800 932 514 For general and international enquiries contact us at: Tel: (0034) 952 820 319 Fax: (0034) 952 825 790 Alternatively you can email: info@obeliskinternational.com or visit: www.obeliskinternational.com