Bulgaria Stands out among Property Hotspots

Exclusive interview with Deyan Kavrakov , CRE , CLHMS , CIPS , CEO of ADIS Ltd. made by Milena Hristova, editor-in-chief, novinite.com

Is Bulgaria a hotspot for foreigners looking for a second home for themselves? Do you believe the trend will carry on like that over the next few years?

Yes, Bulgaria's property market is an attractive investment for second-home foreign buyers. This is turning into a steady trend, having in mind the interest by individual buyers and property investors from the United Kingdom, Spain, Israel, to name but a few. We should view the trend as part of the dynamics and trends in second home purchase on the European market as a whole. The traditional hotspots in this respect are the developed markets of Portugal, Spain, Italy and Greece, which are now being joined by Croatia and Bulgaria. They form the so-called Southern tier of Mediterranean countries, where second-home hunters from Central and Northern Europe are heading for. Unlike other countries from this region, Bulgaria has four distinct seasons - winter conditions here are good for skiing and holidaymaking, while the summer is hot. Bulgaria is bound to turn into a hotspot for holidaymakers, which will feed the interest of second home buyers. Bulgaria's upcoming accession to the European Union in 2007 will contribute to this trend, as the country will become its southeastern border, a binding link and a bridgehead to the Middle East.

Which countries are more popular destinations for second home buyers than Bulgaria? Which are the attractions and disadvantages of Bulgaria and Sofia, in particular?

Bulgaria's property market is very dynamic, but still could be defined as developing. Ahead of us are countries with mature markets. The above mentioned Portugal, Spain, Italy and Greece belong to the group of countries with mature markets. Bulgaria tries to catch up with them. Our apparent rival is Croatia, whose market is growing from the same staring point and at comparable speed.

As I already mentioned Bulgaria is part of Europe's Southern tier and will benefit from its future, infrastructure projects, economy and market. This is our biggest advantage.

As far as Sofia's attractions are concerned, it is blossoming into a European capital that offers services, logistics, conditions for holiday making and business well up to European standards.

One of its greatest disadvantages is the road system, which should definitely be improved to fit a European capital.

Which are the most popular regions for foreign home buyers in Bulgaria?

We can single out several regions on condition that the most attractive are those yet to be discovered and appreciated. The fore-Balkan, starting from the villages of Ribaritsa and Apriltsi, and eastwards along its axis - Troyan, Tryavna, hold tremendous potential - breath-taking nature, preserved customs, clean environment. We should not skip the sub-Balkan valleys, moving southwards to Rila, Pirin and Rhodope Mountains. Sofia has its own pros, with citizens nearing 2 million, it will soon account for 30% of the country's population.

Is Bulgaria's market attractive for large-scale investments in comparison with Central European countries? How does it rank in terms of average returns?

It would not be fair to talk about large-scale investments in Bulgaria, whose population totals 7,5 million. We can apply the term fully to the markets of neighboring Turkey and Romania, whose territory, population and consequently demand are much larger.

It is well known that the return on investment makes an investment good. The Return on Investment rates in the real estate sector in Bulgaria reached 18% on average last year, which I consider to be very attractive.

Prices of residential properties in Sofia picked up sharply over the last months. Is it appropriate to expect that Sofia can near prices in Prague or Budapest, having in mind its infrastructure and geographic location?

Sofia won't be able to have identical price of residential real estate with Prague and Budapest, just as they won't equal London prices. As an expert, I would divide the question in two. In the short- and medium-term (8-10 years), there will be a difference between prices in Sofia and Prague/Budapest, but then the gap will gradually start to get narrower. In the long term, prices of residential property in Sofia will get closer and more comparable to those in Prague and Budapest. But this will take one more decade.

How would you comment talks that real estate property prices have escalated to the point of almost a speculative "bubble"?

I would like to be as precise as possible as this is a widely debated issue. One of the characteristics of a developing market, such as Bulgaria's, are speculative deals. We could define a deal speculative when its return on investment, outperforms those in mature markets (8-10%) and is at least 30-40 % and more. The moment the market gets developed and mature, there won't be many speculative deals. It will take two to three years for Bulgaria to get there.

These should not be regarded as negative trends because speculative real estate investments and deals are part of the business.

It is a different issue that property buyers and investors should first consult well-known experts with long years of experience, practice and references from stable clients to avoid speculative intentions.

There is no bubble in Bulgaria's property market. Due to its stage of development there may be inadequate prices in some categories of residential areas. The increase in prices is expected to slow down around 2007, followed by one year of "wait and see" and - as the experience of Central European countries shows - the market starts its own development, positive in most cases.

What is your forecast for 2005 concerning prices in the different real estate segments - office, commercial, industrial areas, residential property?

When the market contains speculative elements and is still developing, no forecast for the rise in prices could sound serious. I expect the price increase of commercial and residential property to be a double-digit figure in percentage, one-digit figure with office and industrial sector. We should follow closely the historical statistics of the Central European countries, especially during the last two years prior to their accession to the European Union.