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Price of Agricultural Land Up by 500%
The rapid pace, at which the prices of real estate in Bulgaria is going up, has been also spotted by the Wall Street Journal broadsheet newspaper, which ranked Bulgaria at the top of the world's standings against this index. There are quite substantial grounds to think that this tendency will go on over the next few years. Moreover, this tendency has a strong foundation, not influenced by the inflation rate, and namely the deliberate undervaluation of the real estates in Bulgaria, which has been accumulated for years now, and the artificial equalization of the prices, inevitable under the conditions of globalization. There is yet another key-factor for this tendency and this is the gradually increasing liquidity of the real estate market in the country. Considering the more and more drastic increase in the prices of real estates over the past two or three years, we can assume with quite a certainty that the satiation point is still a few years ahead. Of course, not all sectors of the Bulgarian real estate market are equally developed; neither will they develop at an equally fast pace in the future. The prices of real estates at the Bulgarian seaside are expected to slacken the pace of increase, whereas the investments in farmland are to give considerable opportunities for profit-making in the near future. Over the past two or three years there has been a serious movement on the Bulgaria's farmland market. In the crop-growing, vine-growing or vegetables-growing regions of Bulgaria the price of farmland has increased from 500 levs/ha up to over 2,000/levs/ha. The restitution of land in real-term borders resulted in a startling 50-year delay, as regards the consolidation of farmland. This fact, added to the landowners' lack of interest in taking on farming business, is the basic reason for 35% of the farmland in the country to be left uncultivated. Having in mind the strict financial commitments of the EU towards the Bulgarian agriculture and the commitment of the state to stimulate the already developing farmland market in Bulgaria, we may expect an increase in the price of farmland by 300-500% over the next 5 or 7 years.
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Interest toward Bulgarian agriculture sector
Bulgaria’s forthcoming accession to the European Union in 2007 or 2008 has triggered an unusual interest both in and out of the country towards buying agricultural land here. The growing dynamism of farmland sales and leases in Bulgaria, which was particularly noticeable in 2005, is likely to be sustained in 2006. The process will almost certainly entail a price rise for farmland in the country’s least attractive part, the northwest. Deputy Minister of Agriculture and Forestry Svetla Buchvarova made this forecast on February 16. “The farm land market in 2005 was active and attractive,” Buchvarova said. The year saw 66 345 transactions for a total of 60 000 ha of farm fields, 20.6 per cent up from 2004. Sold land plots averaged a little less than a single hectare. Demand was highest in the north-eastern Dobrich region, which is in the heart of Bulgaria’s wheat producing area. There, owners sold larger land plots, averaging 1.65 ha, for which they got up to 3000 leva (1530 euro) a hectare. Unlike in other parts of the country, in the Dobrich region, demand exceeded supply. Between 2004 and 2005, the average market price of farmland in Bulgaria grew 26 per cent to 1690 leva (864 euro) a hectare. Price rates were lowest in the north-western regions of Vidin and Vratsa, and in north-eastern Turgovishte. Land market dynamism was also in place where new owners transformed the use of the farmland they bought. Such sales increased threefold in 2005 from 2004. They involved the selling of 3525 ha of land for prices averaging much higher than the above-mentioned levels: 285 000 leva (145 700 euros) a hectare in 2005, compared to just 45 000 leva (23 000 euro) in 2004. In the case of land-use change, demand for farmland was highest in south central Bulgaria, particularly in the highlands around Smolyan and Dospat (close to the skiing resort of Pamporovo). In terms of number of sales, such transactions were most frequent in the northeast of Bulgaria, but there prices were lower. Now, Bulgaria’s land market is expected to grow in both price and the number of deals as the country heads towards EU membership and demand exceeds supply. “As a whole, prices of land in Bulgaria are still low, compared to prices of land in the region, which attracts investors, but this will be corrected in 2006,” Bachvarova said. In neighbouring EU member Greece, for instance, land prices vary between 1200 euro a hectare of non-irrigated land, to twice or thrice higher prices for irrigated land. Buchvarova added that farmland prices in Bulgaria were going towards levels ineffective for farming, because if one had to invest too much in land, that capital could not be used for other purposes. “Those, who buy land count on the fact that they will have stable income in 2007, due to EU farming subsidies,” said Bachvarova. The ban of purchase of land by foreigners has no material effect on the price of land, as a legal opportunity exists for joint ventures with foreign partners to buy land, she said. About 250 000 hectares of land have been purchased in the past three to four years. But it is just a small fraction, as long as total arable land in Bulgaria is estimated at over three million hectares. In the real estate sector, February brought news that foreign citizens bought about 55 000 business and residential properties in Bulgaria in 2005. Foreigners spent at least 880 million euro on housing and business estates in Bulgaria in 2005. Deals with foreign investors accounted for 15.3 per cent of the total deals in 2005, compared to 19.19 per cent in 2004. The percentage decrease however, was not very significant and was due to increasing local competition for attracting foreign buyers. Cyprus, Greece and Turkey also offer summer holiday housing. Moreover, prices of Bulgarian properties have gone up significantly in the past years, and low prices are no longer a Bulgarian competitive advantage. By contrast with summer housing, the advantages of Bulgarian winter resorts remain uncontested. Winter holiday housing is relatively rare in Europe and prices in Bulgaria still remain below average EU standards.
LONDON (Reuters) May 18 - Investors looking to buy abroad are turning away from France and Spain and opting for better value -- in Bulgaria.The EU may be balking at Bulgaria's failure to rein in organised crime but second-home hunters seem to have no worries. "Bulgaria is definitely on the radar with buyers at the moment," said Rupert Lee-Browne at currency exchange specialists Caxton FX. "Fifty per cent more of our clients are moving money there compared to last year." With EU membership expected next year -- despite the organised crime -- millions being spent on upgrading infrastructure and a 40 percent rise in hotel occupancy rates over this winter's ski season, the country's appeal is growing, Lee-Browne said. He also tipped Morocco as a country to watch. "It's starting to come into its own with more luxurious developments popping up," he said "and with Easy Jet adding Marrakesh to its routes, people know they can secure cheap flights easily." Romania, another candidate for EU entry next year, could also grow in popularity, he felt. OVERSUPPLY Spain remains the most popular destination for UK investors to buy overseas property but according to one estate agent, some home owners there are taking up to two years to sell their property. One reason behind that trend is that the Spanish market is saturated with properties after a period of sustained and large-scale development. Another is the current strength of the euro which makes purchases in eurozone countries less attractive. Ian Smith, head of European Operations at Halifax agreed that rental yields in Spain were coming down and property price inflation was slowing, but dismissed fears that Spain was losing its appeal to investors. "I think you have to distinguish between holidaymakers and property speculators," he said. "Property price increases in Spain are forecast in the region of 8 percent for this year, and yields previously seen of 15 percent are just not achievable any more. People buying in Spain are doing so because low-cost airlines have opened up the opportunity for long weekend holidays." But buying off-plan in Spain was cited by Smith as a potential stumbling block for investors. "There are some nightmare stories of over-runs of five years but I think it is realistic to expect off-plan projects to take 18 months and it is important to budget for this," Smith said. Those investing in areas like Bulgaria and Romania were mainly property speculators whose sole priority was capital appreciation, he added. OVERSEAS BUYING TIPS For those intent on buying a property abroad, whether in Europe or further afield, it is important to be aware of the potential pitfalls. Finding a lender should not be problematic but it is not as simple as buying in the UK. Lenders in this country only lend on properties here but some of the established names have subsidiaries overseas. For instance Halifax owns Banco Halifax Hispania; Norwich & Peterborough Building Society has lending capabilities in Gibraltar and southern Spain and Barclays has operations in France, Spain and Portugal. These building societies employ English-speaking staff, so in theory administration should not prove a too much of a headache. But the Spanish have a different philosophy from the British and aim to repay mortgage debt as soon as possible. Some Spanish lenders restrict mortgage terms to 15 years. Lenders will cap loans at between 70-80 percent of a property's value so deposits of 20 or 30 percent are unavoidable. Any mortgage repayments on a property in the UK will have an impact on how much can be borrowed, unless the property is being let. Where repayments on a British mortgage are completely covered by rental income from that property, the overseas lender may ignore the outgoings. Property investors should also be aware that inheritance and capital gains tax implications vary depending on the tax jurisdiction of the overseas property they have bought -- what is paid often depends on whether resident status has been taken up. And finally the two perennial questions: how close is the nearest airport and how good are the local health services? BLACK SEA BONANZA Bulgaria’s coastline is attracting foreign property investors like bees to honey. Peter Conradi of The Sunday Times does the maths, wondering if they’ll profit in the longer termIt begins on the plane from Britain: pick up a copy of the in-flight magazine of Bulgaria Air, and almost every other page carries an ad for the latest Black Sea apartment complex, each apparently more glittering, splendid and — above all — profitable than the last.
Pitch up in Sunny Beach, the brash heart of the coast, and the streets are full of estate agents peddling luxury flats and seaside villas. People go on holiday here, it seems, as much to snap up property bargains as to lie on the sand. “There must be 40 or 50 agents here now, but very few of them have any experience or know what they are doing,” says Krasimir Krumov, 30, co-founder of Sea Global, one of the country’s best established agents, whose little office in the resort is already surrounded by several clones. “You get one kiosk selling clothes, the next one selling hamburgers and the one in the middle selling property.” The Bulgarian property market is booming. Old-style communist resorts that were once the summer playground of Russian, Czech and Polish workers are being demolished and replaced by a Balkan version of the Costa del Sol. In scenes familiar from the Spain of the 1970s and 1980s, virgin coast is filling rapidly with apartment blocks and prices are climbing steadily. The price of land, meanwhile, is going through the roof: plots five or 10 miles inland are being snapped up even if the sea views are so distant that you need a telescope. Curiously, though, the boom is being driven largely not by people looking for holiday homes for their own use but by investors lured by rock-bottom prices and the hope of rapid returns. The Bulgarian coast, stretching for more than 100 miles between the Romanian and Turkish borders, certainly has much to offer. Those seeking sun, cheap beer and noisy nightlife will make for Sunny Beach or the slightly leafier Golden Sands — known respectively as Slanchev Bryag and Zlatni Pyasatsi to Bulgarians, they have been rebranded under English names for the British market. Other more upmarket resorts are also springing up in quieter coastal locations. And in the ancient city of Nessebar, about a mile south of Sunny Beach, the Bulgarian coast can boast a world heritage site that was already a Greek colony in the 6th century BC. Golf, the great motor behind much Spanish property development, is also on its way. Gary Player, the South African veteran, is involved in developing two courses near Kavarna. Others are planned, with a mixture of foreign and Bulgarian backers. There is also talk of exploiting the country’s traditional spas and exotic mud treatments. The growing interest is reflected in the tourist numbers, especially from the UK. More than 250,000 of us went on holiday to Bulgaria last year — 62% more than in 2003 and more than three times as many as in 2001. The overall number of visitors, at just over 4m, was up 14%. Many Brits have been combining holidays with a little judicial home-buying, lured to Bulgaria by developers offering low prices and promises of high yields and double-digit growth. Much of the action is off-plan, with some investors already cashing in and selling on flats during the typical 15 months it takes to build them. Despite 40%-50% increases in the past year or so, property remains remarkably cheap by Spanish, let alone British, standards. It is still possible to buy a studio in Sunny Beach for as little as £300-£400 per square metre, although the view from your window will be of concrete rather than sea or sand. Remember to check out the soundproofing, too: at the height of the season, the music in the open-air bars is still pounding at 3am. Moving up the scale, Manchester-based Bulgaria Revealed is about to start selling flats in Emerald, a luxurious resort at Ravda, a few miles from Sunny Beach. Building began only this summer, but the developers are confident it will be ready in time for the high season next year. To sweeten the deal further, there is a guaranteed yield of 4.5% next year, followed by 7% in 2007. “We are going to install a webcam so people can see, 24 hours a day, their apartment being built,” says Maria Chepova of Pioneer Development, which is constructing the complex, as she picks her way through the muddy building site with Mina Valcheva, one of Bulgaria Revealed’s property agents. Near Kavarna, Bulgarian Properties is offering an even more generous 9% guaranteed annual yield — albeit only for an initial 18 months — on its Saint Nicola Lodge of 18 one-bed and nine two-bed flats. Due to be completed in May 2006, the units — all with sea views — range from £39,200 for a 73sq m one-bed flat (which works out at just over £540 per square metre), up to £88,750 for a 165sq m penthouse with two bedrooms. It would be foolish, though, to base a long-term strategy on rent guarantees that are limited in time and difficult to enforce if things go wrong. With most purchasers buying to let, everything depends on the ease of finding tenants and how much they are prepared to pay. The holiday business in Bulgaria is largely package tour-based, so this normally means finding an agent dealing with Balkan Holidays or other operators, who will rent your flat for the season. Unlike Spain, with its mild winters, the Bulgarian season lasts a maximum of 120 days; the beaches that seemed so welcoming in July and August can be dusted with snow in January and February. So just a few weeks empty during the season can cut quite sharply into your return. But, as Jeremy Leach, 34, an IT specialist from Reading, has discovered, there is certainly money to be made. Since spotting Bulgaria’s potential two years ago, he has invested more than £110,000 in two flats on the coast, a village house in Nikolaevka, 14 miles inland, and some land — and reckons to have doubled his money already. Whether this will continue to be the case remains to be seen. After selling on the first flat, in Varna, in April for a healthy profit after just over a year, he has tried to repeat the trick with a second apartment he bought for £46,000 in the Fort Knox development in Sunny Beach. Three months later, it is still on the market. “In the past year, so many builders have been flooding Sunny Beach with new off-plan apartments that the level of competition has gone up drastically,” says Leach, who is asking £55,000 — about £3,000 less than the developers want for finished units. “It seems easier for people to sell off-plan apartments than real ones, because they have huge marketing campaigns for them and everybody is trying to grab them before they go. But if they do have some flats left over once the building is finished, the development companies don’t have so much to spend on the marketing.” Although Leach remains bullish, the difficulty he is having in disposing of his latest apartment is seen by some experts as a warning sign of trouble ahead. According to this pessimistic scenario, the bargain prices that are Bulgaria’s main selling point will gradually converge towards European levels, especially once the country has joined the EU, likely in 2007. If this in turn dampens the growth in tourist numbers, they warn, then the tour operators will cut the amount they pay to rent flats, squeezing yields. Patrick Berger, who has analysed the Black Sea property market for CA-IB, an investment bank that specialises in emerging Europe, is concerned at the sheer size of the flood of British and other Western money pouring into Bulgaria in search of investment projects. He fears the result could be the kind of overbuilding that has blighted much of the Costas. “If you want to make a profit, then invest now, but you need to monitor developments and time your exit from the market carefully,” Berger says. “It’s not something where you can invest and then just go to sleep at night, because overnight they might start building a mega-complex next to you.” Jonty Crossick, co-founder of Brighton-based Ready 2 Rent, which has already sold more than 130 flats off-plan in Bulgaria for other developers and is developing three complexes at Kranevo, Obzor and Akutino, has little time for such doom-mongering. As Crossick sees it, high economic growth and foreign investment, rising tourist numbers, a stable currency and political system and impending EU membership make for an irresistible combination. A further boost is likely to come from the eventual arrival of low-cost airlines that will bring in individual tourists alongside those on packages. “Once Ryanair and EasyJet get in there, it will be a whole different ball game,” says Crossick. “We wouldn’t let our investors go into these off-plans unless we felt there was real demand. There has actually been a flattening off in the supply of developments, while tourist numbers are still going up. It’s like Spain just before it joined the EU.” Peter Conradi, http://www.timesonline.co.uk , 21th August, 2005
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