Apartment Prices in Sofia, Bulgaria, grew 14.3% in 1st Qrtr of 2007

THE BULGARIAN EONOMY

Bulgaria, with a population of 7.5 million, sits at the crossroads between Europe and Asia. The country borders with Greece and Turkey to the south, FYROM and Serbia and Montenegro to the west, and Romania to the north. Known for its exquisite ski resorts in Bansko, Borovets, and Pamporovo, Bulgaria also offers sunny beaches on the shores of the Black Sea at its eastern region. Bulgaria’s climate, rapid economic growth, hot tourist destinations and recent entrance in the European Union make the country an attractive investment target for European and global investors.

Since January 1, 2007, Bulgaria is an official member of European Union. Many analysts, based on experiences of other countries that have entered the EU in the past, anticipate fast growth and high investment returns in Bulgaria in the years ahead. The country has already been growing at a very fast pace by European Union standards in the past couple of years with real GDP growth above 5%.

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Italian banking group UniCredit expects GDP in Bulgaria to grow 6.2% in real terms, while GDP per capita is expected to grow 13% in 2007. Part of this growth is expected to be fueled by the abundant supply of consumer loans and foreign direct investment in the country’s real estate market.

According to the Centre for Economic Development (CED) real GDP in Bulgaria grew by 6.1% in 2006, mostly stimulated by employment growth rather than growth in production. CED predicts that inflation in 2007 will not exceed 4.5% and probably stay at that level in 2008 and 2009.

According to data provided by the National Statistical Institute, average per capita income in Bulgaria increased 18.2% in nominal terms from March 2006 to March 2007, while wages and earnings grew 22.4%. It is interesting to note from a real estate market point of view that, during the same period, per capita income from property sales increased 201%, while per capita property income grew 105%. Finally, average household consumption expenditure grew 17.8% in nominal terms.

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With inflation remaining at 4-5%, the annual growth rates for per capita income and consumption expenditures that were registered in Bulgaria from March 2006 to March 2007 are quite good. The UniCredit forecast of a 6.2% real GDP growth implies that these strong growth rates should continue in 2007.


THE BULGARIAN REAL ESTATE MARKET

As a result of rapid economic growth (real GDP growth above 5%) in the last two years, real estate values have been rising in Bulgaria. However, property prices are still considerably below the levels prevailing in the rest of Europe and even those prevailing in the former Soviet republics. Many analysts believe that property prices in the long-term (despite some short-term fluctuations) will continue to grow until they reach the levels that prevail in other EU countries. This view is partly validated at least for the 1st quarter of 2007, according to data published by the National Statistical Institute (NSI) of Bulgaria.

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The data published by NSI on Average Quarter Market Prices of Dwellings for the first quarter of 2007 show a robust residential real estate market with prices growing at a fast pace. In particular, at the national level, housing prices rose 9.3%, from 466 Euros/sq.m. in the 4th quarter of 2006 to 510 Euros/sq.m in the 1st quarter of 2007. This quarterly rate of increase represents an annual house price growth rate of 42.8% (on a compounded basis).

The three fastest growing markets in terms of prices include TargovishteBlagoevgrad, and Varna, where residential prices jumped at a quarterly rate of 16.0% -16.3% (representing an annual growth rate of 81- 83%). Residential prices in Sofia registered also very strong quarterly increases of 14.3% (representing an annualized growth rate of 70.4%). Silistra, Pernik, Razgrad, Shumen, Kyustendil and PlevenSee registered also strong housing price gains with quarterly growth rates in excess of 10%. See housing price increases that took place in the 1st quarter of 2007 in all major District Centres of Bulgaria in the table below.

Changes in Apartment Prices in Bulgaria in 1st Qrtr of 2007

The coastal city of Varna and Sofia featured as the cities with the most expensive flats with average prices at 849 Euros/sq.m. and 819 Euros/sq.m., respectively. According to the data provided by NSI no District Centre registered housing price declines.

As far as the commercial real estate market is concerned, Colliers Bulgaria real estate agency predicts that it will grow by 300 percent in the next three to five years. The rationale behind this assessment is the continuation of the dynamic development of all sectors of the Bulgarian property market and increased investment activity in the years ahead. Among the areas that attract foreign investor interest are holiday spots since Soviet times, both beaches, and mounting skiing resorts. Depending on local supply conditions, this interest has often resulted in rising property prices.

It is assessed by many that the growth of investment interest in Bulgaria and the resultant property value gains will repeat the dynamics of other countries that have already entered the EU such as Cyprus, Spain, and Portugal. For example, UK real estate agency Simpligroup, gives the example of Spain, where residential property prices have grown by 800% since the country joined the EU. The agency expects a similar development in Bulgaria, but on a smaller scale. The current pace of real estate development in Bulgaria, seems to justify this view, as it is among the fastest growing in Europe, especially in the ski resort areas of Bansko, Borovets, and Pamporovo, which offer world-class facilities and activities.

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British and Irish citizens were the first ones that turned to Bulgaria for investments. According to Kapital Real Estate, Russians are also becoming more and more interested in purchasing property in Bulgaria. Russian investors seem to be especially interested in investment projects, such as small hotels of 10-15 rooms, as well as in large plot areas suitable for the construction of hotel complexes, business centres and trading complexes.

The interest in investments in attractive tourist destinations and holiday spots is justified given Bulgaria’s appeal to European and international tourists. This appeal is underscored by the ‘Hottest Destinations for 2007’ list compiled based on Expedia.co.uk customers’ predictions for the travel hotspots for the year ahead. In this poll, Bulgaria came out as the second hottest tourist destination globally. Cape Verde was the number one destination while Brazil followed Bulgaria in the third place.

Besides beautiful mountains and an inviting shoreline, Bulgaria’s tourist attractions include the unique architecture of Bulgarian monasteries, a rich culture displayed in museums and galleries in cities from Sofia to Varna, the annual Festival of Roses and other festivals and contests featuring folkloric music and dancing, and the tasty Bulgarian cheeses and traditional stews and sausages.