Investing south of the border
As the Polish real-estate market matures and begins to cool down, market analysts are urging investors south. According industry experts, Bulgaria, with its new EU-member status and streamlined market regulation, is drawing significant interest on the part of investors looking to capitalize on opportunities in Sofia, Plovdiv, Varna and prime resort destinations on the coast.
According to data from the CEE Property Group, investors who entered the property market in these prime development areas in 2006 have already earned between 50-80 percent based solely on growing property values. Analysts estimate property values will double between 2007 and 2009.
Easy application
Currently, 25 percent of property investments in Bulgaria are made by foreigners. Developers with experience in other CEE markets that have undergone a similar process of development in recent years could be further encouraged by the vast potential that the Bulgarian market holds. The availability of EU subsidies and an improved legal infrastructure for real estate investments provides an added incentive for investors to go deeper into "new Europe."
"Foreign investors, particularly those from the UK, Ireland and Spain, have been present on markets such as Poland for years and have been steadily moving towards Bulgarian investments," says Paweł Grzàbka from CEE Property Group. "However, most investors take care to spread their investments throughout the region, so there is little concern that these new markets could take business away from Poland," he adds.
According to Grzàbka, Polish investors are still wary of expanding their businesses beyond Poland's borders. However, he believes that the situation is improving, as more information is made available to them. Globe Trade Centre (GTC) is among the pioneers with regard to property investments in Southeast Europe.
Great expectations
Growth in the value of the Bulgarian market is expected across a range of sectors and while there is little standing product at the moment, "there is a vast pipeline for development," said Mark Freeman, head of valuation for Central & Eastern Europe at King Sturge. "Prime shopping-center yields are already below seven percent," he added.
PMR's Szymon Jungiewicz estimates growth at the level of 300 percent over the next three to five years for retail and logistics, based on the low saturation of the commercial-property market and a large target demographic. Bulgaria's office market is expected to grow by 100 percent, while a shortage on the housing market continues to drive residential development. Currently, the price per sqm for upmarket residential space averages R1,200 (zł.4,600) in prime locations. A 25-30 percent annual increase in home prices is expected over the next few years.
In addition, the underdeveloped road and infrastructure network offers a positive forecast for investments in road construction and other civil-engineering projects. Last year, the construction sector was worth R4.6 (zł.17.7) billion and market analysts from PMR anticipate further growth of 17 percent through 2009. Nonetheless, major obstacles to investment include insufficient manpower in the construction industry and the high 20-percent VAT rate imposed on property-related transactions.
