bulgaria investment guide

ABSOLUTE gUIDE SERIESto Investment Property

Bulgaria

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ABSOLUTE gUIDE SERIES - BULgARIAABSOLUTE gUIDE SERIES - BULgARIA

Date of Publication: September 2008© Obelisk

5. Welcome to BulgariaDedicated to providing impartial information.

6. Economic Growth & Stability Bulgaria boasts the 3rd highest growth rate in the EU.

7. Currency & BankingBanking 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 EUaccession.

10. Tourism Bulgaria will attract 16 million visitors per year by 2017.

11. Infrastructure Road and rail networks are to be revamped.

12 - 13. Property Market Property prices increased by 68% over the last 2 years.

14 - 15. Secondary Market Credit opportunities create demand for quality housing.

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 theinvestor.

22. Obelisk Advantage Obelisk approaches its projects purely from an investment perspective.

Contents

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Sofia

Pleven

VarnaShumen

Sliven Burgas

Pernik

KyustendilBlagoevgrad Plovdiv

Haskovo

Pazardzhik

Ruse

Stara Zagora

GabrovoStara Zagora

Vratsa

Bansko

Razgrad

Yambol

Dobrich

Veliko Tarnovo

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As the market leader for overseas investment property, we are committed to providing cutting edge information for property investors, one aspect that has earned us the award of International Property Specialist 2008 by Business Britain magazine.

We are therefore pleased to present our latest Property Investment guide to Bulgaria, an essential tool for the investor planning to buy property in this country. This guide forms part of the Obelisk Absolute guide Series, dedicated to providing impartial information about numerous investment destinations worldwide.

At Obelisk, we are only too aware of the importance of extensive research into an investment destination and, as part of our policy to offer investors the definitive service, this guide has been rigorously researched to

provide you with in-depth, clear-cut knowledge on the most important factors influencing your propertyinvestment decision in Bulgaria.

In this guide you will find recent economic performance and predicted growth, a profile of the current property market and its future potential, along withtourism trends and infrastructure improvements. The guide also includes information about Bulgaria’s mortgage market, the buying process and buying costs.

Obelisk’s Absolute guide to Bulgaria offers investors objective and authoritative information to facilitate an informed decision about investing in Bulgaria. We trust that you, as an investor, will find this guide indispensable.

Here’s to successful investing!

Bulgaria forms part of the Obelisk Absolute Guide Series, dedicated to providing impartial information to numerous property investment destinations worldwide.

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to BulgariaWelcome

Economic Growth

& StabilityHaving performed excellently in Q1 of 2008, Bulgaria’s economy is in good shape. gross domestic product (gDP) increased by 6.3% in Q2 of 2008 - this South-eastern European country now boasts the 3rd highest growth rate in the EU. According to The Economist, gDP is set to stabilise at just over 6% between 2008 and 2010.

Inflation in Bulgaria has risen significantly during the first half of 2008. This rise has been primarily attributed to the increase in food prices. However, The Economist predicts that inflation will reduce in 2009, 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.

Standard & Poor have confirmed Bulgaria’s long term rating as BBB+ and short term rating as A2, acknowledging Bulgaria’s attempts to manage fiscal policy, management policy and to reduce public debt in order to prevent long periods of high inflation and loss of external competitiveness. All of which could affect Bulgaria’s future credit rating. However,according to research by Moody’s Investors Services, Bulgaria’s banking system is strong enough to withstand a significant financial or economical shock, rating the country Baa3 for Bulgaria’s “prudent fiscal policy and low and declining debt levels”.

GDP Growth (Q2 2008): 6.3%

GDP Per Capita (2008): US$11,008

Inflation (July 2008): 14.5%

Unemployment (July 2008): 5.95%

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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, thebanking 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”.

Currency

& Banking

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Foreign Investment

Foreign Companies Investing in Bulgaria Carlsberg, Hewlett Packard, IBM, InBev, Microsoft, Nestlé, Siemens

Immediately after joining the EU in 2007, Bulgaria saw a peak in foreign direct investment (FDI) of around €6 billion, with approximately 60% of all FDI in 2007 going into the real estate sector.

According to preliminary data from the Bulgarian National Bank, the first 6 months of 2008 saw FDI of €2.078 billion, accounting for 6.3% of gDP. This represents a decrease from the same period of 2007, where FDI accounted for 8.8% of gDP.

Despite the fall in FDI, Bulgaria has secured third place in the most attractive destinations for foreign investment in South-eastern Europe, according to independent market researchers, CSA and Ernst & Young. More than 68%of the survey’s respondents believe that Bulgaria will regain popularity among foreign investors, but recommend that the country looks at ways to improve its transport

and telecommunications infrastructure, meet EU economic regulation standards, eradicate bureaucracyand corruption and simplify administrative procedures.Bulgaria is working hard to entice foreign investors offering incentives that include low taxes and cheap labour, helping industrial investors buy land and co-financing training for employees amongst others. The Bulgarian Investment Agency has expressed its confidence that FDI in 2008 will be around the same levels as last year.

A US$20 million investment is being made by ABB, a leading engineering company, for its 3rd production operation in Bulgaria. The Japanese Bank for International Development has granted a €230 million loan for the construction of new container terminals at the ports of Varna and Bourgas.

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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.

Political Situation

& Stability

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)

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TourismBulgaria 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.

Visitor Numbers (2007): 5.15 million

Tourism Expected Contribution to GDP (2008): 12%

Tourism Expected Contribution to Employment (2008): 10.2%

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InfrastructurePlans to transform major road and rail networks

€230 million loan to build new container terminals at Varna andBourgas port

Whilst Bulgaria has made efforts to improve infrastructure throughout the country, Bulgaria’s road and rail systems are both in need of attention. However, plans have currently been shelved since the EU announced suspension of €500 million funding for Bulgaria. Plans to revamp Bulgaria’s major roads, in particular Struma, Trakia, Maritza and Hemus were expected to begin construction work in 2008.

Bulgaria’s national rail network is set to benefit from a facelift. New coaches, repairs and upgrades for the rail lines will allow trains to travel at a speed of 160 km per hour, radically reducing travel times.

The Ministry of Transport signed a deal with german company, Poyry Infra, in August 2008, for contracts to modernise the main railway lines throughout Bulgaria, with a combination of state and private finance.

The Bulgarian Cabinet have recently received a loan of €230 million from the Japanese Bank for International Development in order to construct new container terminals at the ports of Varna and Bourgas. Transport Minister, Petar Mutafchiev, has revealed that the project will be completed by 2014, however, the ports have already seen a 40% increase in container loads, 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%

Property Market

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. Property prices have risen by an incredible 68% over the last 2 years. Residential property prices continue to rise and look set to experience 10% to 15% growth in 2008 with Sofia’s residential real estate market boasting one of the most dynamic markets in the country.

According to a 2008 survey by the Association of International Property Professionals, Bulgaria was ranked as the 4th most popular destination for Britons purchasing overseas property. 75% of UK mortgage brokers expected to see an increase in the number of UK buyers looking to snap up property in Bulgaria over 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.

Around 90% of housing development is accounted for by Bulgaria’s private sector, which also contribute heavily to infrastructure improvements. As the average Bulgarian income continues to grow, more credit facilities become available and more people move to urban locations, demand for high quality residential property will rise, particularly in the capital, Sofia.

However, there are signs that the property market in some areas is approaching saturation point. According to the Bulgarian National Bank, the property market contracted by 17% from January to June 2008. The problem is particularly acute in some Black Sea resorts where property analysts believe that over-supply means between 20% and 30% of new-build apartments may remain unsold over the next 2 years.

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Secondary

MarketBulgaria has recently been considered as one of the world’s top property hotspots. The growing economic stability and increasing credit opportunities are reinforcing the demand for high quality, residential properties with the emerging Bulgarian mid to high class market vying for properties within commuting distance of the city. With salaries on the increase - the monthly salary in Bulgaria has increased by 24.4% per month compared to the 1st trimester of 2007 - demand for property in Bulgaria is likely to continue to rise.

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

Sofia presents a highly strategic property investment location for investors, due to the massive commuter market. The rise in the number of domestic workers migrating to the capital to work for big multinationals, combined with the foreign workers arriving with the multinationals, is creating huge demand for both rental and sale property in and around Sofia.

Letting to the local commuter provides an attractive option where gross rental returns are around 6%, although yields tend to be higher for smaller 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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Market RisksProperty investment into emerging markets may carry some degree of risk. However, the degree that market risk in a particular country affects a property investment depends largely on thorough due diligence conducted prior and during the purchase process.

Contrary to fears that Bulgaria’s economy may be at risk of over-heating, The Economist predicts that gDP growth will stabilise at just over 6% between 2008 and 2010, and that despite Bulgaria’s sharp increase in food prices, 2009 will see a reduction in the country’s inflation. Regarding the effects of the global recession, Moody’s Vice President, Kenneth Orchard, believes that Bulgaria’s banking system is strong enough to easily withstand financial difficulties.

The recent intense construction in Bulgaria means that the current property market in some areas presents some risk of over-supply. However, 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.

Corruption has been a problem in Bulgaria, and the country is under huge pressure from the European Union (EU) to undertake serious measures against crime and corruption. Whilst the EU recognises that genuine efforts have been made, particularly in the judicial system, more work and results are needed, until which time, the EU has frozen some of the country’s funding. Tackling this problem is one of the government’s top priorities and they are committed to more concrete results by the end of the year. With the EU keeping a watchful eye over Bulgaria’s progress, and the possibility of losing out on vital EU funds, improvements should be forthcoming in the near future.

“ Property in many areas, such as Sofia, still represents excellent investment potential and according to Ernst & Young, investor confidence in Bulgariais set to continue well into 2009.”

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Purchase Process

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.

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.

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Investment Costs

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%.

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.

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Summarygrowing economic stability and increasing credit opportunities are reinforcing the demand for high quality residential properties.

Bulgaria is the No. 1 place in the world for property price growth, for the fourth consecutive quarter.

Inflation is on the road to reduce in 2009.

Bulgaria is third in the most attractive destinations for foreign investment in South-eastern Europe.

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.

Bulgaria’s banking system is strong enough to withstand a significant financial or economical shock.

The mortgage market and its products are evolving.

New railway lines, container terminals and the upgrading of major road networks will transform the country’s infrastructure.

Bulgaria will regain its popularity among foreign investors, according to 68% of Bulgarian respondents for a CSA/Ernst & Young survey.


The following summary provides key highlights to consider when investing in Bulgaria’s property market:

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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 still-growing 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.

Verdict


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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.

Obelisk AdvantageVoted 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:

The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.

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.

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.

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.

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For more information about Obelisk’s investment opportunities in Bulgaria, contact us now on [email protected],

visit our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).

Awards Obelisk ‘International Property Specialist 2008’

DisclaimerThe 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: [email protected] or visit: www.obeliskinternational.com

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