Invest in Bulgaria with BulFra

The Bulgarian real estate market has expanded significantly in the past few years. This growth resulted from various factors like the maintenance of a steady economic growth rate, financial stability, higher solvency capability and fewer conditions for obtaining bank loans.

Despite the high growth, experts consider the real estate sector to be still developing. At the same time, even if the property price in a certain region to be higher than the average, this does not indicate companies investing in the region will realise smaller profit.

Main risks and barriers related to real estate market participation:
· Expenditure related to transferring property rights- notarial, municipal taxes
· Long acquisition period
· Risk of acquisition of property with quality different from that agreed on
· The withholding of a large amount of resources for a long period of time. This usually provides difficulty for smaller investors, in possession of limited financial resource.
· Low liquidity of the investment
· Lack of control over executors and intermediaries, which leads to asymmetry in the information flow
· Significant initial investment needed, which limits the number of small companies getting involved

Main factors related to the development of the real estate market:
· Development and potential of the mortgage loans market in the country, as well as significant credit provision from local and trade banks. Despite this development the share of mortgage loans remains below 10 per cent, with a 20 per cent average in other countries. Nearly a third of all real estate acquisitions occurred through bank funding
· The acceptance of a law on special investment trusts, which stimulates investment in real estate and attracts foreign investors
· Bulgaria’s expected EU membership after 2007
· A constant growth rate of 10 per cent in the tourism sector
· Increase in direct foreign investment
· Decrease of corporate income taxation from 19.5 to 15 per cent, which increases the investment return norm in the real sector of the economy
· Maintenance of macroeconomic stability and GDP growth rate. This is growing annually between 4.5 and six per cent. The unemployment rate decreases at the same time
· Regulations, encouraging foreign investment
· Low currency risk, determined by the currency board in the country

Main risks to the development of the market:
· Limitations foreigners face in attempting to purchase property
· Poorly developed infrastructure in some regions
· High dependence on the ability of tenants to pay
· Limited solvency capability

Real estate investment trusts
The creation of real estate investment trusts (REITs) and the regulations related to their activities came through the fast development of the Bulgarian property market in recent years.

Data for the past years shows prices of housing and office property, as well as of plots constantly increase. This development comes together with an increased interest from foreign investors. Most of them prefer opportunities in bigger cities, mountain and seaside resorts, where the number of new buildings increases constantly.

This positive tendency results mainly from Bulgaria’s expected EU membership. A tendency for income increase in the country also features among the reasons for higher foreign interest. In addition, the harmonisation of Bulgarian law with European standards facilitates the conclusion of real estate deals.

One of the market characteristics is for construction companies to be investors at the same time. Most companies accumulate the capital needed for construction through direct contact with property buyers, which makes fund provision for new constructions difficult.

To stimulate the property market, Bulgarian administration approved a new law on special investment vehicles. The law came into force at the end of May 2003 and its main aim is to regulate activities related to real estate acquisitions and interactions of companies with special investment aims.

These regulations have to become the needed market mechanism differentiating real estate investment trusts from construction companies. In this manner REITs will become one of the most effective channels for long-term fund provision through the emission of shares in accordance with the new special investment vehicle regulations. The funding price is expected to be lower, compared to the price of capital of construction companies. Such developments will increase the benefits for shareholders.

Trusts emit obligations and shares and invest the financial resources in property developments. Their activities include property purchase, construction, property renovation, management, renting, leasing and further investment.

Bulgarian REITs cannot manage directly the acquired property. They have to transfer responsibility to one or more managing companies. Seventeen such companies operate in Bulgaria currently.

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Legal advice on buying a Bulgarian property

Legal and Property Taxes

Bulgaria is a politically stable country, and the introduction of a currency board in 1997 stabilized the country's economy. However, as is the case elsewhere in Central and Eastern Europe, legislation, including that governing real estate, is volatile and subject to frequent change.

A foreign investor can invest in properties in Bulgaria either directly or through a local entity. Only Bulgarian-resident individuals and entities can acquire title to land, while non-residents may acquire only buildings and limited rights (e.g., leasehold and construction rights) to land. In some limited cases, acquisition of immovable property by non-residents requires prior permission of the Ministry of Finance.

Foreign investors are guaranteed full repatriation of profits resulting from an investment in Bulgaria. The transfer abroad can be made only after the bank effecting the transfer is presented a certificate proving payment of all Bulgarian taxes due.

Bulgaria has one of the most liberal foreign investment laws in the region. Foreign investment typically assumes one of the following forms: establishing a joint venture with existing companies, state-owned or private; acquiring a company through privatization; setting up a new (green field) venture; or making a portfolio investment. Portfolio investment has been minimal given the relative lack of development and inefficiencies of the capital markets.

The most common type of organization for foreign investors is a limited liability company. Other forms are companies limited by shares (joint stock companies), joint enterprises, business associations, general partnerships, limited partnerships, and sole proprietorships.
The law does not limit the extent or amount of foreign participation in companies. Foreign companies have the right to open deposit accounts in hard currency and Bulgarian leva.

Property Taxes:

Transfer taxes
The transfer is subject to notary and municipal fees. The notary fees are paid on the higher of the market price or the book value of the property at varying rates, specified in a special chart. In addition, 2% of the market value of the property is paid to the municipality where the real property is located.

Value Added Tax
Transactions with land and lease of property for residential purposes are exempt from Value Added Tax (VAT). All other real estate transactions are subject to VAT at the uniform rate of 20%. The buyer/lessee is entitled to a VAT refund, provided that it is registered for VAT purposes.

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Master plan Bulgaria's capital changes
09:00 Mon 22 Oct 2007 - Elitsa Grancharova

At its final meeting before the October 28 municipal elections signal the end of its term of office, Sofia City Council approved changes to the city’s master plan.

The changes are subject to approval by the Government.

The amendments include setting out 10 new business industrial zones and five regions for residential buildings.

Sofia chief architect Petur Dikov’s proposals include shutting down Kremikovtzi, the steel plant controversial for its emissions, and building of new residential districts in the northern and north-western city areas, and new business buildings, as well as a new cemetery. Extension of the metro is also planned, as well as moving the Central Prison out of the city. About 3000 sq m are to be excised from South Park (Yuzhen Park) to make way for a large sports hall.

The amendments are to be forwarded to the Cabinet. If approved, it is possible that the changes will come into effect in March 2008, Bulgarian-language Netinfo.bg reported on October 10. Parliament approved the Sofia Master Plan Bill in 2006.

The main area of land that the municipality wants to use for the so-called “long-term mixed multifunctional zone” are the 1000 hectares currently occupied by Kremikovtzi.

City councillors said that the idea was to give opportunity and stimulus to shut down metallurgic production within the municipal area. There are plans for a satellite city but construction would go ahead only if the steel producer were shut down for not following its environmental obligations. This will become clear at the end of October, when the Ministry of Environment and Water Affairs is expected to decide on the case.

A possible change to the status of the land now used by Kremikovtzi would be a stimulus for business and residential building in the area. Similar changes are planned for a separate 350 ha. However, to avoid speculation, Dikov said public hearings and a referendum should be held on these projects.

The extended metro line would also go to Kremikovtzi, along a route via Sofia Airport.

Other proposals anticipate new functions for five zones in the inner city area, adding up to about 350 ha in all. Currently, there are a number of buildings and storehouses in the area that are disused, old and partly destroyed. In the northern industrial zone there are plans for residential buildings to cover about 100 ha, in the industrial zones Orion and Zaharna Fabrika, 80 ha each, in the Sredets zone 100 ha, Hladilnika zone, 50 ha and zone Izgrev 20 ha.

Changes are planned for 60ha in the Vitosha area, currently occupied by the Defence Ministry. There, and on 16 ha in the Hladilnika zone, there are plans for residential buildings for the local and central administration.

Furthermore, logistic centres would be constructed over 1350 ha of agricultural land next to the beginning of Trakiya Highway in the northern part of Sofia, on the Botevgradsho Chausse, Hemus Highway, Evropa Boulevard and the northern part of Sofia's ring road.

Other residential buildings are planned to appear near the villages of German, Lozen, Bistritsa, Voinyagovtsi, Lokorsko, Bankya and Vladaya. In addition, Sofia City Prison would be moved out of the city, while, according to the city councillors, its current building could be used for a tourist attraction or a museum, and business centres and shops will be built in the neighbourhood. A new cemetery is planned south of Kazichene, over 100 ha.

There are also huge projects around Iskur lake, recently called “water park Iskur”, where new sports zones would be added. At the city council meeting, some dispute arose over the former Sofia Land amusement park. The changes of the Master Plan foresee construction of a new transport connection and a new street to pass through the park.

The city councillors also approved the construction of a skyscraper and a shopping mall in Zaharna Fabrika neighbourhood. Opposite to the entrance of the West Park (Zapaden Park) a 35-storey building with a big commercial centre is envisaged. The project developers are Eurocapital Finance and Imoti Trade 2005, Bulgarian-language Banker reported.

The skyscraper would be constructed on 19 000 sq m private property at the corner of Slivnitsa Boulevard and Koukoush Street. The investors requested the city to give them the right to include in their project the neighbouring municipal land, which currently are green areas. In exchange they promised to finance the planting of about 3000 to 4000 new trees, as well as the construction of a 110m bridge, connecting the skyscraper with the park entrance. They said they would finance the bridge with their own money. A decision on this proposal has been postponed for the time being.

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The alternative to buy in Sofia

The future centre will have a gross actual area of 240 000 sq m, 14 000 of which will be allocated to the mall. It will encompass six levels, three of which will be underground parking lots and garages.France's Carrefour, the world's second largest retail giant, announced the launch of its first Bulgarian projects at a news conference held on November 5. Colliers International property consultants hold the exclusive agency rights of the project and Greece's TERNA will carry out the construction of the complex. The overall investment is estimated at 200 million euro. This is the largest mall project currently being developed on the Balkans. It is due to open in mid-2009.

The future centre will have a gross actual area of 240 000 sq m, 14 000 of which will be allocated to the mall. It will encompass six levels, three of which will be underground parking lots and garages. The ground and first floor will house retail outlets and the third level is planned as a zone for leisure and entertainment. The complex will shelter 200 retail outlets and its gross leasable are is calculated at 66 000 sq m. There will be office buildings adjacent to the establishment.

The company will open 20 hypermarkets in different Bulgarian towns in the upcoming five- to seven-year period. The first one will open in Bourgas at the close of 2008. The next compounds are projected in Sofia, Varna, Plovdiv, Stara Zagora, and Rousse. The capital alone will have at least two outlets.

"Our goal is to introduce our know-how to Bulgaria, to create new jobs and establish long-term cooperation with a number of Bulgfarian suppliers," Jerome Loubere, general manager of Carrefour Marinopoulos, the Greek subsidiary of the French group, said in a media statement. He assured the public that work was progressing in line with the schedule.

Carrefour has signed agreements for the purchase of sites or the lease of retail space with six to seven companies, said Carrefour Bulgaria general manager Jean Anthonie. About 60 per cent of the leasable space of Carrefour Tsarigradsko Centre has already been let out, said Atanas Garov, managing director of Colliers International.

Garov mentioned that they were conducting negotiations with some of the leading Bulgarian brands, withholding further information on the tenants. He promised to release details when they achieved at least 80 per cent occupancy. Talk is that Carrefour has struck a deal with Inditex, the Spanish retail group, whose portfolio includes brands like Zara, Bershka, and Massimo Dutti.

The units in the development will rent above the average country levels but, according to Colliers, taking into consideration the scale of the project, which is logical. The average retail rentals in Bulgaria vary between 16 and 25 euro/sq m; the price range in Sofia runs from 20 to 26 euro/sq m; and Carrefour tenants, leasing more than 1 000 sq m, will also pay about 20 to 26 euro/sq m. The rest will rent at 30 to 50 euro.

Sources from the local property market say that Carrefour has taken steps towards securing a lease in the Mall Bulgaria development currently under construction on Sofia's Bulgaria Boulevard.

Carrefour Tsarigradsko would generate an annual turnover of 20 to 50 million euro in 2009, in the French retailer's estimates. For comparison, the eight local hypermarkets of Metro Cash&Carry, the German chain of self-service wholesale warehouses, posted sales of over 700 million leva in 2006. The French giant realises more than 12 billion euro in sales revenue in the Balkan region alone. The front-runners in the area are Greece and Cyprus, where Carrefour is retail chain number one. Carrefour plans to inaugurate more than 30 commercial centres over the upcoming two years. (Source: expert.bg, Dnevnik)

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An internationally avowed golf course could render as much as 10 per cent rise to the GDP. "If we assume the optimistic stance and things run smoothly, in April 2009 we will play golf in Kuttina," Sanchez concluded. The Spanish Ferry Group announced the official start of its Kuttina Golf Resort on November 8 at a news conference held just one day after the company received the building permit to initiate construction. The groundbreaking ceremony will hopefully take place in the middle of December, but the actual building works will start in March or April of next year since winters in Bulgaria do not favour construction.

Company president Manuel Ferry Sanchez's two projects in the country, Kuttina Golf Resort and Green Energy (for biomass production), were awarded first-class investment certificates by the Bulgarian Investment Agency (BIA) and have recently been accredited as sustainable development projects by both the Assembly of European Regions and the European Commission. They were the first developments in Bulgaria to receive such a high international evaluation.

Kuttina Golf Resort, the pilot project, located in the northern areas of Sofia Municipality, is emerging as a significant part of the municipality's plan for developing that area of the capital. It will rehabilitate an ex-coal mine into an environmentally-friendly project, boosting the region's landscape, natural environment, and infrastructure, Sofia's chief architect, Petar Dikov, told reporters at the press conference. This project, along with some others in the pipeline, will enhance the prestige of northern Sofia and, in a few years, might even outperform the more developed south, Dikov added.

Kuttina, planned as an urban development with low construction density, will spread on a plot of about 1 700 000 sq m. The residential buildings will occupy a gross actual area of 610 000 sq m. After it is finished, the project will create more than 600 permanent jobs. The complex will use only 20 to 30 per cent traditional energy, the remaining 70 to 80 per cent will be provided by biomass and solar energy. It will have its own waste-water purification plant, which will treat the refuse waters of the compound and the neighbouring villages, Kuttina and Kurilo, and will be reutilised for irrigating the golf course.

Currently, Ferry Group is working on a detailed construction project to be completed soon. MPM Project and BGI Projects are the Bulgarian companies involved in realising the plan. The manager of the design team is Manuel Ferry Louis, Manuel Ferry Sanchez's son, who has already invited a tender to choose a builder. There are eight to 10 solicitations already, among which are the three to four largest Bulgarian building companies, Sanchez told reporters. The confidential terms of the contracts with candidates did not allow them to disclose their identities.

The project plans for the Kuttina Golf Resort golf course is finished and follow the best international standards of Saint Andrews and P.G.A (Professional Golf Association) suited to host international events. An internationally avowed golf course could render as much as 10 per cent rise to the GDP. "If we assume the optimistic stance and things run smoothly, in April 2009 we will play golf in Kuttina," Sanchez concluded.

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