Property Investment in Bulgaria

MA-Thesis / Master von Jubilee Jenna Mandl

Abstract:

Many companies invest in Bulgaria due to various reasons. One reason is the tempting and overwhelming predictions. Although costs are low, investors will have a hard time increasing prices to yield return. Austria took about 25 years to develop itself to the condition it is now, although Austria is not a third world country. Bulgaria on the other hand is a developing country and the economical development will probably move slower due to their current government situation.

Due to the attractive forecasts, I believe that investors overestimate them. I believe they are true, but misleading and therefore investors take a huge risk by planning short-term goals within Bulgaria.

Investments are usually decided upon specific questions such as:

What is the scale of the investment? Can the company afford it?

How long will it take to pay back the investment?

How long will it take before the investment starts to yield returns?

What are the expected profits from the investment?

Could the money be used to yield higher returns elsewhere?

By answering such questions, companies also receive advices from experts and/or analysts to see if their answers to the above questions can be materialized within that country. This may depend on the growth rates, Gross Domestic Product (GDP) figures, future development plans, the predicted potential, the entry to the European Union, etc. Nevertheless, since investment in Bulgaria is increasing, one can assume that all believe that their investments will pay off.

But will they really? Why do so many companies invest into Bulgaria? The predictive indicators are attractive and tempting, but are they really as realistic as investors say? I believe that up to a certain degree, investment is profitable important, but once the line is stretched, capital losses will appear.

Currently, Bulgaria is swimming in foreign investment, and all investors believe that it will pay off. But it is impossible to assume that all investments will result profitably, especially not within a short period of time. I am afraid, that until the investments yields returns, the companies lost already. The reason --- the time range that are used to calculate the forecasts or predictions, are not realistic.

Property is today’s most popular financial investment. The traditional Stock Market offers high returns but it proves to be a highly volatile market. It is interesting to note that 50% of all members of ‘The Times Rich List’ made their fortunes through property investments. With adequate due diligence, property can be selected and used as a successful investment tool, whether this is in the form of a re-assignable contract option from an off-plan investment or a buy-to-let situation to generate reliable rental income. Whatever your strategy, property chosen in the right location can generate substantial capital appreciation.

Experience shows that property in good condition with the right location will show an increase in value each year; for example, a property worth just EUR 2,000 thirty years ago, today would be worth around EUR 112,500.

Bulgaria is an exciting emerging market and currently offers property at prices impossible in other areas of the world. With prices steadily rising and predicted to continue to do so for some time, wise property investment in Bulgaria seems to promise excellent returns on investment. Buyers are snapping up bargains now, with the perception to enjoy above average returns on investment in the near future; i.e. 2 years.

Table of Contents:

Text Sample:

Chapter 4.2, Data Sources – Ranking the Economic Climate in Bulgaria:

The United Nations Conference on Trade and Development (UNCATD) inward foreign direct investment (FDI) performance index is a measure of the extent to which a host country receives inward FDI relative to its economic size. This is calculated as a ratio of a country’s share in global FDI inflows to its share in global GDP.

To benefit from the current trend of Research & Development internationalization, the countries need to have innovative capabilities. Thus, the UNCTAD developed a new UNCTAD Innovation Capability Index. It measures the human resource capabilities and the technological activity.

Bulgaria has a high FDI potential and is therefore classified in the High FDI performance group together with China, Finland, Israel, Czech Republic, Hungary, Slovakia, Slovenia and Estonia. Romania in comparison is in the low FDI potential group. The Russian Federation and Bulgaria were the only target economies mentioned by 68 respondents as current locations of their foreign Research & Development efforts in developing countries.

Quarterly GDP growth rates are accelerating in Bulgaria. The expected 5.5% economic growth is the result of rapid structural change and improved export competitiveness.

Relatively low euro wages are the advantage of Bulgaria when it comes to attracting labor-intensive manufacturing. On the whole, unemployment is stubborn in the whole region but prospects are not altogether bad. The examples of Bulgaria and Romania, to some extent also of Albania, show that employment can increase in the presence of very high rates of economic growth.

The German-Bulgarian Chamber of Industry and Commerce recently polled German companies in Bulgaria on their perception of the business climate in the country. The survey highlighted Bulgaria’s rich human resources as one of its strongest points. German investors rated the supply of unqualified labor as very good to good. The supply of qualified labor and productivity was considered good to satisfactory. 77.3% of respondents rated the condition of their business as good and over 60% expected the value of their investment to increase. These results are a positive endorsement of the benefits of doing business in Bulgaria and the importance the labor market reveals the depth of the competitive advantage the country holds. The stable social and political environment is a newly recognized for Bulgaria. The level of corruption in Bulgaria is less than in Croatia and Romania.

Bulgaria has, in fact, increased its attractiveness as an FDI destination over the years, from an annual average of EUR 120 million between 1992 and 1997 to EUR 800 million in 2001 to a record of EUR 1.2 billion by 2003 according to UNCTAD reports. In the future, the FDI Confidence Index reveals that FDI may continue to grow as 13% corporate investors from the worlds largest companies expressed a more positive outlook on the Bulgarian market.