Bulgarian Economy And Real Estate Investments Overview

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Economic Overview: Bulgaria:

Bulgaria, a former Communist country that entered the EU on 1 January 2007, averaged more than 6% growth from 2004 to 2008, driven by significant amounts of foreign direct investment.

Successive governments have demonstrated a commitment to economic reforms and responsible fiscal planning, but the global downturn is reducing exports, capital inflows, and industrial production.

In 2009, GDP contracted by approximately 5%. However, it rebounded to growth of 0.2% in 2010, mainly underpinned by export that reached 72% increase for January 2011 on an yearly basis. GDP growth forecasts for 2011 and 2012 are 2.6% and 3.8% respectively.
 

Moreover, consumption, considered as a main obstacle for GDP growth, is up more than 7% for Q4 2010 on an yearly basis. FDI also registered an increase of 81% for January 2011 on an yearly basis. 

Key investment incentives:

·         Lowest tax burden in the EU

·         Lowest average labour cost in the EU

·         Low start-up costs (approx. 1 EUR for establishing Limited Liability Company)

·         Fixed exchange rate to the Euro, no risk of currency exposure for Euro zone investors

·         Strategic location in the Balkans

Bulgaria is the only EU state that has introduced a flat tax of 10% and has Double Tax Treaties with 68 countries. The implementation of this policy has contributed to improvement in the local business performance and to attracting foreign companies looking for tax friendly business environment which as an effect will contribute to higher level of employment, improvement of living standards, and increasing government tax income  

In addition, according to Eurostats, Bulgaria also had the lowest average labour cost within EU for 2008 which as a consequence facilitates companies’ production efficiency by outsourcing low cost manpower. This automatically leads to economies of scale, a strategic advantage for companies competing with foreign EU incumbents.

Another important factor for foreign investors is that the Bulgarian currency is fixed to the Euro (1.9558 BGN per 1 EUR). This means that there is no risk of currency exposure such as transaction or economic exposures that would affect value or yields of properties owned by Eurozone investors.

 The strategic location of Bulgaria is another essential factor for Real Estate entrepreneurs. Macedonia and Turkey are EU candidates. Moreover, Macedonia, Serbia and Montenegro have an EU visa-free travel regime. These events will make Bulgaria a centre of trade in the Balkan region which will develop the logistics industry and will pick property prices up, thus higher levels of yields. 

Real Estate Investing Opportinities

The economic recession and the downturn of the property market in Bulgaria in 2009 provides lucrative opportunities. Property prices have reached their bottom. Investors now have the bargaining power to purchase properties below their market value. Goldman Sachs forecasts that the Bulgarian economy are positive with average 4% growth in the next 5 years. That will reduce unemployment and will return investors confidence. Such a trend will push property prices up again. Therefore, at the moment investors have to opportunity to purchase properties on their lowest rate, below the market value, and to reap the benefits of future pickups in property prices and consumers’ spending. 

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