Bulgaria investment returns plummet

Thursday, 7 September 2006 12:00 AM

Overseas property investors considering buying property in Bulgaria should think twice after investment returns plummeted.

As recently as June, Bulgaria was deemed to provide the greatest return on investment for overseas property investors.

But new figures from property investment firm Assetz show the popular eastern European hotspot has fallen from first to sixth place in the third quarter.

Top spot in the league of investment returns has gone to France, while Poland, Cyprus and the UK are in second, third and fourth place respectively.

In Bulgaria, which is now one place below fifth-placed Spain, returns on cash invested dropped from 104 per cent in June to 44 per cent currently, and with house price growth slowing this is likely to drop still further.

Annual house price growth has slowed from 36 per cent to 17.8 per cent, while the Bansko ski region showed price falls of 2.1 per cent.

"Bulgaria is facing a period of readjustment after a huge initial foreign investment," said Stuart Law, managing director of Assetz.

"While longer-term investors are still set to benefit over the next five to ten years, as low cost property continues to attract holiday home buyers, there are no longer instant returns to be made in the short term.

"An oversupply of rental properties is being aggravated by stories of dishonest local management agencies, some of which are reported to be letting properties and keeping the cash."

After an absence of 12 months, France returned to the top of the table, supported by a strong rental market, sound tourism industry and continued popularity as a holiday destination

Low mortgage rates of 3.1 per cent and strong market growth of 9.1 per cent make it the place to buy overseas property for many investors.

"The majority of investors want to make personal use of their property, either as a holiday home or somewhere to retire to, and they are opting for the quality of France as a sophisticated destination over emerging markets such as Croatia and Turkey," Mr Law added.

The arrival of low-cost airlines such as Easyjet have boosted the property market in Poland, where capital growth has been 20 per cent in the last 12 months.

In the capital, Warsaw, house prices are among the lowest in Europe so there is plenty of potential for rises.

Assetz also notes that a shortage of property presents opportunities for investors to buy managed new build apartments for the local rental market, and predict growth of between 20 and 30 per cent per annum during the next five years.

The investment firm is far less upbeat about the market in the United States, where it predicts a "significant house price retracement".

"It is quite possible we will see price drops on an annualised basis for the first time in decades, through zero per cent, into negative growth," said Mr Law.

"The big question is whether the U.S. will see the same soft landing that was seen in the UK. With far fewer restrictions on available land, I believe it is susceptible to negative growth as the effect of continuous rises in interest rates over the last two years or so have caused a shock to the consumer, the effect of which is still to be fully realised."

In the UK, Assetz predicts capital growth of five per cent a year for the next three years.

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