Bulgarian real estate has untapped potential and will post steady growth in 2008

news date: 16:08 Mon 21 Jan 2008 - Anelia Zaharieva

Investment in large-scale projects in 2008 will extend beyond Sofia and big cities, so including relatively undeveloped towns – those with less than 50 000 people - a part of the property boom already experienced by Sofia and other major Bulgarian cities (Varna, Bourgas, Rousse, Stara Zagora).
The Bulgarian property sector has not yet reached full capacity and demand will continue at a brisk pace this year - particularly in the retail, industrial, office and residential sectors - according to Prime Property BG REIT - the first REIT listed on the Bulgarian Stock Exchange. The fund’s specialists explained that Bulgaria still has a shortage of modern business and residential areas. They outlined seven prime trends that would dominate 2008’s development process of funds, dealing in property securitization.
1. REITs will keep on increasing their capital in 2008.
This trend is prompted by the continued growth of the country’s property market.
2. Investment in retail and industrial space will increase.
Industrial buildings will be the most attractive and lucrative investment in 2008. Commercial projects have not yet exhausted their growth potential and mall construction will continue.
3. Bespoke construction projects will increase their share.
Investment in new buildings, developed by their owners, will increase. These deals are considered low-risk options for both investors and buyers. Investors do not have to seek customers – projects are often sold straight off the drawing board and clients receive a unit matching their choices without any need for further remodeling.
4. An increased number of sale and lease back transactions in 2008.
Property investment funds will become less involved with construction. Gradually, by increasing their property assets, activity will shift towards purchasing completed buildings, which they will maintain and rent out.
This year will see more deals through the sale and lease back scheme, because they prove profitable to both parties. Vendors receive fresh resources for investment in technologies and real estate trusts guarantee them long-term lessees and satisfactory returns.
Prime Property BG has finished its first transaction of this type, purchasing a completed building in Botevgrad. The overall investment came to 2.2 million euros and annual returns are set at 18 per cent.
5. Investment in smaller cities will surge.
Investment in large-scale projects in 2008 will extend beyond Sofia and big cities, so including relatively undeveloped towns – those with less than 50 000 people -  a part of the property boom already experienced by Sofia and other major Bulgarian cities (Varna, Bourgas, Rousse, Stara Zagora).
6. REITs will attract more individual investors because investment in these funds is less risky than investing in other financial instruments on the bourse.
REITs’ shares currently sell at low prices. Very few funds are paying dividends at this point but when they start to do so, their shares are expected to appreciate.
7. REITs’ yields will be above the market average in 2008.
Returns on REITs’ shares will greatly depend on the prices of the funds’ assets. Prime Property BG analysts predict that yields will be above the market average. The forecast is based on projects with minimum expected returns of 20 per cent.
Prime Property BG is a special purpose vehicle, certified by the Financial Supervision Commission in January 2004, investing in construction and sale of residential and holiday properties and in the development and renting out of commercial and office space in Sofia and throughout the country.
The company has eight projects totaling 180 million euros. It has already received a building permit to construct its second resort village – Coral residence north of Lozenets in Tsarevo Municipality. The project is a joint venture with Austria’s Immoeast, which is a strategic investor in Prime Property BG. Investment in the Coral residence Resort is estimated at 40 million euros and the expected return is 34 per cent.
Source – Bulgaria Property Wise Magazine 

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