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Mon 25 Feb 2008 04:00 AM

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Globe trotting

This month Arabian Property takes a look at the real estate markets of Bulgaria and South Africa which both offer lucrative opportunities for investors willing to take a risk.

This month Arabian Property takes a look at the real estate markets of Bulgaria and South Africa which both offer lucrative opportunities for investors willing to take a risk.

What constitutes an emerging property market? To some extent the answer can be subjective from the potential investor's perspective. If your interest is in one particular region, or a particular area in that region, an emerging market might be caused by the ripple effect.

The WTO predicts that by 2010, 20 million tourists will visit Bulgaria each year making it one of the world’s most significant emerging markets.

For markets to emerge in the way that they now often do is a symptom of globalisation, more specifically the globalisation of financial markets.

All around the world the deregulation of financial institutions and the lifting of international barriers has helped the flow of financial capital.

Along with the lifting of local barriers, market efficiencies have been massively improved allowing the flow of international capital which can now move around the world searching for the best risk return. Real estate markets are one of the biggest beneficiaries through access to equity and debt financing from global rather than local markets.

Of course there is a downside, greater volatility and vulnerability, moving capital into and out of local property markets in vast quantities. This can heighten property peaks but deepen the slumps.

So when we consider what constitutes an emerging market in real estate terms we have to be sure of the fundamentals; in other words, what has kicked-started the market and what is likely to maintain its momentum.

In my view some of the world's most exciting emerging markets in real estate terms are in Eastern Europe.

The region has so much going for it; beautiful scenery, stunning coastlines and forests as well as a wealth of history and culture. These things are a magnet for tourists, especially since some Eastern European countries have joined the European Union (EU).

Add to this mix successful emerging economies, lower than average property prices than in other established European countries and you have some very exciting emerging real estate market investment opportunities particularly in Bulgaria, Estonia, Croatia, Latvia and Hungary.

Bulgaria presents real estate investors with some of the most lucrative opportunities. The country is now a parliamentary democracy, a member of both the EU and NATO, with a population of approximately 7.7 million people. Its landscape ranges from alpine snow-capped peaks to the mild and very sunny Black Sea coast.

The climate is temperate, with cool damp winters and hot dry summers, temperatures in the south are often above 40 degrees.

So how does Bulgaria qualify as an emerging international property market? First property prices are at a low level compared with more established markets in Europe. The economy is growing quickly with extensive inward investment; this combination has led the housing market to be one of the most ardently bullish in Europe.

These factors alone however, would be insufficient for an investor to be overly confident about buying property in the country.

But its recent entry into the European Union combined with the country's booming tourist market will certainly see property prices soar and makes the country a compelling choice for property investors. Bulgaria's booming tourism industry has led to increasing demand for holiday rental properties in the country.
The World Tourist Organisation predicts that by 2010, 20 million tourists will visit Bulgaria every year which will make it one of the world's most significant emerging markets. There has been a 90% increase in EU visitors during a time, in recent years, when other European holiday destinations suffered a drastic downturn in numbers.

Many summer resorts have been developed skilfully and are being expanded, along with very good ski resorts that benefit from guaranteed winter snowfall. There are an increased number of low-cost airlines servicing the country making access to the country progressively easier. The government is very keen to continue the progress of tourism which currently accounts for 16% of GDP.

A non bulgarian national is not allowed to own land in bulgaria and it remains necessary for the investor to form a bulgarian limited company.

Bulgaria's economy has been overhauled leading to an improvement in stability and decreased inflation. GDP has grown consistently and this has led to the increasing success of local businesses and to more and more Foreign Direct Investment (FDI).

The central bank registered record high FDI of US$6.45bn in 2006 and preliminary data shows this will have increased in 2007, all very positive news for the economy and the expansion of its real estate market.

When deciding whether to invest in Bulgaria, good timing is essential. When investing in emerging markets early investors making a punt take greater risks but if it turns out to be the right decision clearly also make the greatest profit.

So new investors have already missed the growth of the last few years, which has been extremely bullish. After joining the EU the cities of Warsaw in Poland, Prague in the Czech Republic and Bratislava in Slovakia progressed more than 10 places in the Mercer Cost of Living survey.

Bulgarian property remains up to 40% lower than in these other countries and prices are predicted to rise accordingly, particularly following accession to the EU. So the opportunities still look compelling and certainly if tourist numbers follow or exceed the predictions then Bulgaria looks like a very safe bet, or at least a very good one.

How can you invest?

A non-Bulgarian national is not allowed to own land in Bulgaria and it remains necessary for the investor to form a Bulgarian limited company capable of owning land, with the investor registered as a company director.

All of this has to be carried out by a lawyer and will take about four weeks to complete. A preliminary contract is prepared at which point a 10% deposit must be paid. The lawyer will conduct the necessary checks on title deeds and documents, licences and permissions, debts on title and terms of contract.

The purchaser must pay the balance of the purchase price as well as land tax and legal fees which will amount to more than 5% of the purchase price, after that the property will legally be owned by the investor. The costs include a state tax of 2%, which is similar to a stamp duty. Land registry costs are 0.1% of the value. Legal costs are around 1% of the value.

Of course buyers are recommended to seek professional help to review and complete their purchase.

The reasons why people want to buy property varies enormously and therefore the considerations are equally as wide and varied.

Intrinsic requirements might not solely relate to risk/return factors and more often than not, relate to a personal and family need to access and use the property as a holiday retreat or a strategic business investment.

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