by Stanislava Ciurinskiene

Looking for the best return on property purchases? Turn to recent EU entrants or outsiders

Before the EU's fifth enlargement NATO Secretary General Jaap de Hoop Scheffer compared “Old Europe” to a pensioner who needed transfusions of fresh ideas from the 10 incoming central and eastern European members.

Few people gauged his meaning until the second wave of the fifth enlargement, when it transpired that the 12 additional entrants provided welcome news to property investors.

The rules of real estate investment are clear. Buyers seek not only a return on their investment but also additional profits from either reselling their property or from rentals. Currently, a real estate investor would reap bigger profits through a property purchase in eastern Europe rather than western Europe. Among the reasons: low property prices, marginal taxation rates and modest living costs as well as relatively high rental dividends and fast rising property values. Most European real estate agencies promise a high investment return – defined as the percentage change in the investment's value over a specific period. There are two ways to ensure a return on real estate investment. You can either purchase property and then rent it out or wait until prices rise and sell.

In terms of the first type of investment, European countries could be divided into three groups:
Group One: Old Europe – the first EU members
Group Two: New countries in the EU
Group Three: Countries outside the EU with no prospect of membership imminent

These figures, while not providing information about all areas of the real estate market, provide a realistic picture of the situation in Europe.

Superficially, investment return on properties in the aforementioned capital cities does not vary significantly between the three groups. What makes Group One so different, however, is the fact that investment in Old Europe either equals or accounts for at least half the amount levied in taxes on property transactions. But the most important factor is the dramatic difference between purchase prices in Central and Eastern Europe compared to those in Western Europe.

In most cases, it would be much easier for an average EU citizen or a smaller company to invest in Budapest, Warsaw or Sofia, than in Monaco and pay 24,900 euros per square metre. It means that, for example, a German company with an average annual turnover would be unable to undertake a large project in its own country. In Bulgaria, however, the same company would probably receive a Class A investor certificate and, if all went according to plan, a sizeable return on the investment.

The investment map looks similar to the other type. The key element in speculative deals is finding out where prices are rising fastest. Clearly, this is the third group of European countries as well as Bulgaria and Romania.

There is one key problem in all this. Identifying the suitable investment area for speculative deals from statistical data is almost impossible. The prevalence of the “grey” economy and corruption in countries from Group Three as well as the absence of official data are obstacles to buyers. According to unofficial forecasts, the five most profitable European investment spots this year are: Montenegro – the record holder for the fastest growing property prices in the world (50 percent annual increase), Moldova (31 percent), Serbia (29 percent), Bulgaria (22 percent) and Romania (21 percent).

To recap: western European countries have been stable and expensive real estate markets for a long period. Therefore, to a certain extent, they have exhausted their opportunity. The three Baltic States and Central Europe have already become expensive investment destinations and prices are not expected to increase soon. Romania and Bulgaria provide chances for good speculative deals but without dramatically large profits. Other countries outside the EU – such as Montenegro or Moldova – may yet turn out to be the new “gold mine” of real estate but only if dealings are transparent and legal. It is up to investors to choose between safe investments with smaller profits or serious risks and equally serious dividends.


    Commenting on www.vagabond.bg

    Vagabond Media Ltd requires you to submit a valid email to comment on www.vagabond.bg to secure that you are not a bot or a spammer. Learn more on how the company manages your personal information on our Privacy Policy. By filling the comment form you declare that you will not use www.vagabond.bg for the purpose of violating the laws of the Republic of Bulgaria. When commenting on www.vagabond.bg please observe some simple rules. You must avoid sexually explicit language and racist, vulgar, religiously intolerant or obscene comments aiming to insult Vagabond Media Ltd, other companies, countries, nationalities, confessions or authors of postings and/or other comments. Do not post spam. Write in English. Unsolicited commercial messages, obscene postings and personal attacks will be removed without notice. The comments will be moderated and may take some time to appear on www.vagabond.bg.

Add new comment

The content of this field is kept private and will not be shown publicly.

Restricted HTML

  • Allowed HTML tags: <a href hreflang> <em> <strong> <cite> <blockquote cite> <code> <ul type> <ol start type> <li> <dl> <dt> <dd> <h2 id> <h3 id> <h4 id> <h5 id> <h6 id>
  • Lines and paragraphs break automatically.
  • Web page addresses and email addresses turn into links automatically.

Discover More

Six months after the Covid-19 pandemic forced the world into lockdowns and uncertainties, a fuller picture of its effect on the world economy is beginning to emerge. Bulgaria fared not too bad, according to recent statistical data.

Nowhere is the abyss between what Boyko Borisov's GERB says it is doing and what it in fact does so obvious than in the economy of what firmly remains the EU's poorest state.

From bad to worse? According to a poll by Alpha Research published at the end of 2011, the majority of Bulgarians consider 2011 to have been "the worst" since the economic collapse of 1997.

In the third quarter of 2010 the average monthly income of an adult member of a family in Bulgaria decreased by 2.2 percent on a year earlier. At the moment it is 932 leva, or 466 euros, according to the National Statistical Institute.

The crisis was already a fact in Bulgaria at the beginning of 2009, but the owner of an accountancy firm in Gorna Oryahovitsa would deny it even more vehemently than then Prime Minister Sergey Stanishev.
Rays of hope have started to peep through the cloud-covered economic horizon – even in the new EU member states. Poland has managed to avoid going into recession.

At first, they stopped buying. Then it got worse - they started selling. Yes, it seems the British have deserted the Bulgarian property market and the Bulgarians are taking it very personally.
"The Bulgarian economy is stable." The words former Finance Minister Plamen Oresharski uttered in October 2008 seem more than just a little out of place a year later.

While last autumn the prevailing opinion of people in this country was that the economic crisis did not have a direct effect on them, their view is now completely different.

The commercial real estate market in Bulgaria is at a crossroads.
The "monster munch," as Londoners call the current credit crunch, in my view is running out steam. Everyone is growing tired of the pundits.
According to a saying very popular among Bulgarians in the past, "In his life, a man must do three things: raise a child, plant a tree and build a house for his family." Nowadays this way of thinking no longer reflects the urban lifestyle – the current rati