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Europe's own China

"Europe’s periphery has emerged as one of the most vibrant parts of the global economy – a fact little recognised by investors mesmerised by the emergence of China and India"

FT, 8th Jan http://www.ft.com/cms/s/0/4f1867d8-bd44-11dc-b7e6-0000779fd2ac.html

How true is this?

This is a quote from the chief market strategist at Bank of America on the FT's site yesterday - 8th Jan 2008.

Well, I kind of want to say 'told you so'! And aren't you glad you have invested in these markets before the rest of the FT reading public?

But what is really interesting is that it is now becoming public knowledge that China and India have mesmerised investors into missing the opportunities in central Eastern Europe.

Why is that?

From BRICS to 'BRICEES'

Well, one possible (but false) explanation for why investors might have missed central Eastern Europe is because the opportunity isn't as good - but I don't believe this and nor does the Chief Market Strategist of Bank of America based on his recent article.

I believe that investors missed central Eastern Europe because it is a complex and diverse region and isn't as easy to prononuce as India or China.

As I argued in my recent End of Term Performance Report - the term BRICS (Brazil, Russia, India and China) has missed out the other most exciting (but also most stable and secure) region of central and Eastern Europe.

Hence, I propose that we should now talk about Brickies (BRICEES) and not just BRICS! (This also seems the most appropriate name given that we are interesting in property in this region).

It is much easier, for instance, to talk India - than it is to talk about the 12 new countries that have joined the EU in the past 3 years - along with as many languages and nearly as many currencies (Cyprus, Malta and Slovenia have now all successfully adopted the Euro).

Yet, this diversity is exactly why the region offers such opportunity. Whilst the Baltics have done their bit on property price growth for now - the focus has shifted to Romania and Bulgaria.

However, just as Czech Republic began a second wave of property growth last year, so Slovakia is re-entering the property price growth curve and will be followed by a second wave in Poland - in about 12 months.

The good news - is that many investors still haven't figured out where central Eastern Europe is - nor have they managed to stick any money there yet.

Hence, whilst these markets certainly registered excellent growth and are experiencing increased interest from fund investors - the region remains relatively untouched by foreign investors!

This would suggest that there is plenty more growth to come! But that you do need to know your Bucharests from your Budapests! And that is the sustainable advantage that Property Secrets can offer.

Cheers
Neil

ps. One last quote from yesterday's article 'Europe’s got its own China next door'

POSTED BY NEIL LEWIS ON TUE 8TH JANUARY AT 17:29 GMT

TAGS: UK Property, Slovakia Property, Romania Property, Property Investment, Poland Property, London Property, India Property, East European Property, Czech Property, China Property, Bulgaria Property

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EUROPE'S OWN CHINA

Hi Neil

Interesting quote from Martin Wolf writing in the FT about the challenges ahead for the world economy on Tuesday:

'Yet the remarkable fact about this turmoil is that emerging economies are emerging as safe havens: growth there is being sustained; and credit spreads have moved little.

'The apparent invulnerability of emerging economies to the US slowdown is noteworthy. It is duly noted in the World Bank's latest Global Economic Prospects.

'.......It is astonishing how widespread rapid growth has now become in the developing world. In 2007, for example, growth is estimated by the World Bank to have run at 10.0 per cent in east Asia, 8.4 per cent in south Asia, 6.7 per cent in eastern Europe and central Asia, 6.1 per cent in sub-Saharan Africa, 5.1 per cent in Latin America and 4.9 per cent in the Middle East and north Africa.

'The soaring prices of oil and other commodities make this picture of broadly shared growth yet more noteworthy. These have had remarkably little impact on global growth. It is far more plausible to view them as a consequence of growth than as a constraint upon its continuation.'

The growth momentum seems so strong that even if it is affected by a slowdown in developed countries - an effect I think is inevitable - there is plenty of capacity there to still see very strong growth.

One interesting area to consider is whether FDI into CEE from developed countries - the main driving force for growth - will slow if there is a sustained slowdown in the west, where most of the investment is coming from. I think this is partly how these economies are different to those of China, Brazil and Russia, which are being driven by massive trade surpluses.

The answer is pretty positive and I'll aim to have a look at this in a forthcoming blog.

cheers

POSTED BY ROBIN BOWMAN ON THU 10TH JANUARY AT 11:53

RE: EUROPE'S OWN CHINA

Thanks Robin

yes - this re-enforces the view we had back in the Autumn that the credit crunch is turning the assessment of risk upside down.

Emerging markets are definately in!

Cheers
Neil

POSTED BY NEIL LEWIS ON THU 10TH JANUARY AT 11:56

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Sofia and Bulgaria - emerging from austerity - but where to invest?

Sofia's property market is emerging - but the downtown pavements haven't been fixed and those that aren't covered in parked cars are dangerous to walk for the risk of stubbing your toe!

Large numbers of downtown houses are literally falling apart - with roofs unfixed, windows not fitting and people living in some rotten conditions.

Take a look at this house on a major road and the picture was taken from a new 5 star hotel.

Following my Cappuccion trail - the cost of a Cappuccion in downtown Sofia is either 1.7 Leva or 5 Leva- take your pick!

The super expensive 5 Leva (about 2.5 Euros) is in a smart coffee shop in a department store next to the Bulgarian parliament building.

However, just 2 minutes walk away - down a pedestrianised street - you can sit outside on the pavement and enjoy the same drink for 1.7 Leva (or 0.85 Euros).

So which represents the true Sofia?

Both - and neither!

The truth is that the expensive department store was empty when I visited in early August and no one was drinking Cappuccion for 5 Leva.

And, the clean street coffee shop was full of coffee drinkers. Yet around the corner was a bustling yet poor street market (for instance, no one was wearing designer clothes nor sun glasses - and hardly any one was using or possessed a mobile phone - instead it felt like Petty Coat Lane in London about 30 years ago!).

Yet, neither of these coffee shops really represents the new Sofia.

Why?

Well, whilst the street coffee shop was in a surprisingly central location it was also in an area that had a strong Turkish feel - perhaps it is known as a immigrant borough?

And, at the same time, the central department store – next to parliament – isn’t representative too because the property development of Sofia is not starting in the centre and working out – but the other way around!

Sofia is a large sprawling city – with very substantial green / park areas and beautiful mountains which start to rise just 5Km to the south.

In addition, there are large ‘gaps’ in the city – these are areas that are not converted into parks or official green areas – not is there any building or any usage made of the land.

This is why the city of Sofia covers an area of 1,310 km2 (remember Bucharest is just 220 km2) and an official population of 1,326,377 (but probably quite a lot more).

That means that Sofia’s density is just 1,030 persons / km2 compared to Bucharest’s density of around 8,000 persons / km2 – that is 8 times less dense!

So, what does this mean for property investors?

It means that a large geographical city like Sofia will develop the ‘gaps’ first and the centre later!

It means that cheap immigrant and poor areas will remain in central locations and next to the main government buildings for some time – and that the well healed Sofia population will simply not use the centre very much.

Instead, the new middle class/ newly wealthy will buy their cars from the show rooms on the highways that exit the city towards the Serbian border and onto Austria and Germany (in the North West) or that exit the city towards the Black Sea coast and Istanbul (in the South East).

At the same time, the new malls and shopping centres are cropping up in the city fringe (typically on south side of town) plus more supermarkets and smart shopping districts extending southwards to the mountains.

Essentially, the shopping is going south and along the major infrastructure routes.

And this captures the real opportunity of Sofia.

The best Property Investments will either be in the prime or 2ndry prime locations of the South … or…

… on the key transport routes... or …

both!

My conversation with a local valuer re-enforced this view. Given that lack of comparable newly built properties, new off plan investments are valued based on the following criteria:

1). Infrastructure (especially transport – public and private such as roads)

2). Design and area (ie is the development appropriate for the location – prime / 2ndary prime / suburb) and what is being developed around the new property?

So, when looking at areas that are going to develop first and fast, we need to look at those with the best road and public transport.

However, at the moment, a lot of the developments are focussed on the managerial middle class and they like to use their cars. So, road transport – ie fast access to a major boulevard – preferable the fastest boulevard – is highly desirable.

At the same time, the city is extending its metro – which currently runs from the North West suburb of Lyulin and reaches the centre but will shortly be extended across the city to the east.

Given that the Lyulin neighbourhood will be less car based and more dependent on public transport this is a key development for this area. It is also an area of 'middle class' panel blocks and so car usage will be lower.

Mean time, to the south of Sofia, and beyond the one-lane ring road, the mountains rise (which are visable from the city centre) and here the villas of the super-rich are being built.

There actually already are old villages in this area – and very expensive villas too (allegedly one sold for 3m Euros recently) so this will naturally draw the newly wealthy in this direction. These will become the urban villages of Sofia - like Hamstead in London.

Lastly, the district immediately south of the centre – Lozenets – is the location of the US embassy and is probably the prime central district of Sofia.

So, to put this together, the city is developing middle and upper middle class units to the south (as described above) and also adding blocks in a fairly random spread in the outskirts.

Many developments are being built too close together and there is quite a lot of evidence of planning rules being ‘adjusted’ to accommodate non-standard request (and extra floor height here and extra 3 metres there) which can affect the immediate environment of small developments. Therefore, larger developments – with a unified plan and control over the environment – will probably command a premium if well built (ie quality of materials plus the design and layout of the blocks is well thought through and well implemented).

But the killer factor for any development will be the infrastructure – roads for the well-off but metro and trolley bus too.

Hence, Sofia will develop from the outside-in.

And, parts of the old centre will continue at low prices – and very poor conditions – and poor desirability – as the shopping and office spaces are built around the edge of the town.

This is typical in a city that is the size of Sofia – and allows developers to create new areas and business parks with relative ease (as there is a lot of land) in the fringes and on the edge of town.

It also explains why the centre can continue to feel a little run down.

One thing I noted, is that the centre was pretty empty after 11pm on a weekday night. Again, suggesting that not so many people live there.

This is why all the action is taking place out of the centre for the time being. And this is where property investors should focus their attention – whilst not forgetting the critical value of infrastructure and the immediate neighbourhood.

But there is another reason why I believe that Sofia and Bulgaria are emerging from austerity beyond the run-down feel of the central area… and this will have a significant impact on how this market will develop in the next 5 years.

More on this will follow in my next blog...

Cheers
Neil

POSTED BY NEIL LEWIS ON THU 9TH AUGUST AT 21:09 GMT

TAGS: Sofia Property, Bulgaria Property

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SOFIA AND BULGARIA - EMERGING FROM AUSTERITY - BUT WHERE TO INVEST?

Neil, Its interesting you agree with mine and Richard's analysis of where to invest when we were there in March this year. Now we know where to invest in Sofia the question is ... is now the time and if not when maybe? In March we concluded that we needed a little longer as the growth had not started yet, though price data from the first part of this year was very surprisingly positive. Is now the time ... EasyJet seem to think so having just announced flights from Gatwick to Sofia in November this year. Thoughts? Cheers Simon.

POSTED BY SIMON TWEDDLE ON FRI 10TH AUGUST AT 10:03

SOFIA TIMING

Hi Simon Yes, I'm pretty sure the time is about right in Sofia. We'll see the usual pattern I believe - key areas (ie smart close to centre) districts plus activity around key transport hubs (airport and new metro lines) will move first and offer the best 'early' investment. Then, in a year or so, as per Bucharest, the opportunities will disapate a bit - with a broader range from luxury to basic. At the moment most deals will be 'upper middle class' with a few focused on what you might call the 'working middle'. If that makes any sense Cheers Neil

POSTED BY NEIL LEWIS ON WED 22ND AUGUST AT 13:02

SOFIA

Neil - very good article. However, it sounds like there is plenty of land and easy planning. So what will drive prices up? Increasing build costs, yes, but what else? Cheap mortgages alone are not enough unless supply is constrained in some way.

POSTED BY STEPHEN BARNES ON FRI 10TH AUGUST AT 23:04

RISK OF SUPPLY

Hi Stephen You are spot on here. The key issue in Sofia is not land - it is infrastructure. ie. those developments that are well situated for infrastructure will do very well - and those that are not will not do well. What I am saying is that the limited resource in sofia is infrastructure - which is true of many cities - this is why people pay more to live centrally - but particularly accute in Sofia. Will that change? Yes, but slower than the population growth of Sofia, hence this factor will become increasingly more important in the future and the price differentials will increase. Cheers Neil

POSTED BY NEIL LEWIS ON SAT 11TH AUGUST AT 08:52

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The Road from Varna to Sofia

More evidence that the population of Bulgaria is shifting into the big cities was the road from Varna to Sofia...

.. it was empty, except for traffic travelling from Varna to Sofia!

Work is being carried out to widen this key trunk route - but it still has the feel of small scale investment vs the huge motorway program being carried out in Romania (to link Constanta to Hungary).

Whilst passing through the country it is worth noting that

25% of the working population in Bulgaria is involved in agriculture - but this delivers just 7% of GDP.

There is a also a large unemployment in rural areas and it is reasonable to assume that many of them would be involved in subsistence farming of some sort.

This explains why the average wage in agriculature (outside of subsistence farming) is just 130 Euros per month vs 424 in financial services (ie bank tellers).

Cheers
Neil

PS. Anecdotal evidence is that Sofia's wages are 30% higher than the country average. I think this is more like Sofia's wages are 30% higher than other major towns and cities (with the exception of Varna) but that the countryside consists mainly of subsistence farming.

PPS. The region that the Varna to Sofia road passes through is also a high unemployment region - with the exception of Gabrovo - which has a small but healthy mountain tourism

PPPS. The northern plain (ie road from Varna to Sofia) is principally a wheat growing area. However, with lack of rain and high heat this summery, the wheat crop might be down 50%. This could easily drive more small farmers into the cities.

POSTED BY NEIL LEWIS ON WED 8TH AUGUST AT 06:55 GMT

TAGS: Varna Property, Sofia Property, Property Investment, Bulgaria Property

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Varna – leafy, prosperous and leap frogging

In my earlier blog on Constanta, the major Romanian container port on the Black Sea (with a thriving ‘local based’ tourist resort on its door step) I stressed the fact that I believe that the true property investment opportunity is always in the nearby city and never on the coast…

… unless you happen to be a local land owner or developer…

However, my experience of the Spanish coast and watching investors catch a cold by buying holiday homes dressed up as investments, led me to write why I believe the real money is to be made in the local city – which you can read by clicking here.

So, a part of my reason for visiting Varna was to see if my experience of Spain was going to repeat on the Bulgarian coast and also to see if Varna represented a model of how Constanta might become, as well as potentially offering investment opportunities of its own.

I also wanted to visit the Black Sea coast to see if our dire warnings on the likely fall in holiday property prices was likely to happen.

Well, the first thing I can report is that whilst property is being sold to Brits up and down the coast, there was no evidence of anyone claiming the property to be an ‘investment’.

This by itself is encouraging, because if the purpose of buying a Bulgarian holiday home is to own a cheap summer holiday home (and not with the expectation of making money) then it is unlikely that the holiday home buyers will be disappointed.

The risk is that as an investment the holiday homes simply will not pay off.

What I saw was extensive selling of property – but not too much buying. I saw a large number of new blocks in Golden Sands that have now been completed and a large number of for sale signs litter the blocks. Many of the for sale signs appear to have been erected by developers and agents.

At the same time, the national tourist board is expecting a large number of Bulgarian hotels to go bust – essentially, any hotel outside a major resort that is not able to significantly reduce its rack rates will not attract sufficient holiday makers.

This actually highlights the real problem with the Black Sea coast – from the investment angle – and that is that it is just a 3 to 4 month season and in some locations it is near impossible to rent out an apartment.

The winter can be very cold and the wind can be bitter (slightly to the north the sea has been known to freeze over – which gives you an idea of the kind of winter climate in this area).

Equally, the resorts to the south of Varna – Sunny Beach especially – has seen huge amounts of development and in fact too much over-development.

The local view is that resorts to the north of Varna will ride out the storm better because fewer holiday apartments have been built because the land is hilly with cliffs – and this significantly restricts construction.

Perhaps the worst ‘holiday investments’ of all will be large new developments inland.

However, as I said before, if Brits and Irish are buying these as summer holiday homes – then they will not be disappointed and will have no reason to sell at cut down prices.

The risk is that some buyers are expecting to make a profit and these people will face – at best - a long term hold of an under performing asset and at worse they’ll sell in a hurry at cut down prices and lose money.

We’ve covered the Bulgarian coast and its likely problems here if you want to read more.

However, my main interest was in Varna.

Yes, the town is prosperous. It has many beautiful buildings in the centre and is a leafy city with an air of confidence.

It also has a booming population – which is thought to be around 500.000 people which may swell in the summer season to (possibly) 1m.

The key though, is that until recently, the population was thought to be slightly about 300.000 – which placed it as Bulgaria’s 3rd biggest city.

However, the way in which city populations are counted (ie those people who register their permanent address in the city) has become a less and less reliable measure of actual population.

Why?

Every Bulgarian citizen carries an ID card – just as I carry a Spanish ID card because I am a permanent resident in Spain.

However, because of the relaxation of control and also the right to travel in the EU, the need or urgency to re-register your ID card when ever you move to a city is sharply reduced.

For instance, students on three year courses do not bother to re-register their address in their student town – but maintain their address at their parent’s home.

Equally, in Varna, many students stay on in the city after finishing their studies. Whether they take a permanent or temporary job doesn’t really matter – because most 1st jobs outside university are pretty temporary anyway (ie you either decide you don’t like the work, decide to study some more or get promoted and move to another location).

So, this habit of not re-registering continues.

And, as this habit expands and the population becomes more mobile (in search of better jobs, better places to live etc) so the official population statistics become less reliable.

Hence, based on the broad pedestrian boulevards of Varna and the teeming night life on the city beach, the town was full when I visited it.

Varna has also clearly benefited from a 4 to 5 year boom in the nearby coastal regions which, whilst foreigner investors may catch a cold or two, has clearly left wealth and prosperity with the Varna based land owners and property developers.

Now, it is pretty clear to me that these newly wealthy are spending their money on homes in Varna and buying new cars from some of the fancy show rooms on the edge of town.

Thus, Varna now has a thriving service sector and the city centre renovation is well underway.

It is reasonable to think that Varna will continue to grow and so will offer great opportunities for investors. But remember I am talking about the city of Varna – not the coastal region!

I also heard that the local mayor has announced a two year construction ban in Varna to allow the infrastructure developments to catch up!

Whether this is a sign of overdevelopment, an indication that city property isn’t selling or a sign that development laws and rules have been flouted – or all three – I don’t know.

However, such a temporary ban can only tighten supply of property – and if the new population numbers are true, then this will drive up city prices.

Varna’s population growth also makes it the clear second city in Bulgaria and propels it ahead of Plovdiv (which is so close to Sofia that it is losing population to the high salaries of Sofia).

Varna’s coastal appeal also means it has clear benefits (lifestyle etc…) over Sofia, but I would expect that its salaries will only be marginally less than those in Sofia and so, its property prices will be marginally less too.

Hence, Varna has now leap frogged Plovdiv into Bulgaria's second city and from here its future looks prosperous.

Unfortunately, I forgot to sip a cappuccino in the pedestrianised centre – so I can’t make the coffee comparisons (see previous blog - wake up and smell the coffee) – but I’m sure we can find someone willing to carry out this onerous task?

Cheers
Neil

Ps. Next I’m off to Sofia to see if the property investment environment is ripe or if the 15% foreign commission agents have ruined the market for real investors…

POSTED BY NEIL LEWIS ON WED 8TH AUGUST AT 06:30 GMT

TAGS: Varna Property, Sunny Beach, Golden Sands, Bulgaria Property, Berlin Property

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The Danger of Investing in Cheap Property

The recent credit crisis is highlighting the danger of cheap property.

"So Cheap The Market is Bound to Explode" - a typical sales man's pitch as reported by the FT in a recent article on falling prices in Florida.

For many months on the Property Secrets forums we've been debating whether 'expensive' property in Romania is a good investment vs 'cheap' property in Berlin (or Hungary).

My view is that the search for 'cheap' property is both financially dangerous and also a fundamentally flawed argument.

Why?

Because of the Apples and Bananas problem.

When you compare one development in Bucharest with another in Bucharest (or one in Warsaw with another in Warsaw) you can say that one is 'cheap' in comparison with the other.

You can also say that one development has future potential (which basically means that you believe things will happen in the future to increase demand and therefore prices for those properties).

However, you can not say that one development in Bucharest is 'cheap' or 'expensive' in comparison with Berlin, Bogna, Bogata or Budapest.

Why? Because the fundamentals that drive property in any city are - exactly that - fundamentally different.

And, there is not sufficient evidence to think that price growth in one city will affect another. (Okay, in the UK we are all used to a ripple affect - but the UK is an exceptional country for many reasons; 1. It is an island! 2. It is very dense (and really just one big city) 3. It is a small island that has been develop over hundreds of years and has limited unused spaces...)

If we take another country - Spain - we can see that the ripple effect has no impact. For instance, two of the fastest growing cities - Madrid and Valenia are seperated by mountains - in the middle of which lies Teruel, Spain's cheapest and poorest performing property market.

No ripple effect there, then.

So, once we look outside small dense islands, we see that the ripple effect doesn't apply.

And that means you can not imply that Berlin prices will rise just because there is a boom in Poznan and Warsaw (the nearest neigbours).

There may be a boom in Berlin IF (and it is a big IF) the economic development of the Polish / German border delivers substantial GDP growth and starts to feed new investment into Berlin's local economy.

... but the point is that we have now switched from talking about property markets and property price ripples to economics...

... and if the economic case for Berlin was strong, then we'd believe that investing in Berlin would be a good idea (regardless of its relative cheapness or expensiveness).

Hence, it is time to stop worrying about whether a development 'feels' cheap or expensive and instead ask ourselves these two questions

1. Is the development good value in comparison with neighbouring developments in the same city (you can ask a valuer to provide this information as we do in any of our investments as well as build some local comparative analysis of similar properties in the same city - see some of our Investment Reports for examples of this...)

2. What are the economic fundamentals for growth and therefore implicitly property price growth (see our latest property price forecasts)?

Please do not fall into the trap of thinking that a #40,000 flat on the Bulgarian coast is cheap and good value - because a flat on the Spanish coast might cost you #100,000.

The chances are that they will now both go down in value (Bulgarian coast very rapidly, and Spanish coast moderately - which will only serve to make the Bulgarian coast look even cheaper!).

Likewise, Florida might look 'cheap' now but it is only going one way, price wise.

My view is that it is 'cheap' for a reason - and that is that there is a lot of supply and not much demand.

So, what is the solution? Well, stick to the two key questions listed above and this will (inevitably) lead you to invest in cities with excellent mid to long term growth prospects.

Find these cities, then find a good value investment - by comparison with other developments in the same city ... and there you have it.

Just don't fall into the trap of buying anything that is 'cheap' and missing out on all the 'expensive' stuff - which has all the potential for capital growth.

Cheers
Neil

ps. Putting this another way - you can 'value invest' in stock markets - but if you try the same in property markets you'll get burnt.

pps. Is Sofia cheap in comparison to Bucharest (this is a question we get asked a lot) and it can not be answered. What we can say is this - Sofia is at an earlier stage of development than Bucharest - therefore offers more opportunity (perhaps) - along with more risk (perhaps).

ppps. A trend I have noted is that bigger investors like more expensive units! They 'just' buy cheap...

POSTED BY NEIL LEWIS ON TUE 27TH NOVEMBER AT 10:24 GMT

TAGS: Spain Property, Sofia Property, Property Investment, Property Economics, Florida Property, Cheap Property, Bulgaria Property, Bucharest Property Prices

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Winslow Gardens creating a stir in the fog

On my visit to the site this morning I realised why everyone in Sofia is raving about this landmark development.

I arrived in Sofia on Wednesday to glorious sunshine and clear views of Mount Vitosha from the city. But on Thursday morning I was greeted by the worst fog the city has seen in months, causing the airport to shut. Visibility was very poor and not very conducive for activities such as visiting development sites!

Despite the fog, however, there was no covering up the level of development that is taking place in the area around Winslow Gardens. The site is located just ten to fifteen minutes drive from the city centre, but with all the greenery and open spaces you feel you could be a million miles away in the countryside.

There is a lot of available land in the area with parcels of green space lining Bulgarian Boulevard, en route, from the city centre. This area is Manastirski Livadi, which borders the district of Boyana, home to the UNESCO heritage site of Boyana Monastery. Boyana is one of the wealthiest suburbs of Sofia, characterised by villas sloping up to Mount Vitosha. The route to the city centre, via Bulgaria Boulevard, has always been well-maintained. This is because it is the main route to the city centre from Boyana, where many of Sofia’s diplomats and politicians live. You won’t find any old industrial factories or panelak buildings in Boyana. This was a very prestigious area during the socialist era and any unsightly factories or mass housing was kept out of sight from the people that lived there. This also applies to the bordering area of Manastirski Livadi, which also failed to inherit the old industrial factories or socialist era housing that is more prevalent to the east and north of Sofia.

The entire district of Manstirski Livadi is undergoing huge development. It is like a blank canvas untouched by the years of socialism and industrialisation. A master plan has been completed by the city council for the area ensuring all the necessary infrastructure is put in place to support the influx of people the business parks and new living quarters will attract. Looking at the map below, Bulgaria Boulevard leads south from the city centre towards the development. Along this route there are several commercial and residential developments already completed or currently under construction. Car showrooms, fitness centres, jewellery stores and restaurants that line the road are predominantly housed in new, shiny buildings.

Billa Hypermarket is already completed and the car park was full of shoppers when we arrived. Across the road the hoardings are up for Bulgaria Mall. According to the website, the project is a high-end shopping centre with a total build area of 115,000 sqm. A total of 45,000 sqm will be underground, allocated to 1,200 parking spaces and a hypermarket. A further 20,000 sqm will be office space in an 80m tower (making it one of Sofia's highest buildings) and 50,000 sqm will be allocated to retail, a cinema and a food hall.

Why has the developer decided to locate here? On its website the developer describes Bulgaria Boulevard as “a six-lane road (with a tramline service) linking the city centre to the most prestigious areas of Sofia such as Strelbishte, Belite Brezi, Borovo, Gotse Deltchev and Manastriski Livadi. The boulevard also connects the city centre with Sofia's top residential areas of Boyana, Simeonovo and Dragalevtzi.

It goes on to say that, “Todor Kableshkov Street has been identified by the Sofia Municipality as a crucial link for future traffic solutions in the area. The Municipality has already planned the widening of Todor Kableshkov into a six-lane road with a tramway service. The additional aim of creating an internal ring road should also reduce the traffic flow on the main Ring Road.”

The developer is confident that “this is one of the most upscale catchment areas of the city. There are roughly 250 000 - 300 000 people with the highest disposable income in the city/country living within an approximate radius of 3 kms.”

Continuing further south on Bulgaria Boulevard, on the right hand side of the road, is the futuristic Business Centre Bellissimo, which has a total office space of 16,123 sqm. (http://www.emporis.com/en/wm/bu/?id=businesscentrebellissimo-sofia-bulgaria)

This is a well designed commercial building, which would not look out of place in London. It was completed towards the end of last year and took the Stroitelstvo Gradat's "Building of the Year" award, a prestigious architectural award in Bulgaria.

Next door to Bellissimo is Sv. Anna Hospital and, across the road, is the new Hotel Festa Barcello.

This hotel is a four star hotel, but has been completed to the utmost luxury that it really gives it the feel of a five star. The only reason I could see that this hotel should not be awarded a five star rating was the fact that it borders a huge building site.

All the area south of Hotel Festa Barcelo, as far as the ring road and east as far as Lui Ayer, is a massive construction site.

Directly due south of Hotel Festa Barcelo, is the City General site – a complex of four office buildings.

Also located on Bulgaria Boulevard, and marked just under the “Green F box” south of the site, will be the new headquarters of Bulgaria TV (BTV). It is estimated BTV employs around 200 people and many of the units at Winslow Gardens have already been sold to the current staff at BTV.

The main access to Winslow Gardens, which will lead to the south side of the site, will be from Bulgaria Boulevard. The road has not yet been built, however, Winslow Developments Ltd, in conjunction with another developer, will build a four lane access route that will link Bulgaria Boulevard to Winslow Gardens and on to Lui Ayer Street.

Access to the north of Winslow Gardens will be via Todor Kableshkov Boulevard and Kostenski Vodopad Boulevard. However, all of the roads in the map that are broken lines are planned roads not yet built. The route of trolleybus 8 is going to be extended to terminate right next to Winslow Gardens on Kostenski Vodopad Boulevard. The city council has approved these plans and will assist with the construction.

Bulgaria Boulevard ends at the Ring Road – just a few minutes drive from the Winslow Gardens development. It’s a bit of a car park at the moment due to the construction work, which will extend it to a further two lanes. When this work is completed, Sofia Business Park will only be a ten minute drive away. A total of 10,000 people are employed, in more than 150 companies, in the business park including Motorola, Raiffeisenbank, Postbank, Schneider Electric, Novartis, Tetra Pak, Renault and Dacia.

The “green slippers” development, as some people call Winslow Gardens, has created a bit of a stir here in Sofia and a lot of people are taking notice of this landmark development. It’s easy to see why when you go and see the site and the surrounding area.

POSTED BY NOREEN LUCEY ON FRI 23RD NOVEMBER AT 13:27 GMT

TAGS: Winslow Gardens, Sofia Property, Bulgaria Property, Bulgaria Property

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Winslow Gardens creating a stir in the fog

On my visit to the site this morning I realised why everyone in Sofia is raving about this landmark development.

POSTED BY NOREEN LUCEY ON FRI 23RD NOVEMBER AT 13:27 GMT

TAGS: Winslow Gardens, Sofia Property, Bulgaria Property, Bulgaria Property

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English Fever – here are the headlines for property investors

Savvy property investors have always had the ability to see beyond the hype and read between the lines.

Cape Verde looks like a challenge for the best.

The Financial Times supplement this week on Cape Verde was packed with ads of smiling government officials encouraging investment and a general editorial tone of modest recognition that these islands have tourism and, er, that’s pretty much it.

For any property investor looking at Cape Verde, let the Bulgarian coast be a warning.

Why?

Let’s look at what the FT reported about Cape Verde.

Here are some telling quotes straight from the property piece in the FT’s special report.

Headline: Crowded by coast lined with construction cranes.

‘People in Cape Verde's real estate business call it "the English fever", and can trace the exact moment when it first took hold.

‘It all started in February 2005 when the UK Channel 4 television series A Place in the Sun , a lifestyle programme about property-buying, identified the archipelago as one of the new holiday-home opportunities.’

Caribbean-style paradise?

Here’s another, ‘Some visiting buyers in Cape Verde are disconcerted to find a reality that does not correspond to their visions of a Caribbean-style paradise. Services are still rickety, and popular areas such as Santa Maria on Sal island, famed for its gorgeous beach and turquoise waters, bristle with builders' cranes.

‘It's not the finished article by any means," admits Adrian Lillywhite, managing director of Cape Verde Property, a specialist British agency. At the same time, prices are higher than in some other winter sun destinations such as Egypt. Land values have increased since the property rush began.

‘Fourteen holiday villages are planned here, with hotels, shops, services and two 18-hole golf courses. The first phase of 450 flats and houses has been fully sold, as well as most of a second phase, nearly all to British buyers and the majority with a view to letting.'

Sambala is a resort being developed on the biggest island of Santiago. Piran Johnson is the general manager at the Sambala office in the capital.

Back to the FT: ‘Mr Johnson reports strong demand for letting schemes, which count on the prospect of sufficient inflows of holidaymaking tenants.

Future phases, he says, will have lower-density housing, moving further upmarket.
‘In the beginning it will be a case of getting the numbers in.’

Deja Vu?

Isn’t this all alarmingly reminiscent of the Bulgarian coastal market?

And we all know what happened there – hundreds of UK investors – among others – bought off plan from agents on big commissions after listening to promises of huge capital growth.

And the result? Huge over-supply. Very little rental market and pretty much zero resale market, largely because the agents have no incentive to sell on the secondary market when they can earn whacking commissions selling off-plan.

What we picked up at the Munich Expo, and reported in this blog, is that while the Brits have pretty much stopped buying on the beach in Bulgaria, the market is as busy as ever.

The Brit buyers fell off, and along came the Irish and Spanish. Now it’s the turn of the Russians and even the Romanians coming down the coast and buying as well.

Here’s what we said about the Bulgarian coastal market Don’t Get Burnt In Bulgaria.

In my view there’s at least a fair bet we’ll be saying the same about Cape Verde before long!

POSTED BY ROBIN BOWMAN ON THU 15TH NOVEMBER AT 17:11 GMT

TAGS: Cape Verde Property, Bulgaria Property

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Hungary, Bulgaria and Romania - latest market insight

Reporting live from Munich's ExpoReal

Robin – what struck me about the Hungary forum was two things – one how few people were there compared to Bulgaria and Romania and how downbeat the forum panel sounded.

Their message to me seemed to be ‘Look, Hungary’s got problems – taxes are up and retail spending is down. It’s not going to compete with Romania next door or with other bigger markets, like Poland.

One panellist, James Kinnell, of King Sturge of Hungary, pointed out that retail spending was down between 7 and 10%. And he put this down to higher taxes and the rise in public utility costs.

The picture I got of Hungary, at least for the next two years or so, was pretty sombre. Although, all the speakers were keen to point out it had great fundamental potential long term.

Neil – thanks Robin, that doesn’t surprise me. We’ve seen Hungary’s GDP slashed to 1.8% as part of the debt reduction process and this has resulted in a reduction in government jobs. Hence, this news doesn’t reallly surprise me.

The most interesting remark I heard you make Robin was to paraphrase the participants as saying “Yeah, well, for real action you just have to go next door to Romania”.

It is worth pointing out that the main highway from Budapest (Hungary) to Bucharest (Romania) runs through Ordea and Cluj-Napoca. And that these two cities have large Hungarian populations. In fact, in Cluj-Napoca, the city centre is largely owned by the Hungarian church and many people’s first language at home is Hungarian!

Hence, it is not a surprise to me that entrepreneurial Hungarians would see the opportunity just over the border in Romania – especially in the Hungarian speak regions.

Robin – That was very much the sense I got. Again, as James Kennell said there are excellent opportunities in Romania AND Bulgaria and they are going to eclipse Hungary, at least in the short term – especially Romania with much higher GDP and double the population.

The session on Bulgaria was quite a revelation to me. I very much got a sense that here was a market starting form a very low base, but one that is coming up very fast.

OK, I know the panel were talking about office and retail, but, as we’ve said many times before – the money going into these sectors is always followed by residential.

Doris Schumacher, head of Invesco real estate, Munich, said it took Bulgaria’s accession to the EU for her company to really spot the potential of this market and they only really moved in some nine months ago. It’s still very early days.

The legal environment and the flat rate taxes seemed to be strongly stressed as a big allures for commercial property investors – and these certainly apply to residential buyers.

Dimitar Savov, exec director of Bulgarian Land Development, talked about the huge increase in mortgage lending since EU accession and price growth in Sofia of +15% in 2007 so far, compared to 30% in 2006. ‘Everyone expected the market to collapse – but it just didn’t happen and it is still very strong. ‘

Interestingly, it was pointed out that the tourist investment areas are as strong as ever – where the UK buyers have started to pull out of buying on the coast, new investors are coming in – Spanish, Irish, and Russian. Interesting too that Romanians are coming down the coast and buying as well.

We’ve made our views known on this sector of the market in Bulgaria and I heard nothing to change my mind – basically, almost all investors are foreigners. Frankly, who cares where they come from – they’re not domestic buyers.

But what really struck me was the figure for Sofia – 90% of buyers are domestic. To me, that’s very telling – a very low level of investors. It speaks volumes about this market’s potential.

Neil – thanks Robin, I pretty much agree with that. Although I had a follow up conversation about land after the forum which revealed that it is much easier to find land on the coast (low competition) and much harder in Sofia (too much competition).

This split reflects the recent history of Bulgaria’s real estate market – land and property developers making easy money made on the beach, but it is harder work in the city.

And that is why I like cities so much! And equally, I wouldn’t touch the beach with a barge pole – the commissions and easy money is just too good to be true and it means that any holiday home purchase can never be considered an investment.

What struck me today was that this was the first time I’d seen a full house at a Bulgarian property investment seminar. Up and until today, it had only been for the die-hards, but as you say, even the funds have recognised that Bulgaria is ripe.

On a bigger scale, there was talk of a regional economic development linking up Greece with Bulgaria, Romania and Serbia.

This is interesting for two reasons. Firstly, it mentions Serbia and (implicitly Macedonia which sits between Greece and Bulgaria and is an EU candidate country). And secondly, it recognises the growing interdependence of these different countries and therefore we can expect more of the transformational growth from Romania to spread across the region.

As this growth spreads my bet is that Sofia will be the first stop.

Lastly, I can’t help but feel sorry for the Russians and Danes buying on the beach in Bulgaria. The Brits have definitely gone home, the Irish and Spanish have had their fill, so now we are onto the next group of buyers. I just hope they don’t really believe they are buying an investment.

Posted by Neil Lewis and Robin Bowman. Tomorrow: credit crunch in CEE – what does it mean?

POSTED BY ROBIN BOWMAN ON MON 8TH OCTOBER AT 18:27 GMT

TAGS: Sofia Property, Serbia Property, Romania Property, Macedonia Property, Hungary Property, Bulgaria Property

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HUNGARY, BULGARIA AND ROMANIA - LATEST MARKET INSIGHT

Okay - not exactly Hungary, Bulgaria nor Romania.... but I did stop by the Ras Al Khaimah stand (part of the UAE and between Dubai and Qatar) to view their offerings. Here, essentially, is the deal... 1. You can't buy land in this state (only lease it) unless you buy land on one of the man made islands 2. The man made islands are built in fantastical shapes off the coast of the Arabaian Gulf 3. The land itself is selling (in large development plots) for a minimum of 750 euros per m2 4. I'd predict this would mean that flats (in blocks in excess of 5 floors) would sell for 3,000 Euros / m2 5. In houses (say with 2 floors) this might reach 7,500 Euros m2 Therefore this is very expensive and luxury holiday location property. Will it sell? Will anyone buy it? To be honest - I really have not got a clue.... ...anyone? Cheers Neil

POSTED BY NEIL LEWIS ON MON 8TH OCTOBER AT 22:24

RAK

Neil - I've stayed in RAK this year and I am not really sure either. It is pretty hard to be sure in the UAE in general, especially with supply projected to come onto the market at a breakneck pace. Agents like discussing yields now on propertys which could have been bought 3-4 years ago but that is not really indicative of what yields would be for all the properties currently under construction. At the moment RAK is pretty boring but it could appeal in time as a quieter alternative to Dubai, but I would expect the wealthy to prefer Oman to Dubai or RAK. The one thing I am sure about for myself is that there isn't really a need to look outsude Europe at the moment so why bother with extra risk.

POSTED BY BRETT S ON MON 8TH OCTOBER AT 23:34

OUTSIDE EUROPE

Hi Brett Thanks for this. I've never been to the middle east myself - so I'm trying to approach this with an open mind. But I agree with you - there appears to be a 'flight to quality' - only the definition of quality has changed to include markets with low level of debt and low exposure from local banks to the credit crunch - but with stable politics and promising economic growth... ... which brings you back to CEE and SE Europe? Cheers Neil

POSTED BY NEIL LEWIS ON TUE 9TH OCTOBER AT 07:19

HUNGARY

You are correct, the retail spending has slowed significantly - more than predicted by the government. It is entirely a result of the austerity measures. Everyone new 2007 and 2008 would be tough, however I am in Hungary for the long term and buying at the bottom will allow me to refinance and buy a second and then a third whilst prices are still low. I might add that price inflation for new build is still 12 -15%. And rental returns stack up nicely in a country where MINIMUM rental term contracts are 12 months and the law is utterly pro landlord. Retail spending might have slowed, however wage inflation has not - currently about 7% a year. This might not be as big a rise as some in the new EU, however you know the saying ...... slow and steady wins the race (with a few bumps in Hungary's case). Tax cuts are on the way, although interest rates will remain high for somewhat longer, - partly due to the high wage inflation and also due to the cost of food and fuel. Realistically the boom in prices will not occur until late 2008 / 2009 at the earliest - although it does seem the local population know the boom is coming. More and more local people are snapping up the new build property in anticipation of the EMU entry (so my sources in the real estate business tell me). Some would say it is the PERFECT time to buy.

POSTED BY RICHARD ON TUE 9TH OCTOBER AT 08:11

1 YEAR FOR HUNGARY

Hi Richard Thanks - I think we all agree Hungary has a great long term potential - but that not much is going to happen in the next 12 months. Hence, that is why we suggest it is a Wait and See country. Tax cuts will be key - when are they due to be applied? Cheers Neil

POSTED BY NEIL LEWIS ON THU 11TH OCTOBER AT 08:31

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Emerging from Austerity - why Sofia will offer strong and stable property price growth

10 years ago Bulgaria suffered hyper-inflation.

This was caused by economic mis-management, war in former Yugoslavia (and the subsequent loss of bridges in Serbia that broke the road trade link with Europe for Sofia) plus hyper-inflation in neighbouring Serbia (as it now is known).

This led to the IMF (International Monetary Fund) to apply strict monetary control on the country’s finances and caused 10 years of austerity from which I believe the country and its capital city of Sofia are now emerging.

Bulgaria has a currency board which has operated for the past 10 years.

During this time the Bulgarian Lev (Leva in plural) has been pegged to DM (and then subsequently replaced by a fixed peg with the Euro).

This has led the Bulgarian government to achieve a surplus for the past 4 years and a forecast of a 1.8% of GDP surplus for 2007.

Now, some of the recent figures (especially the 3.5% of GDP current-account surplus in 2006) were bolstered by privatisation receipts, however, this is still very impressive. (Many Euroland goverments run deficits of upto 3%).

Let me try to put this in context and then explain why property investors should care about debt, deficits and surpluses…

Firstly, Bulgaria’s GDP of 6.1% in 2006 lags that of neighbours – such as Slovakia – or other small countries such as the Baltic stats – all of whom have been achieving growth of around 9%.

But, if last years surplus had been spent by the Bulgarian Government (and assuming that the money had no further knock on effect of spending – which it undoubtedly would have) then the GDP would have been 9.6%.

Equally, a major effect of the tight control of spending has been wobbly pavements in Sofia downtown area – see my previous blog.

In essence, unlike all the other cities that I have visited, Sofia still feels like it is tight with the spending and is not going hell of leather to generate growth.

Instead, it has built a unique position as being the only government in CEE with a surplus (unless anyone knows otherwise? I think Serbia may be in a similar position?).

And this means two things

1.) The currency is absolutely fixed to the Euro and the fix is secure because of the cautious approach of the Bulgarian government (currently left leaning – but still in awe of the currency board)

2.) Local Bulgarian’s have been slower to take on credit (and mortgages) given that their government has been slow to spend (but fast to save) and they themselves would have experienced hyper inflation just 10 years ago.

The other effect of hyper-inflation is to encourage investment in bricks and mortar (and gold) – as these don’t disappear in value in the same way that cash does when inflation gets out of control.

However, there are now over 30 banks in Bulgaria – partly courtesy of the foreign holiday home buyer market on the coast and in the mountains – which is clearly turning its focus on the local home buyer market.

And this is good news for property investors.

It means that there is still huge pent up demand for property but that the property market probably lags that of Bucharest by 1 to 2 years whilst offering a very stable potential growth path.

In other words, whilst I think Bucharest will certainly boom 200% in the 5 years that started this time last year – but I think Sofia’s growth will be more measured and last longer.

In 10 years time both cities will probably end up at the same point – but they will have quite different paths to achieve it.

Hence, Sofia still has a feeling of austerity about it, which it is shaking off slowly (although faster in the rapidly developing districts in the south of the city).

And, for the first time, there is a general loosening of the purse strings and real signs of a willingness to take on debt among the local people.

This makes it an excellent candidate for the 200% club - but this might be acheived over 7 years but at least it will be almost without any currency risk!

Cheers

Neil

POSTED BY NEIL LEWIS ON THU 9TH AUGUST AT 21:23 GMT

TAGS: Sofia Property, Sofia Property, Property Investment, Bulgaria Property

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EMERGING FROM AUSTERITY - WHY SOFIA WILL OFFER STRONG AND STABLE PROPERTY PRICE GROWTH

I just returned from a visit to Sofia and was able to compare it to the situation I found 6 years ago when I compared the situation between Bucharest and Sofia. At that point we decided that Bucharest was the best place to invest and thought that Sofia was a few years behind. Now my impression is that Sofia is even more behind, around 5 years I would say. However, considering that things only started to really move in Bucharest 5 years ago, this might indeed be the moment to enter the game. Around the airport there are big plots of land still available. These were 100 Euro/m2 5 years ago in Bucharest. Now they are 500-1000 Euro. The south indeed seems to offer lots of possibilities. Time for action!!

POSTED BY GIJSBERT ON FRI 17TH AUGUST AT 10:31

LAND IN SOFIA

The prospects for land prices around Sofia sound very interesting gijsbert. Do you know what restrictions there are on EU foreigners buying land/property in Bulgaria? Is it a similar situation to Romania?

POSTED BY MINSK ON FRI 17TH AUGUST AT 22:23

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