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Property Investment in Bulgaria

Why invest? Why not to invest?

Masterarbeit 2007 59 Seiten

BWL - Investition und Finanzierung


I. Table of Contents

I. Table of Contents

II. Abstract

1. Introduction

2. Hypothesis and Statement of Purpose
2.1 Hypothesis
2.2 Statement of Purpose

3. Literature Review – Country Profile
3.1 History
3.2 Politics
3.3 Economy
3.3.1 Agriculture
3.2.2 Industry
3.3.3 Science, Technology, and Telecommunications
3.4 Transport
3.5 Demographics and Religion
3.6 Culture
3.7 Tourism

4. Methodology
4.1 Predictions and Speculations
4.2 Data Sources – Ranking the Economic Climate in Bulgaria
4.2.1 Credit Rating
4.2.2 Economist Intelligence Unit
4.2.3 Global and Business Competitiveness Index
4.2.4 Index of Economic Freedom
4.2.5 World Economic Outlook
4.2.6 Corruption Perceptions Index
4.2.7 Educational Standards and Quality of Life Index

5. discussions + findings
5.1 Why to Invest in Bulgaria
5.1.1 Development Real estate investment trusts
5.2 Why Not to Invest in Bulgaria – Be Aware
5.2.1 Real Estate Investment Trusts
5.3 Buy-To-Let Investment Example

6. conclusion

7. Appendix

8. Endnotes and References
8.1 Endnotes
8.2 References

II. Abstract

Property is today’s most popular financial investment. The traditional Stock Market offers high returns but it proves to be a highly volatile market. It is interesting to note that 50% of all members of “The Times Rich List”[i] made their fortunes through property investments. With adequate due diligence, property can be selected and used as a successful investment tool, whether this is in the form of a re-assignable contract option from an off-plan investment or a buy-to-let situation to generate reliable rental income. Whatever your strategy, property chosen in the right location can generate substantial capital appreciation.

Experience shows that property in good condition with the right location will show an increase in value each year; for example, a property worth just €2,000 30 years ago, today would be worth around €112,500.

Bulgaria is an exciting emerging market and currently offers property at prices impossible in other areas of the world. With prices steadily rising and predicted to continue to do so for some time, wise property investment in Bulgaria seems to promise excellent returns on investment. Buyers are snapping up bargains now, with the perception to enjoy above average returns on investment in the near future; i.e. 2 years.

1. Introduction

January 01st, 2007 --- Bulgaria joined the European Union, hoping that membership will help raise the Bulgarian per capita wealth, and stabilize the political and economic conditions. Furthermore, it aimed to represent the end of the geographic divisions that were left from the cold war. For Bulgaria, this is a huge achievement with excellent future development opportunities.

Given the current European economic situation, the Bulgarian investment value proposition is indeed hard to match. Thus, the time for investing in Bulgaria has never been better. The present economic and social development that is taking place is unprecedented in history, and seems to be as promising as never before. This is proved by the investment increase of approximately 47% from 1992 to 2006, as shown in Table 1 in the Appendix. Hence, many foreign companies are attracted to the low prices that are given by the domestic companies, since the sale prices are predicted to rise within the next years. Hence, the goal of many firms is to invest cheaply and maximise profits accordingly.

2. Hypothesis and Statement of Purpose

2.1 Hypothesis

Many companies invest in Bulgaria due to various reasons. One reason is the tempting and overwhelming predictions. Although costs are low, investors will have a hard time increasing prices to yield return. Austria took about 25 years to develop itself to the condition it is now, although Austria is not a third world country. Bulgaria on the other hand is a developing country and the economical development will probably move slower due to their current government situation.

Due to the attractive forecasts, I believe that investors overestimate them. I believe they are true, but misleading and therefore investors take a huge risk by planning short-term goals within Bulgaria.

2.2 Statement of Purpose

Investments are usually decided upon specific questions such as:

1. What is the scale of the investment? Can the company afford it?
2. How long will it take to pay back the investment?
3. How long will it take before the investment starts to yield returns?
4. What are the expected profits from the investment?
5. Could the money be used to yield higher returns elsewhere?

By answering such questions, companies also receive advices from experts and/or analysts to see if their answers to the above questions can be materialized within that country. This may depend on the growth rates, Gross Domestic Product (GDP) figures, future development plans, the predicted potential, the entry to the European Union, etc. Nevertheless, since investment in Bulgaria is increasing, one can assume that all believe that their investments will pay off. But will they really? Why do so many companies invest into Bulgaria? The predictive indicators are attractive and tempting, but are they really as realistic as investors say? I believe that up to a certain degree, investment is profitable important, but once the line is stretched, capital losses will appear. Currently, Bulgaria is swimming in foreign investment, and all investors believe that it will pay off. But it is impossible to assume that all investments will result profitably, especially not within a short period of time. I am afraid, that until the investments yields returns, the companies lost already. The reason --- the time range that are used to calculate the forecasts or predictions, are not realistic.

3. Literature Review – Country Profile

3.1 History

The Bulgarian history reaches back over more than 3,000 years with a succession of various civilizations. The state Bulgaria has existed for over 13 centuries on the Balkan Peninsula, which has long been the congregation point of historical tribes and nations. Bulgaria was founded in 681 AD, when the Slavs and Proto-Bulgarians were brought together by the Khan.

In 865 AD, Bulgaria converted to Christianity and thus joined the Christian civilization. Furthermore, in the 9th Century, the Cyrillic script was invented, which gave a powerful movement to the Bulgarian cultural development.

After several fights with the Byzantines, the final peace agreement with the Byzantium was concluded by Tsar Kaloian in 1202. This gave Bulgaria the full independence, which contributed to the thrive of the Bulgarian culture. Nevertheless, after the death of Ivan Asen II, political instability was the biggest threat for Bulgaria, and in 1396, Bulgaria was taken over by the Turks. The occupation lasted for almost 500 years.

In the early 60’s, the preparations for the national liberation began, and in 1878, Bulgaria’s freedom was regained. The first and most democratic constitution of Bulgaria was adopted by the Constituent Assembly in 1879.

During the 20th Century, economic effort and prosperity were on top of the list for the Bulgarian government. The goods and the currency, the “Golden Lev”, acquired a high value on the European markets, which strengthened the trade relations with Austria, Germany, France and Great Britain.

3.2 Politics

The Bulgarian president is directly elected for a 5-year term with the right to one re-election. The president serves as the head of state and the Consultative Council for National Security. The Prime Minster chairs the Council of Ministers. The Prime Minister is usually nominated by the largest parliamentary group, and is given a mandate by the President to form a cabinet.

The current governmental coalition is made up of the Bulgarian Socialist Party, National Movement Simeon II and the Movement for Rights and Freedoms, which mainly represents the Turkish minority.

The Bulgarian National Assembly consists of 240 deputies who are elected for a 4-year term. The votes are for the party or coalition lists of candidates for each of the 28 administrative divisions. The parliament is responsible for the:

- Enactment of laws
- Approval of the budget
- Scheduling of presidential elections
- Selection and dismissal of the prime minister and other ministers
- Declaration of war
- Deployment of troops outside of Bulgaria
- Ratification of international treaties and agreements

The Bulgarian judicial system consists of regional, district and appeal courts, as well as a Supreme Court of Cassation. In addition, there is a Supreme Administrative Court and a system of military courts.

The Constitutional Court is in charge of reviewing the constitutionality of laws and statutes brought before it, as well as the compliance of these laws with international treaties that the Government has signed.

Bulgaria is divided into provinces and municipalities. Bulgaria has 28 provinces, each headed by a provincial governor appointed by the government. In addition, there are 263 municipalities.

The last elections took place on June 2005. The next elections are planned for summer 2009.

3.3 Economy

After the loss of the market of the Council for Mutual Economic Assistance member states in 1989, Bulgaria’s economy contracted dramatically. The standard of living decreased by about 40%, but increased again by June 2004. The United Nations sanctions against Yugoslavia and Iraq was costly for the Bulgarian economy. In 1994, the first signs of recovery, when GDP grew and inflation fell, emerged. Nevertheless, the economy collapsed during 1996, due to the lack of the international economic support and an unstable banking system. But since 1997, the country has been on the recovery path, with GDP growing at a 4% to 5% rate, increasing FDI, macroeconomic stability and the European Union membership in January 2007.

The former government that was elected in 2001, pledged to maintain the fundamental economic policy objectives adopted by its predecessor in 1997; meaning to retain the Currency Board, practice sound financial policies, accelerate privatization, and to pursue the structural reforms.

Economic forecasts predict a continued growth in the economy, i.e. the annual year-on-year GDP growth for 2005 and 2006 is expected to total 5.3% and 6.0%, respectively. The final rates that were conducted at the end of each year, more or less corresponds to the forecasts mentioned above; 2005 = 5.5% and 2006 = 5.7%. Regarding industrial output for 2005 was predicted to rise by 11.9% from the previous year, and rise by 15.2% in 2006. The actual figures were actually the complete opposite; in 2005 industrial output fell by 11% and decreased by 1% in 2006. Unemployment for 2005 was projected at 11.5%, which ended up to be 12.2%; and for 2006 about 9%, which was 10.7%. This shows that the forecasts are not always as reliable as one thinks; meaning investors should be cautious when making their investment decisions according to the projections.

As of 2006 the GDP structure is:

3.3.1 Agriculture

The agricultural output has decreased since 1989, but production is growing in the recent years. In Bulgaria farming is more important than stock-breeding, and the prevalence of mechanization is higher in Bulgaria than in most other Eastern European countries, but there is lack of modern equipment. There are more than 150,000 tractors, 10,000 combines, alongside airplanes and other equipment[ii]. The main crop production are wheat, sunflower, maize, grapes, tobacco, tomatoes, barley, potatoes, peppers, cucumbers, cherries, watermelons, cabbage, applies, plumbs, and strawberries.

3.2.2 Industry

The industry is very important to the economy. Although Bulgaria is poor in reserves of coal, oil, and gas, it is a major producer of electricity. There is a €1,100,000,000 project for construction of an additional 670 MW for the 500 MW “Maritza Iztok Thermal Power Plant”[iii].

Ferrous metallurgy[iv] is very important, and Bulgaria is the number one in the Balkans in production of steel. In production of many metals per capita, Bulgaria is first in South Eastern Europe and among the first in Europe and the world.

About 14% of the total industrial production is related to machine building and 24% of the people are employed in this field. However, its importance decreased since 1989 but is seems to be growing again.

The production of electric equipment, such as household appliances, computers, CDs, telephones, medical and scientific equipment is well developed. However, many factories producing transportation equipment do not work at full capacity. There are plants producing trains, trams, trolleys, buses, trucks, and cars.

Furthermore, the property market was and still is booming by foreigners seeking additional homes, or foreign companies seeking land for industrial or leisure purposes. The main buyers are from Europe, mostly British, who are encouraged by cheap property, as well as relatively inexpensive travel costs.

3.3.3 Science, Technology, and Telecommunications

Due to its strategic location, highly-qualified workforce, macroeconomic stability, growing domestic market, and good education, Bulgaria offers excellent conditions for high-tech and telecommunication industries and services. For such reasons, many multinational companies choose to place their regional offices and headquarters in Bulgaria even before the EU entry. For example, Hewlett-Packard, which built its Global Service Centre for Europe, the Middle East and Africa in Sofia.

Telecommunications is perhaps the fastest growing industry in the country. There are 3 mobile operators, (i.e. Globul, Mtel and Vivatel), which provide almost 100% coverage. They have hundreds of service centers throughout the country which are constantly growing and improving. More than 5,500,000 out of 7,700,000 Bulgarians own mobile cellular phones. Every town and many villages have a fast Internet connection, totaling to around 100,000 Internet hosts.

The country has some precedents for its current science industry. The inventor of the earliest known electronic computer, John Atanasoff was of Bulgarian origin. Bulgaria was a major supplier of scientific and research instruments for the Soviet space programmers. The Bulgarian Academy of Sciences is the leading scientific institution in the country with most of the researchers working for numerous branches all around the world.

3.4 Transport

Bulgaria's national railroad operator is currently modernizing its fleet. Bulgaria occupies a unique and strategically important geographic location. Since ancient times, the country has been a major connection between Europe, Asia and Africa. 5 of the 10 Trans-European roads run through Bulgaria.

Several highways are planned, under construction or partially built. And many roads have been recently or still are under reconstruction. Furthermore, 60% of Bulgaria’s railways are electrified, and a €360,000,000 project for the modernization and electrification of the Plovdiv-Kapitan Andreevo railway is in planning.

Air transportation is relatively well developed. There are 4 international airports in Sofia, Burgas, Varna and Plovdiv. Further investments are planned for the first 3, whereas Sofia’s airport already has been expanded. Additionally, there are important domestic airports in Vidin, Pleven, Gorna Oryahovitsa, Rousse, Silistra, Targovishte, Stara Zagora, Kardzhali, Haskovo and Sliven. But after the fall of communism in 1989, most of them are not in use as the importance of domestic flights declined. Additionally, there are many military airports and agricultural airfields.

The ports of Varna and Burgas are by far the most important and have the largest turnover, whereas Sofia is catching up due to the increased business interests.

Public transportation in the cities and in many smaller towns is well organized. There are buses, trolleys and trams. The Metro in Sofia has 3 lines with a total length of about 48 km and 52 stations.

3.5 Demographics and Religion

According to the 2001 census, Bulgaria's main ethnic is Bulgarian with 83.9%, with two sizable minorities, Turks with 9.4% and Roma with 4.7%. Of the remaining 2.0%, 0.9% is distributed among 40 smaller minorities, such as Russians and Armenians.

Bulgarian is the mother tongue of 84.8% of the population and is classified as a Slavic language. Bulgarian is the only official language, but other languages such as Turkish and Romany, are spoken according to the ethnic breakdown.

Most Bulgarians are members of the Bulgarian Orthodox Church. Other religious denominations include Islam, various Protestant denominations, Roman Catholicism, and atheists.

Due to the economic collapse and high emigration, Bulgaria has the slowest population growth in the world. And since the early 1990s, growth has been negative; i.e. in 1988 the population was 8,859,000 and in 2001 the population was 7,950,000. Hence, today Bulgaria suffers a huge demographic crisis.


[i] A list of the 1,000 most wealthiest people or families


[iii] Produces Bulgaria’s power output

[iv] Ferrous metallurgy deals with the complex interdependencies between the composition of steel, steel production processes, the resulting microstructure and properties of the product and its application requirements. Source:


ISBN (eBook)
ISBN (Buch)
354 KB
Institution / Hochschule
Webster University Vienna – Studiengang Master of Business Administration
bulgarien immobilienanlage country profile economic outlook predictions speculations trade development credit rating



Titel: Property Investment in Bulgaria