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Bulgarian dream

As the UK buy-to-let market goes through uncertain times, investors are broadening their horizons and setting their sights on more exotic locations. Overseas markets have always been popular for property buyers but Bulgaria is currently in the unique position of offering investors a triple whammy of low prices, good growth on investment and a thriving holiday rental market.

Virtually unknown a decade ago when the country was seen as a former outpost of the Soviet Union, Bulgaria has soared in popularity as a package holiday destination in recent years, particularly among Brits. The Black Sea Coast is less developed than Spain and Portugal yet boasts world class resorts and weather that outdoes the Mediterranean.

No wonder then that the World Trade Organisation has forecast that by 2010 Bulgaria will be visited by at least 20 million tourists annually.

But it is not just the sun that draws visitors as Bulgaria also has great ski resorts with facilities that have put it in the running to host the 2014 Winter Olympics. On top of that the cost of living is still low, with a night out costing less than 10 – leaving change to spare for the taxi back home. A glass of beer costs 30p, a bottle of wine is less than 1 and a three-course meal will set you back about 1.50.

Air links between the country and the UK are also being improved. In addition to the holiday airlines serving Bulgaria, the main national carriers between the country and the UK have expanded their destinations and increased the frequency of flights, and a number of low-cost airlines are also serving the country. This combination of factors means many Britons are seriously looking at Bulgaria either as somewhere with holiday letting potential or just as their own piece of paradise in the sun.

Just after the millennium the Bulgarian government changed its laws to allow foreigners to buy property there, triggering a trickle of investors which has turned into a flood over the past couple of years, with British buyers leading the pack.

According to HIFX, a company specialising in foreign currency transfers, at the beginning of 2006 around one in 10 of all its transactions went from the UK to buy property in Bulgaria. The only overseas property investment locations more popular than Bulgaria are France, Spain and Australia.

Many of the emerging economies of eastern and central Europe are attracting interest from foreign property investors looking for bargain properties with holiday letting potential. Across the region the number of properties bought by foreigners has grown by 38% since the start of 2006, particularly in countries such as Poland, the Czech Republic, Slovakia and Romania. But Bulgaria has proven to be the most successful due to its low property prices, good infrastructure and good transport links with the rest of Europe.

The value of property in the coastal areas of Bulgaria has grown by an average of 30% in the past year although some commentators claim that capital growth reached 116% in some places. Figures published at the beginning of June by Bulgaria’s National Statistical Institute reveal that residential property prices in the country went up by 36.6% in 2005.

Experts from Bulgaria’s real estate industry say foreigners were involved in 23% of the all property deals com-pleted in the country last year. But this has also had an effect on the domestic market so property and real estate is now Bulgaria’s fastest growing in-dustry sectors.

In May, the European Union said Bulgaria was on track to become a member in 2007, which will boost the country’s economy further and bring even more tourists to its door. But the announcement also means that more investors have turned their attention to the country’s property market, a development that will eventually push up property prices. For the moment there are still good deals to be had, but as demand increases prices are bound to follow suit.

New developments are the most popular options for overseas buyers, particularly those looking for holiday lettings potential. One-bedroom apartments can be bought off- plan for less than 30,000 with two-bedroom properties with sea views costing 55,000 on average.

Bulgaria does not have many quaint properties like France or Spain, and older properties will need a lot of work to get them up to letting standard. A lot of time, effort and money will be needed to fix bathrooms, kitchens, electrics and even roofs.

Buying in a new development gives people greater choice and, if they choose an off-plan property, the greatest potential growth as new-build developments are rising in value before they are finished. Buying off-plan also gives buyers more input into how their property will look which is a bonus for people who plan to spend time in their property as well as let it out to other holidaymakers.

Bulgaria is a mature overseas buy-to-let market so there are a number of companies offering mortgages there, although the country is not served by UK providers. The biggest lenders are Greek bank Piraeus and the locally based DSK. Until now interest rates have been up at around 7% but sensing increased competition in a rapidly developing market, Piraeus recently offered a 5.9% self-cert deal that allows borrowers to use up to a quarter of their potential holiday rental income in their income multiples.

Off-plan buyers will have to raise their own funding initially to buy their property as Bulgarian lenders will not lend until building work has been finished. Once completed, borrowers can convert to a local mortgage.

Because any additional borrowing is likely to be secured on the buyer’s UK home it is vital that investors get financial advice from an experienced broker. Many developers in Bulgaria offer their own brokerage and legal services.

Another option is to find a good local estate agent who can offer new developments and existing properties as well as access to financial and legal advice. The country’s legal profession has a good reputation and the buying process is more straightforward than in the UK. Once the sale is agreed a 10% deposit is put down and the deal is usually completed within three to four weeks.

Most solicitors can advise on issues such as land ownership and property inspections. But buyers should try and get a recommendation if possible and ensure all paperwork and documents are signed by a notary.

Although foreigners can own property they are not allowed to own land. This can be easily overcome by setting up a Bulgarian business which foreigners can own, which in turn can own the land. This can be set up by a local solicitor and costs around 600.

Bulgaria is largely free of the scams and poor selling practices that have hindered many overseas property hotspots. It does not suffer from any strange land laws either, such as those in Spain and Croatia which can result in foreigners having part of their property taken away.

Foreign buyers must seek advice with regard to tax and income. The UK Inland Revenue is cracking down on Brits with overseas income and foreign bank accounts so buyers must speak to an accountant to ensure they remain within the law. In terms of visas, the UK government’s Foreign and Commonwealth Office provides an overview of what’s needed but they will have to contact the Bulgarian Embassy in London to arrange a visa.

Buying a home in Bulgaria is uncomplicated, whether they have bought an overseas property before or not. The biggest tip for buyers is that they should do their homework and visit Bulgaria, get recommendations and take expert advice. There are a number of useful websites offering information including sites for overseas buyers and the official tourist board website.

Research by Halifax shows 29% of Brits are interested in buying abroad while Mintel says 20% of UK remortgages last year were for second homes, many abroad. Buying property overseas is no longer a dream, but bargain locations like Bulgaria are going fast.

Kamran Malik is chairman of KHG Development A

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