Bulgaria

Re: Why Bulgaria?

[FONT=&quot]This discussion is getting skewed, again, so I am not going to continue the line. Instead, let me ask you a couple of questions:

1. Why do we discuss tax issues pertaining to Ireland in the context of "Why Bulgaria" ?
2. If Ireland is so bad in terms of taxes isn't it irrelevant where you would invest ? (By the way, myself having paid taxes in Belgium for 25 years, I can tell you "You ain't seen nothing yet", but that's another story.)
3. In the context of above, Auto having tried hard to lure everyone buying in Spain is actually forcing you to give away money to your Government, right ? (Following his predictions we save you that shame by suggesting you buy for a loss here.)
4. Why invest in the first place, why not just put the money in the bank ? We would be perfectly happy to get here in Bulgaria only the retirees and the vacationers. In addition to the regular influx of tourists this should be enough for the country's economy. The rest spells overcrowding, sooner or later.

Speaking of tourist influx, it is still itching me to reassert the three or four key items, distinctive for Bulgaria, which determine it. So, despite countless efforts to dismiss them, here they are (as an integral answer to the question "Why Bulgaria"):

1. Excellent climate, justifying a May to October season (compare summer to winter schedules for arrivals at Burgas and/or Varna airports);
2. Excellent geographic elements (consult maps);
3. Friendly population;
4. Abundance of historic, cultural and religious sites (for those who come not just for the sun, the sea, the mountains or the skiing);
5. Within four hours of flight from most points in Europe (except for Reykiavik, probably).

Ivan D.

www.dukaty.com[/FONT]

Re: Why Bulgaria?

Ivan D. said:

1. Why do we discuss tax issues pertaining to Ireland in the context of "Why Bulgaria" ?

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Presumably because the issue of tax on any income and/or capital gains arising on an investment in Bulgarian property by an Irish tax-resident individual will depend largely on the relevant provisions of the Irish tax system. The particular requirement in Bulgaria that one must use a limited company to invest is one that is not shared by a large number of other countries, and as such the particular consequences under Irish tax law of using a limited company to invest in property is, I would suggest, highly significant to any discussion of Bulgarian property investment by the Irish.

Re: Why Bulgaria?

Ivan D. said:

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1. Why do we discuss tax issues pertaining to Ireland in the context of "Why Bulgaria" ?
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Because any investment plan has to have an exit strategy, of which the tax liabilities are an essential part. For Irish residents, that means the tax liability in Ireland.

However, as I said before, the issue of taxes won't arise for 99% of irish "investors" in Bulgaria. You have to make profits to worry about taxes.

Re: Why Bulgaria?

However, as I said before, the issue of taxes won't arise for 99% of irish "investors" in Bulgaria. You have to make profits to worry about taxes.

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But surley you will make a profit when you sell the property. Otherwise why buy in the first place. This is when the profit is treated as income and taxed at your marginal rate probably 41% plus PRSI. This is what will happen in most cases.

Get professional advise before embarking on this course of action.

Re: Why Bulgaria?

asdfg said:

But surley you will make a profit when you sell the property. Otherwise why buy in the first place.

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For the majority of Irish buyers in Bulgaria's ski and seaside developments, the question of profits will not arise, simply because the criteria for profit taking do not exist. In other words, the buyers in these sectors have bought at a level that is much higher than what the real market will pay when the time comes to sell. Marketing hype, as well as outright scamming in the form of promises of guaranteed rentals, encouraged a largely inexperienced "investor" sector to get involved in a "feeding frenzy" of overpriced property in Bulgaria in the last few years. There is no local marlket for even a small percentage of this property, and what market there is can not/will not pay this level of prices.

Experienced investors have looked on in amazement at the phenomenon that is the sales-driven market in Bulgaria. Never was so much garbage bought by so many at such high prices, to coin a phrase. Even yet, many buyers who fell for the "guaranteed rental" scam still believe that there is a genuine rental market at the promised rates, and when the penny finally drops with them, the market will tumble as they rush to offload apartments. It's a mess!

Profits? Not a chance, zero, zilch!

Re: Why Bulgaria?

People will have to agree to diasgree on this thread, otherwise it is going to run and run just like other topics that have been wound down. Nobody has a crystal ball, and so no-one can definitively say 'you will make money' or 'you won't make money'

Just the facts from here on please folks.

Re: Why Bulgaria?

I have read this thread with great interest. I am considering an investment in Bulgaria. Note the word "investment." This is not an emotional decision. Nor a holiday home. I am looking purely at numbers.

I have found a place that has a per m2 price well below the current market rates. We can argue whether those current market rates are sustainable or not, but at least I know that I won't be the worst sucker in the country. And going in under current market-rate gives me some sort of exit strategy, as I can always under-price my neighbours when it comes to selling.

I am doing some detailed financial planning, yes, including an exit strategy, and I've already talked to my tax accountant about VAT, CGT, property tax, income tax etc. etc.

The one thing (and unfortunately the most important thing in my view) is missing from my finanical plan. I have price levels/ requested rates and adverts for various ski lodges and apartments.

But does anyone have hard figures for the _actual_ rental/ occupation rates over the season for recent developments, outside of the guaranteed income market (which I agree is almost certainly a scam based on a higher initial per m2 price being paid back to the owner as rent for a couple of years).

I am not interested in opinions. I want hard facts for the last two or three seasons. Then I can see if the returns that I have predicted of approx 8% p.a. over 10 years are really viable or not. As you can see, I'm not looking for somea get- rich-quick scheme relying on ever-increasing capital value.... and if I don't get the occupancy numbers I shall conclude that there is no real rental market and not proceed with my investment.

Thanks for your help.

Re: Why Bulgaria?

I looked at the whole Bulgarian deal when it first started to break; indeed I had been a frequent visitor to all these countries since the fall of communism, with a view to picking out opportunities. In Bulgaria, I found none.

The "new wave" of "investment" property, i.e. ski and coastal apartments, many with rental guarantees attached, interested me at first, but I did exactly what you are doing, I asked the hard questions of the various sales outfits that are working there. Nowhere was I able to get any kind of hard information. Most of what I got was as follows, and these answers crop up again and again.

1. When you ask to see the rental contracts, the stock answer is that the developer is talking to the tour companies, but that they will not commit until the project is finished.

2. In all cases, the extent of the season (either ski or beach) is exaggerated by at least a factor of two. The real summer season is from early to mid june to the end of august, but all sellers say that it is from early May to the end of September.

3. All the ski property promotors have a story about year-round rentals based on hikers etc. Not in real life!

4. When I suggest that if a developer can get a tour company to guarantee rentals for one/two/three years, they should be able to put a four/five year contract in place, sales people become evasive and have no answers. It's not in the sales patter, they didn't learn a stock answer for that one.

The bigger issues though, apart from rental return, are price compared to local market and the exit strategy. The first does not stand up to scrutiny if you look around. The second assumes a jump in income and a population growth that even the most optimistic pundits are not forecasting for Bulgaria. Add this to the question of oversupply, and you have a classic bubble scenario that can go only one way.

I disagree with CCOVICH that you cannot predict a situation where people are sure not to make money. Sure, nobody can tell the future, but it is a fact that if you pay a multiple of the market price, plus a huge commission slice and a further figure to cover your "rentals" for three years in a shrinking population base with incomes way below the line for investments at this level, you are starting off at a disadvantage and you have too much ground to make up. If you take all the indicators, there has to be an as yet unimagined scenario that will bring up prices to even close to the level that people are paying now. A major climate change that makes this area a year-round destination, or the discovery of vast quantities of oil in Varna, might tip the balance back to favour the people who have bought here, but otherwise, it's a black hole.

Re: Why Bulgaria?

Agree completely with Auto but for additional reasons. I am aware about the internal operations of the market via existing developers. The firm covers its costs @ 40% deposit level. The rest is profit ie 150%. Gearing ramps it up further. Vast fortunes are being made the bad way. The scale of profiteering is breath-taking. There is no resale market. Rents are a fiction. Suckers are being targeted with flash marketing that they are paying for. This is an artificial market that IMHO will implode from current prices.

Mezanine investors understand the risks and timing and are getting their capital out as fast as humanly possible. The market is essentially corrupt. This is cultural. No investment chain is immune to wholesale corruption. Organised crime is very dominant and highly active where most money in Bulgaria is now being made ; this is ripping off foreigners in the development game. I do not make these comments lightly.

Re: Why Bulgaria?

Bulgaria? Beware!
Interesting article from the Sunday Times.

[broken link removed]

Re: Why Bulgaria?

At last someone who actually talks numbers.

The Sunday Times quotes rates in Bansko: "At present, she is helping one British investor sell a ski apartment in a new building in Bansko for £713 per sq m; she says that agents are still asking £969 for comparable off-plan flats."

The £969 (€1400) per m2 level matches with what I have seen on optimistic web sites at the top end of the range. The £713 (€1050) level is also recognisable as a "distressed seller," if you search further on these sites.

I can tell you that I was offered two apartments at substantially below £713 per m2. In fact about 25% below that level (~£540 or €790 per m2). Which is why I think I may not be on to such a bad deal (if I get those other rental numbers to stack up)

As I said to the agent, I'm only in this if I can get a true bargain, and I'm pretty hard-nosed. After all, I can get 6% gross on a sterling deposit account at the Anglo Irish bank offshore.

Re: Why Bulgaria?

For Anyone Interested In Buying In Bulgaria - To Set Your Mind At Ease, Go Get Independent Advice On Foreign Property Investment And See For Yourself If Bulgaria Stacks Up.

There Are Alot Of People Here Who Are Peddling The Place For Whatever Their Reasons Are. Some With Blind Belief.

I Know 2 People Who Are Trying To Sell Property's. One Got One Offer Of 25k Less Than What Was Paid And That Was 54k. That Was The Only Offer Either Got In 6 Months (property's Located Sunny Beach And Bansko)

The Day You Buy Is The Day You Sell!

This Is A Logic That Applies To All Investment Properties Unless You Want To Take On Huge Risk.
Fine If So, But Please Dont Borrow To Fund Such A Bet. Buyers Beware.

Re: Why Bulgaria?

barryo said:

I Know 2 People Who Are Trying To Sell Property's. One Got One Offer Of 25k Less Than What Was Paid And That Was 54k. That Was The Only Offer Either Got In 6 Months (property's Located Sunny Beach And Bansko)

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I understand your warning. Here are some more numbers to show that it appears to be a buyer's market. The strange/sad thing about a falling market is that one person's great misfortune is another person's huge opportunity. Especially for those investors (like me) currently holding hard cash without any need for a mortgage. After all, the places are already built and you can actually see & touch the property that you are looking to buy, whereas off-plan buying is just drawings and risk.

Two questions:
Did he/she sell for the 29K and take the loss?

What were the floor areas and asking prices of the two properties (to work out the real "market price" per sq. m for re-sale property)?

Re: Why Bulgaria?

The prices being quoted for distressed sales in Bulgaria are still nowhere near the base price. The oversupply issue and lack of any rental return are the other factors to be considered. Best advice to anyone thinking of buying, for their own use, is to wait about two to three years. This is when the "guaranteed rental" period runs out for a lot of the new-build, and at that point many buyers will begin to realise that they have been scammed and will start to unload properties. You should be able to buy for less than half the current "distress" levels at that point, if you really really want to own a slice of this disaster area!

Re: Why Bulgaria?

auto320 said:

The prices being quoted for distressed sales in Bulgaria are still nowhere near the base price.

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Whilst I value your analysis, what is your source for the "distressed sales" quote and the "base price" ?

My maths teacher always told us that you got no marks unless you could show her your workings-out ;-)

Re: Why Bulgaria?

Have to agree with auto`s logic.After the "GUARANTEED RENTAL" period is up,many buyers will decide to offload but will probably have great difficulty getting buyers at anything near their purchase price,even if the guaranteed rental is subtracted from this purchase price.There will be a period of time before the sellers will admit that prices have collapsed and even then will just blame market vagaries.Surely it`s not worth hanging on to a property if one goes on hols there once a year...would be bored of the same place.What i am wondering about is can the original promoters and sellers of these apartments manage to squeeze more money out of this market ina few years as prices drop to a realistic level

Re: Why Bulgaria?

I thought I'd post the results of my quest for information so that you can make up your own minds. I've tried to be careful so that you can see what are facts, what are conclusions, and what is my opinion.

Bear in mind that I am a cash investor. This would ideally be a high risk/high reward investment at the top of a fairly large base portfolio. I am not gambling my life savings or leveraging this with a mortgage.

I created a business case attempting to generate a Return on Investment (ROI) based on a low, medium, and high scenario. This is pretty standard stuff before investing so that you can see what are the sensitive variables in your investment, and understand risk/reward.

I analyzed about a dozen properties in detail from a number of agents. Most were located in Bulgaria. Most were ski properties.

Facts on the outgoings side:
I had a good handle on the cost side of the equation. I talked to my tax accountant about avoiding double taxation and legal issues of ownership. I checked out rental agent costs, utility costs, transfer taxes, local, country-wide and international taxes, currency exchange issues, notary, lawyer, building maintenance, insurance, furniture, and kitchens.

I think I have a pretty good model of the costs. The output of that side was a few "buyer beware" statements. Be aware that VAT is sometimes skipped by some vendors as though it is not important. Also be careful to look at the effects of Capital Gains Tax in your particular country and the double-taxation treaty between your country of residence and where the property is located. Again these costs are skipped by many vendors or are incorrectly quoted. Thirdly, look very carefully at property management contracts. They often forget to tell you that the 15-30% commission on rentals only covers management whilst the property is rented. There can be a whopping €600 or so extra per year for property management when the place is empty.

Conclusions:
My business case model showed that the low side was not good, and that keeping cash was far less risky and far better reward. The high side model was pretty good (8-9% ROI) which is perfectly acceptable for me on a ten year basis. The medium model was OK but that depended very much on your assumptions.

My business case model showed that the ROI was not very sensitive to general inflation (as costs and income rise roughly equivalently and Bulgaria will eventually join the Euro and so over the long term their inflation will align with the rest of the Euro zone). Surprisingly to me, my model was not fully sensitive to house price inflation (it wasn't straight pass-through due to the effects of increasing taxation), although getting a lower purchase price in the first place did make a difference, as this reduced the investment required compared to the other fixed costs.

The assumptions about rental income appeared key to cash flow.

My model was also sensitive to sale price (ability to exit) so I decided to look at the second hand market, too.

Facts on the (rental) income side:
My model did appear to be very sensitive to rental income, and particularly to occupancy rates. So in order to model the income side of the equation I contacted a number of letting agents. Bear in mind that I am a serious investor and presented this as an opportunity for new business for them. It wan't some wild game.

One mail to the (potential) letting agents bounced (mailbox full), so I guess they haven't rented anything out in a while. One did not reply after 5 days, again not a serious business partner. One replied that they only did Summer lettings, and that the Summer season was of course longer than the Winter season. (Hold on a minute, didn't I hear the opposite from the Winter agents?) One did reply with a reasonable story, but told me that it depended very much on long term trends and getting repeat-business in place. I believe this story. A couple told me answers like: "that is private between us and each customer." "We cannot tell you that." "we do not provide that information." "The only information available is that published on our web site." None of them provided numbers. I could not find any published figures at all.

I did get a very good view of asking price for rentals and current rates by shopping around for renting an apartment myself. Typical asking price was around €250 per week for a one bedroom apartment near the lifts. It is shocking to see how much availability there is for most apartments (maybe 2-3 weeks per year that you cannot book because the place is already occupied.)

Conclusions on the (rental) income side:
There is little transparency in this market, and a whole lot of fluff. Real occupancy rates cannot be determined, but there appears to be huge availability on many properties compared to other markets.

Opinion on the rental market:
The rental agencies are a sham, are just fronts, or at best will not be able to provide the required rental business given their current attitude, advertising and service levels, if they are targeting a UK audience and the rest of the potential customers are anything like me. You need to generate your own revenues and especially repeat custom, and you cannot rely on the agencies to do this for you. There is a general over-supply of rental properties, so you need some serious competitive edge or unique selling point.

Facts on the second hand Market:
Because the ability to sell (and get the cash out at the end of the investment) is so important, I searched the Internet for second hand properties, but also for "horror stories." I found a significant number of properties on the market for around €1400/m2, which is the same price as you can get new build for from optimistic sites. These are clearly not going to sell. I found a number of distressed buyers trying to get out at €1000 / m2, which is the price of a couple of years ago and the first offer price for a new build. By negotiating hard on a new build I actually got an offer for €790 / m2 for 2 brand new apartments that had already been built. Figure this out for yourself. Do you want a new build for €790 or second hand for €1000? There were also a fair number of horror stories that were strikingly similar.

Conclusion about the second hand market:
There is considerable over-supply and stock overhang. The real second hand market is being blocked by new build, which is available for around 50% of the top of the market price that some people have paid and are still paying for off-plan.

Opinion about the second hand market:
There is serious risk to the downside. Upside is strictly limited by the volume of new developments, which will at best cap prices at the current level for some time.

Overall Conclusions:
You cannot make a real business case at this time. There is insufficient data on occupancy rates. The rental market is immature and unproven. The second hand market has much more downside risk than upside gain.

Opinion:
This is not an investment for me. It would be speculation. I'm keeping my cash in my pocket. I do not discount getting involved in this market in the future, but prices for the intitial property would have to fall considerably (due to distressed sellers bailing out or some other cause), and the rental market would need to be more transparent before I step in.

Having said that, there are a few good people on the selling side (and a couple of them post on this forum.) If you are looking for a holiday home for your own use, then I think these guys could help you out, and that you could find a beautiful place that you would be very happy with, and for a very reasonable price.

Re: Why Bulgaria?

Excellent in depth post.

Rachel

Re: Why Bulgaria?

I do agree this is a very good post, indeed.

However, there are a couple of remarks to be made, if we are to get the full picture (I would have told you that directly, Martin, if you have continued the dialog: I believe you contacted me under the assumption we were also a renting agent which we are not).

The thing is, Sunny Beach and Bansko are the worst possible scenarios for a case study. I would NEVER IN MY LIFE purchase something there myself, so I do not sell there either. The reason ? Sunny Beach has been turned to an awful jungle of concrete (and you should know what a paradise of a place it was some 30 years ago). Bansko is the same case. On top of it, due to the famous "me too" driving force the prices there are unjustifiebly higher than elsewhere. Yet some people (mainly youngsters from Poland, UK, etc.) prefer to have a place in the center of action, where they can drink in a bar till five in the morning, sleep till noon and start all over again.

The bulk of fine resorts and smaller tourist centers offer better environment and conditions (except for the category above, perhaps), and much better prices, typically 10 to 20 % lower. 1400 Euro on these places would get you a luxury category on the first line at the beach. 800 to 900 would be more typical for the average finish and quality, newly built.

I also would like to advise anyone reading here to abstain from investing with borrowed money. Not just in Bulgaria, anywhere. And not just in real estate, in anything. It is the most unwise thing to do. Investing is a gamble (risk taking, they call it, for giving it a wiser sounding tint), therefore you should gamble only with your FREE CASH, period. I could write a book one day, with all my investing adventures: some equities I purchased went next to zero, some went sky high, so the end result is about 15% average annual growth for the whole portfolio, for a period of 25 years. Luck ? Perhaps. But investment in real estate here in Bulgaria is what brought me real big growth: some pieces of land appreciated in excess of 20 times in price, for about 8 years or so.

This brings me to the second point: for the truly patient investors (with free cash available, Martin) my recommendation would be to think about purchasing land. You would not need to worry about rent, rather work out a concept whether to hire a construction company and build (to let, sell, whatever), or just not bother, sit and wait for the appreciation. Obviously, this will eliminate the multitude of negative factors discussed with regard to apartments. We have in fact already quite some people (mostly Dutch and German) interested in that scenario, especially as far as plots of land in the vicinity of golf courses.

Ivan D.

www.dukaty.com

Re: Why Bulgaria?

Ivan D. said:

I also would like to advise anyone reading here to abstain from investing with borrowed money. Not just in Bulgaria, anywhere. And not just in real estate, in anything. It is the most unwise thing to do. Investing is a gamble (risk taking, they call it, for giving it a wiser sounding tint), therefore you should gamble only with your FREE CASH, period

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No professional investor I know would back you up on this. Your argument really doesn't make sense. In most cases, without borrowing, an investor's funds can be used in a much more profitable way elsewhere.

Secondly, investing should never be seen as gambling. This is why research is the key to any good property investment.