Participants in the Real Estate and Investment Forum held at the Sheraton Hotel in Sofia from May 30 to June 2 heard a wide variety of messages, some encouraging, and some causing concern.

During a discussion on the environment for investors in South Eastern Europe, Canada's trade commissioner in charge of Bulgaria, David McGregor, said that Bulgaria's business environment had "a pretty good story to tell".

Costs were low, the country was headed for European Union accession, and there were favourable policies towards investors. However, in terms of results, notwithstanding the rising number of Greenfield investments, "you could be doing so much more," McGregor said.

He said that he was concerned by the "blockages" being faced by Canadian companies. These could possibly be ascribed to bureaucracy, contradictory rules, "perhaps because of corruption and vested interests".

McGregor, who is Bucharest-based, said that his list of "problem files" regarding Canadian companies in Romania was small, but for Bulgaria it was "not very small".

He said that, going by recent surveys, Bulgaria had a worse problem with corruption that Romania, and in spite of a downturn in corruption up to 2004, the problem was resurging.

Corruption made individuals rich but countries poor, McGregor said.

"For you in the real estate sector, your voices, if raised to eliminate corruption, will benefit you."

From other speakers, it was clear that corruption was not the only issue facing investors and the real estate sector.

Ivan Velikov, director-general of the Bulgarian office of Colliers International, said that Bulgaria was rapidly losing competitive ground because of its poor infrastructure, the shortage of skilled labour and a lack of government incentives.

Major companies, including Avon, Oracle, Microsoft and footwear manufacturer Geox, had chosen Romania instead of Bulgaria for new regional production or distribution hubs.

Velikov said that, in the experience of his company, most foreign investment funds had chosen neighbouring countries or put on hold their entry into the Bulgarian market.

However, Elta Consult executive director Valeri Leviev was more optimistic, saying that the past six months had seen a number of significant deals. He listed the Serdika Hotel development and the shopping mall complexes in Sofia and in Veliko Turnovo as evidence that confidence in the Bulgarian investment market was on the increase.

At the same time, a decline in the profitability of the real estate market was being seen.

Profitability from first class real estates reached seven per cent in Central Europe in 2005 with ranges of 6.5 per cent to 10.25 per cent for offices, from 7.5 per cent to 11.7 per cent for trade centres and from 8.5 per cent to 15 per cent for industrial estates.

Bulgaria was also showing this trend of a decline in profitability, and this was expected to continue this year.

"Sales of investment properties in Bulgaria in 2005 and the beginning of 2006 amounted to about 350 million euro. Sixty-two per cent of these were trade centres, 19 per cent office buildings and hardly one per cent were industrial realties," Leviev said.

At the same time as the forum, the International Herald Tribune published a story saying that prices of real estate in Bulgaria were certain to continue rising and chances of making a loss on an investment were nil.

According to the National Statistical Institute, the average price of a square metre of a built-up area in Bulgaria in January was 36.6 per cent higher than in the same month of 2005.

The average price of housing in Sofia is about 600 euro a sq m. About 23 per cent of all 220 000 real estate deals in Bulgaria in 2005 were signed with foreigners. The total value of these deals added up to four billion euro, according to Nedvizhimi Imoti agency data.

Nadia Zaharieva, senior investment office at the Bulgarian-American Credit Bank, said that a double room in four- and five-star city hotels brought an annual profit of more than 6000 euro. Smaller hotels at the seaside made about 600 to 800 euro a bed every year and a bed in a mountainous hotel brought a profit of about 1000 to 1500 euro during the winter season, Zaharieva told the forum.

Assen Chaushev, associate professor at the International Academy of Luxury Restaurant Training in Bansko, said that Bulgaria needed more than 100 motels in order to develop urban tourism.

At least 50 small motels meeting the needs of the Bulgarians with average incomes should be built in Sofia alone, Chaushev said. These should be three- or four-storey buildings without lifts and with prices varying between 10 and 15 leva a night. At present the average cost of a room a night in Sofia is about 50 to 60 leva.

Despite the dense infrastructure at the seaside, a clear-cut strategy would make the building of another 200 hotels possible, Chaushev said.

Dobromir Ganev of real estate agency Foros said that residential properties would gain about 15 per cent on average with the market in some parts of the country appreciating by as much as 20 per cent. He told a news conference that residential markets in Plovdiv and Rousse were undervalued.

The National Statistics Institute said that values of residential properties appreciated by about 4.7 per cent in the first quarter of 2006.

Clair Satchi, chief executive of Netherlands firm Engel East Europe, said that the residential market in Bulgaria had huge potential.

In other announcements at the forum, Georg Schlegel, development director at InterContinental Hotels Group, said that the hotel was looking at the markets in Bulgaria and Romania, and the group could open hotels in Sofia, Varna and other major cities.

On the final day of the conference, a discussion was held on investments in spas, wine and culture.

Valentin Alexandrov, vice-president of the Spa Association and owner of the Strimon Spa Club, said that Bulgaria could turn into a European and world spa centre.

However, he was "horrified" by the trend of the past two years of what he termed the fragmentation of the tourism industry into varying niches, from extreme sports to geological, among other categories.

A serious national concept was needed to create a "centre of gravity" in the tourism industry to counteract this fragmentation, he said.
"Spa could be that centre of gravity for the vision of Bulgarian national tourism."

He called on investors and the state for closer public-private partnerships, towards developing a national spa academy of Bulgaria to provide trained staff for the industry.

Alexandrov said that the Tourism Act made reference to the spa concept, but no one had raised the issue of a national spa standard. Facilities and qualifications varied from place to place, he said.

Noting that there was a series of non-profit organisations linked to the industry, he said that, in the week starting June 5, a "unifying forum" would be held to come up with a single body to enter into partnership with the state.