The Bulgarian real estate market has expanded significantly in the past few years. This growth resulted from various factors like the maintenance of a steady economic growth rate, financial stability, higher solvency capability and fewer conditions for obtaining bank loans.

Despite the high growth, experts consider the real estate sector to be still developing. At the same time, even if the property price in a certain region to be higher than the average, this does not indicate companies investing in the region will realise smaller profit.

Main risks and barriers related to real estate market participation:
· Expenditure related to transferring property rights- notarial, municipal taxes
· Long acquisition period
· Risk of acquisition of property with quality different from that agreed on
· The withholding of a large amount of resources for a long period of time. This usually provides difficulty for smaller investors, in possession of limited financial resource.
· Low liquidity of the investment
· Lack of control over executors and intermediaries, which leads to asymmetry in the information flow
· Significant initial investment needed, which limits the number of small companies getting involved

Main factors related to the development of the real estate market:
· Development and potential of the mortgage loans market in the country, as well as significant credit provision from local and trade banks. Despite this development the share of mortgage loans remains below 10 per cent, with a 20 per cent average in other countries. Nearly a third of all real estate acquisitions occurred through bank funding
· The acceptance of a law on special investment trusts, which stimulates investment in real estate and attracts foreign investors
· Bulgaria’s expected EU membership after 2007
· A constant growth rate of 10 per cent in the tourism sector
· Increase in direct foreign investment
· Decrease of corporate income taxation from 19.5 to 15 per cent, which increases the investment return norm in the real sector of the economy
· Maintenance of macroeconomic stability and GDP growth rate. This is growing annually between 4.5 and six per cent. The unemployment rate decreases at the same time
· Regulations, encouraging foreign investment
· Low currency risk, determined by the currency board in the country

Main risks to the development of the market:
· Limitations foreigners face in attempting to purchase property
· Poorly developed infrastructure in some regions
· High dependence on the ability of tenants to pay
· Limited solvency capability

Real estate investment trusts
The creation of real estate investment trusts (REITs) and the regulations related to their activities came through the fast development of the Bulgarian property market in recent years.

Data for the past years shows prices of housing and office property, as well as of plots constantly increase. This development comes together with an increased interest from foreign investors. Most of them prefer opportunities in bigger cities, mountain and seaside resorts, where the number of new buildings increases constantly.

This positive tendency results mainly from Bulgaria’s expected EU membership. A tendency for income increase in the country also features among the reasons for higher foreign interest. In addition, the harmonisation of Bulgarian law with European standards facilitates the conclusion of real estate deals.

One of the market characteristics is for construction companies to be investors at the same time. Most companies accumulate the capital needed for construction through direct contact with property buyers, which makes fund provision for new constructions difficult.

To stimulate the property market, Bulgarian administration approved a new law on special investment vehicles. The law came into force at the end of May 2003 and its main aim is to regulate activities related to real estate acquisitions and interactions of companies with special investment aims.

These regulations have to become the needed market mechanism differentiating real estate investment trusts from construction companies. In this manner REITs will become one of the most effective channels for long-term fund provision through the emission of shares in accordance with the new special investment vehicle regulations. The funding price is expected to be lower, compared to the price of capital of construction companies. Such developments will increase the benefits for shareholders.

Trusts emit obligations and shares and invest the financial resources in property developments. Their activities include property purchase, construction, property renovation, management, renting, leasing and further investment.

Bulgarian REITs cannot manage directly the acquired property. They have to transfer responsibility to one or more managing companies. Seventeen such companies operate in Bulgaria currently.