The month of March continued to bring new forecasts that property prices in Bulgaria will still increase in 2006, but with a slower pace than the record jumps registered in the period 2003-2005.

This applies mostly to residential properties, which are expected to register a percentage increase lower than the 21.6 per cent in 2005 and much lower than the 47.6 per cent in 2004. The independent analytical company Industry Watch made this forecast.

“After the price boom in the last couple of years, especially in 2004, prices of residential property will stabilise in large Bulgarian cities, due to steady demand and increased supply, while in some of the smaller cities they will continue to rise to catch up with those in larger cities,” Lachezar Bogdanov, an analyst with Industry Watch, said.

In its annual report, Industry Watch considers five alternatives for investment in Bulgaria - copper, petrol, the 12 most liquid shares on the Bulgarian Stock Exchange - Sofia (BSE), residential property and US dollars.

While the price of Bulgarian stock, measured through the blue-chip index SOFIX, increased by 32 per cent in 2005, the average prices of housing properties in this country went up by only 21.6 per cent, Industry Watch said. This means that investment in shares of companies traded on the stock exchange has become more attractive to investors.

Return on investment in other sectors, like oil and metals, has also become higher at 60 per cent. Even the US dollar is more attractive as a form of investment because of the hiked interest rates by the US Federal Reserve, which are certain to continue their upward trend.

In 2005, the profitability of investment in copper was 66.3 per cent, and investment in petrol was 61.7 per cent. The profitability from buying dollars was 13 per cent in 2005.
Bogdanov expects that profitability from investments in copper and petrol will remain the highest of the five alternatives in 2006.

The growth in the supply of new residential properties remains upbeat. Two thirds of all construction permits in 2005 were issued in the country’s five largest cities, where developers can find better profit margins, said Industry Watch.

The Black Sea city of Bourgas leads the capital Sofia and Varna (also on the Black Sea) in terms of apartment building permits. The speculative demand driven by second-home buyers will ensure a sustainable level of construction activity in the region over the near-term, specialists say.

Growing supply will level off residential property prices in Sofia. The trend has already impacted several market segments in the capital, where prices for some types of properties declined in late 2005. Speculative buyers, both locally and non-locally financed, remain the most significant market factor, Industry Watch says.

Bourgas has the most overvalued real estate market, given that the price of services in the coastal city is significantly lower than those in Sofia, whereas the property prices lag behind the capital by only eight per cent. The property markets in Pleven, Plovdiv, Rousse and Shoumen are undervalued, says Industry Watch.

According to the analysts, mortgages will continue to be the most popular type of credit for financing investment in residential property in 2006 because of the lower interest rate.

However, the share of mortgage loans in the overall debt of households still remains low compared to the European Union member countries, where the average share is about 69 per cent.

In the eurozone, the growth in mortgage lending is also outperforming the overall growth in credits. It was 12.5 per cent in 2005.

The recent decisions by the US Federal Reserve and the European Central Bank to raise their basic interest rates has hiked the global price of capital. Nevertheless, the current situation on the mortgage markets shows that much more time will be needed for the interest-hike measures to influence these markets.

The competitive pressure forces creditors to maintain low interest-rate levels on mortgage loans, in spite of the two central banks’ steps. For instance, in the eurozone, the average interest rate on mortgage loans dropped from 4.4 per cent in end-2004 to 3.95 per cent in end-2005, while the basic interest rate moved up from two to 2.5 per cent.

In Bulgaria, the effective annual interest rate on mortgage loans denominated in the local currency, the lev, dropped to 6.55 per cent at the end of March, Bulgarian National Bank (BNB) data showed.

The annual percentage rate for a 50 000 leva 10-year loan, commission fees included, varies between 6.71 and 7.76 per cent from bank to bank.

Most bankers, however, comment that a collapse in interest rates is unlikely, adding that the anticipatory effect of this country’s future EU accession on the rates has elapsed.

Customer services, though, still have room for improvement and a wider range of products will be marketed, according to bankers.

DZI Bank was the most recent local bank to lower the cost of mortgage borrowing from 9.5 to 7.65 per cent.

Competition among Bulgaria’s mortgage lenders remains intense with Raiffeisen Bank, Bulbank and First Investment Bank (FIBank) boosting their market presence at the expense of their rivals, BNB data also shows.

The market is dominated by DSK Bank, United Bulgarian Bank (UBB), Bulbank, HVB Bank Biochim (jointly with Hebros Bank), Raiffeisen Bank, Postbank and FIBank.

The top seven banks in this field disbursed a total of 1.6 billion leva in mortgages in 2005, giving them a share of 81.5 per cent, down from 88 per cent in June 2004 and 85 per cent a year later.

Despite a redistribution of market share, the four largest mortgage creditors retained their rankings.

DSK Bank lost nine percentage points of its market-leading share in 18 months, to reach 29.3 per cent at end-2005.

In second place, UBB has a market share of 18.2 per cent, down by one per cent in the fourth quarter of 2005.

Bulbank ranks third with a market share of 11.8 per cent by end-2005, up by 9.6 per cent over the past 18 months, followed by Postbank with 9.5 per cent, up from 8 per cent by end-September 2005.

Between June and December 2005, FIBank dropped to the fifth place, its market share shrinking from 6.96 to 6.7 per cent.

HVB Biochim and Hebros Bank have a combined share of 4.5 per cent.

Raiffeisen Bank Bulgaria managed to improve its share to 3.94 per cent by end-2005 against 2.18 per cent a year and a half ago.

Allianz Bulgaria, DZI Bank, Piraeos and Economic Investment Bank have a combined market share of about 10 per cent.

“This represents an unleveraged investment yield on full occupancy of approximately nine per cent by the end of 2007,” the company said in a statement to the alternative investment market (AIM) of the London Stock Exchange, where it is listed.

The Sofia City Centre mall comprises 44 424 sq m of built area and 22 146 sq m of lettable (fit to be leased or capable of being leased) area on six levels, with underground parking for about 500 cars. The mall currently has 72.3 per cent of the lettable area contracted with 53 tenants signed. It is anticipated that the mall will open by the middle of May.

“Following our other recent acquisitions, this transaction brings our total investment to date to 144 million UK pounds (209 million euro), which leaves us firmly on track to invest the proceeds of last year’s placing within 12 months of admission,” said Petri Karjalainen, managing partner of Equest Partners Limited, Equest Balkan Properties’ investment adviser.

Equest Balkan Properties started trading its shares on the AIM in London in December 2005 and raised 140 million UK pounds to invest in or around the major cities of Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, Serbia-Montenegro and Turkey.

The company acquired earlier this year a three-star, 131-room hotel in Bulgaria’s capital Sofia for 10 million euro, an office building in the Romanian capital Bucharest for 4.75 million euro and a retail mall in Romania’s north-eastern city of Iasi for 34.5 million euro. 

BITEX would use the money from the capital hike to buy land, which it would offer to construction companies as building sites in exchange for receiving apartments in the new buildings, BITEX said in a statement.

BITEX plans to invest 80 per cent of its increased capital in real estate, 10 per cent in securities and 10 per cent in improving its information technology (IT) activities.

Bulgarian-registered financial and investment group EuroCapital, BITEX and New York-based investment banking company First Wall Street Capital Corporation will co-manage a US-based real estate development company, with 50 million euro equity capital and 100 million euro debt capital, EuroCapital’s owner Christos Mouroutis said earlier in March.

The company believes that the IT market in Bulgaria had already become very saturated, while the real estate market offers brighter prospects.

BITEX posted a loss of 73 000 leva in 2005, down 41 per cent year-on-year. The company’s 2005 income was 1.3 million leva, down from 1.35 million leva the previous year, and its 2005 expenses were 1.37 million leva, down from 1.47 million leva in 2004.

BITEX expects to post a loss in 2006 and 2007, as it plans to start selling the apartments it would obtain in 2008.

Mutual fund
Bulgarian financial and investment company BenchMark Group said on March 23 that it set up a mutual fund that will invest in the shares of domestic and foreign real estate investment trusts (REITs).

The fund, named BenchMark Fund-3, will be the first sector mutual fund in Bulgaria, BenchMark said in a statement.

The fund’s portfolio will include mainly shares of Bulgarian REITs, up to 90 per cent of its total assets. The fund will be able to invest up to 50 per cent of its assets in foreign-registered REITs. It will hold no less than 10 per cent of its assets in cash.

“The prospects for the development of the BenchMark Fund-3 are very favourable as the real estate market is stable and the shares of the Bulgarian REITs are among the most traded shares on the stock exchange,” the company said.

Bulgarian REITs have raised a total capital of more than 135 million leva as of March and this sum is expected to multiply within the next two years.

BenchMark Fund-3 is the third mutual fund in the BenchMark funds family, managed by BenchMark Asset Management. The company runs a low-risk bond fund and a high-risk share fund.

BenchMark Asset Management has applied for approval of BenchMark Fund-3’s initial public offering prospectus with the Financial Supervision Commission and it expects the fund to be launched in two months’ time.

The BenchMark Group provides financial consulting in the field of corporate finance and investment banking, investment products and structuring of real estate projects. It operates a real estate investment trust called BenchMark Fund Estates.

Settling on the Moon
Bulgarians were warned on March 23 by a self-styled Lunar Embassy to hurry to buy real estate on the moon as only a limited number of properties were left for sale.

A one-acre property on the moon costs 40 leva (20 euro), and plots on Mars and on Jupiter’s moon Io were also available.

“We have already had over 30 orders since we opened the embassy two days ago,” its co-ordinator for Bulgaria, Denislav Stoichev, said.

The Plovdiv lunar embassy is the first in Bulgaria, but one of dozens around the world licensed by the Galactic Government’s CEO - in this case, Celestial Executive Officer - US entrepreneur Dennis Hope, Agence France Presse (AFP) reports.

In 1980, Hope proclaimed himself the owner of the moon and all planets and satellites in the solar system (except for the Earth), by exploiting a loophole in the 1967 UN Outer Space Treaty, which states space property “is not subject to national appropriation” but says nothing about private or corporate owners.

“Most people here take it more as a joke, a funny present for someone’s birthday,” Stoichev said, adding, however, “in another 100 years we might be living on the moon or Mars and I want to be one of the first colonists”.

He is not the only one. The late Pope John Paul II, former US President Richard Nixon, pop idol Madonna and NASA officials are also proud owners of moon plots, Stoichev said.

Some 327 Bulgarians have already bought plots through the Internet and orders are streaming into the Plovdiv embassy.

Only one billion lots are left for sale. The lucky owners will receive a lunar deed certificate, with the co-ordinates of their plot and their signature as proof of their ownership.

But there are certain lunar codes: “Absolutely no weapons shall be tolerated, ever!” on the moon and littering will lead to “exorbitant” fines, the lunar primary law reads.

Last October, a Lunar Embassy in China was shut down as a government watchdog called its sale of space property fraudulent and illegal, AFP said.