219: UK property investment market beats Bulgaria on investment returns
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Only committed holiday-home buyers and long-term property investors would consider buying property in Bulgaria in the current climate, reports Assetz, while the rate of investment return on property in the UK is much higher and considerably lower risk.
Bulgaria has suffered a dramatic change of fortunes in recent months, with the annual rate of capital growth plummeting from a remarkable 36% in 2005 to 13.9% in September 2006, and possibly set to fall further. Some areas, such as the Blagoevgrad District including the Bansko ski region, actually experienced price falls in the second quarter although these recovered in the third quarter. The oversupply of apartments has created fierce competition for rentals, even in the face of quickly-growing tourist demand, which is being aggravated by reported poor management from local agencies. Overall the return on cash invested has dropped from 116% in 2005 to just 35% for the year up to the end of September 2006, as shown in the Assetz Property Investment Tracker*.
In the UK however, the housing market is enjoying a period of strong and sustainable growth. The six major UK house price indices show an average of 8.1% annualised growth for the twelve months to September 2006, primarily as a result of the continued imbalance between supply and demand and historically low interest rates. Due to the small deposits required in the UK, the annual rate of return on cash invested in UK property has risen from 37% in July to 50% in September, shooting past Bulgaria in terms of total returns.
Stuart Law, Managing Director of Assetz comments:
“With the UK offering a 50% return on cash invested compared to 35% in Bulgaria, you would need to be a committed Bulgarian investor who is convinced of long term returns, when it is possible to enjoy much greater gains on home soil. The UK offers a ready resale market, strong rental demand, lower mortgage rates and a simple and reliable legal system, so in terms of a balanced property investment decision taking into account both growth and potential risk, the UK wins hands down at present. The risk return ratio in 2003-2005 was in favour of Bulgaria but that has now reversed.
“Bulgarian market growth has fallen dramatically over the last three months, and it will take another six months or so for it to become clear which direction the market is heading – further down or bouncing back up again. Based upon significant levels of supply getting ahead of rental demand and certainly overtaking Bulgaria’s untested resale market, my forecast would be that the average annual growth in Bulgaria could be in the region of 10 to 15% for some time. Large deposit requirements with Bulgarian mortgages (minimum of 35% of the purchase price) are the prime reason that this level of growth does not allow it to compete with the UK.
“While Bulgaria still has value as a holiday home destination and is likely to be a reasonable investment for the long-term, the days of instant gains appear to be over for the time being.”
Source:
The Wriglesworth Consultancy