Buying Land In Bulgaria

Investing In Bulgarian Land

Investing in land in Bulgaria is a highly tangible, secure and prestigious opportunity. Land has long been viewed as a solid and tangible investment. The value of residential land has increased on average, across Bulgaria, by 7% over the past 4 years. And Bulgaria has yet to see the spiraling land prices of the new EU member countries.



For resort areas such as Sunny Beach, Golden Sands, St Constantine and Elena, Nessebar and Sozopol, the typical cost of land plots has increased from £60,702 to £675,825 per acre over the last 3 years. According to the Bulgarian land market indicators analysis this is certainly a trend that will only continue to increase. Minimum price for such locations will likely be around £1080510 per acre mark by the year 2007.



Beach front land plots within easy reach of town and communication links are still available to developers, although many hold agricultural or forest status. It is, however, possible to change the designation of the land to allow development. The procedure for the transfer of designation takes approximately 3-6 months, and, importantly, the right team of experts on board. Whilst this might at first appear to be a daunting undertaking, in actuality it is a viable investment project, given the right team and compliance with various legal procedures.

Farmland as an Investment

For the last three years rural land turns more and more to investment asset. Several special investment purpose vehicles (Bulgarian real estate investment trusts) have focused on the sector and through acquiring interests in them more and more foreign investment funds have their share.

While in Europe rural land is not a typical investment asset in Bulgaria the restitution of nationalized land created a very active secondary market with opportunities for investors to enter the sector. After its fragmentation into small lots with many owners now investors are trying to consolidate it in the open market buying up and uniting it into large lots. Their main source of profit will be the rise of land value as a result of its consolidation, which would eventually create conditions for effective agriculture.

As by 2004 10.1m rural land plots have been restituted in the country, in most cases to inheritors, usually 3 or 4 persons owning an average lot of 6,400 sq m.

By the period of financial crisis of 1997 the price remained relatively stable. The same year (2004) the market surged and consolidation processes started. The number of rural land transactions grew by 30 per cent compared to the previous years despite the drop in the average prices. The following year registered a serious growth of the market –the number of transactions rose by 35 per cent while the volume of traded land increased by 45 per cent with prices starting to rise too - by 26 per cent in 2005.In 2006 demand exceeded supply and the market remained dynamic developing mainly under the influence of the investors.

EU Subsidies To Stimulate Farmers

The European Union Common Agricultural Policy sets the framework for subsidies of agricultural production as growing of rice, sugar, flax, hemp, cotton, fruits and vegetables, wine and spirits, hops, seeds, tobacco, milk and dairy products, meat, bee honey, silk cocoons, bananas, flowers, olive oil and ethyl alcohol. It provides subsidies for farmers under the form of direct payments per arable land. The negotiated financial framework for Bulgaria amounts to EUR 1.552bn for 2007 - 2009 for agriculture and rural areas. A scheme for a unified payment per area will be active for the period 2007-2009. The unified payment per area (EUR per hectare) is a fixed sum for cultivation of 1 hectare of land regardless of the type of crop.

The Bulgarian region of wheat growing remains the most active area that saw about 30 per cent of all transactions in the country at an average price of BGN 220 per 1,000 sq m, 26 per cent up from 2005, and 10 per cent above the country average.

Despite the active market for the recent years land prices in Bulgaria are about 4 to 5 times lower than the EU average and probably would not catch up with it in the years to come.

Since last year a new factor on the market are the investment funds. The number of rural land transactions has grown by over 50 per cent compared to 2005 due very much to the activity of the companies focused on rural land purchases. They account for more than half of all transactions. As of last year end their purchases exceed 400m of sq m with expectations by the end of 2007 to have accumulated about 1m sq m, or about three percent of the total of arable land in the country.

After that investors will be able to start land consolidation through exchanges among them or with the state. The market development rate as a number of transactions and prices is expected to remain the same this and next year as the rural land trusts and farmers keep high.


Says Vasil Belomorov, Executive Director of FairPlay Land Fund:The Fragmented State Of Rural Land And The Existence Of Large Numbers Of Inheritors Hinder Transactions

FairPlay Land Fund (Fairplay Agraren Fond AD) is a company that consolidates and cultivates land, an affiliate of FairPlay International. It started its activity in Northwest Bulgaria last year. Its purpose is the consolidation and cultivation of arable land. Vasil Belomorov is Executive Director of the fund from February this year, after being previously the Executive Director of the special investment purpose vehicle for rural land Agricultural Land Opportunity Fund Mel Invest REIT, of Mel Invest Holding AD and the financial brokerage Euro Garant AD. Professionally, he was involved in the financial sector with experience in Karoll, Hebrosbank and Euro Garant investment brokerage.


Mr. Belomorov, what are the main factors influencing the rural land market?
The main factor on the market is the increased demand for rural land at a relatively stable supply. By 2005 the main buyers of rural land were companies and individuals that cultivated it. After the registration of the first special investment purpose vehicles (Bulgarian real estate investment trusts) for rural land and the accumulation of serious financial resources they became the most important player on this market.

With the legislative changes this year the correct tenant farmers are granted the right to buy the rural land with priority, which will decrease the interest of the purely speculatively minded market players to such property. In the short term this would lead to stagnation of prices of this real estate type.

The fragmented state of the rural land and the existence of large numbers number of inheritors also make the transactions more difficult.


What effects do you expect from the introduction of EU's Common Agricultural Policy on the price of land?
The application of the EU common policy in agriculture and the grant of direct subsidies for farmers as well as the grant support for implementation of special projects will lead to increase of rural land demand. This increased demand will inevitably lead to a growth of rural land prices. The ever increasing lease income as well as the higher current revenues from rural land ownership will lead to a price growth for sure.


What is decisive for the price?
First the basic factor for the price is its location near urban areas and planned infrastructure. In this case the investors plan urban regulation at a later stage, which seriously pushes the price up.

At transactions with rural land when the land will be cultivated or resold as rural land the leading factors are the planned crops and the technologies used. The existence of irrigation systems is very important for the vegetables. Another major factor is the category of land, the proximity to roads, the opportunities to buy adjacent plots, etc.


Do you expect rural land price to grow in the near future and with what rate?
My expectations are for growth - in 2007 by 30 per cent, in 2008 - by 40 per cent. The price increase in 2008 will be bigger due to the fact that a lot of the farmers will receive subsidies under the form of direct payments.

Fluctuations in the average prices might occur in specific areas with respect to the implementation of big infrastructure projects of national importance under the conditions that this land is purchased for change of use to development.


What are the perspectives for the sector in the different regions of the country?
On the whole I have expectations for even price growth on the whole territory of the country. I forecast somewhat slower pace for the land in Southeastern Bulgaria as a result of the weak interest to land for cultivation in Strandzha - Sakar region. As of now the price lag for the rural land in Northwestern Bulgaria has been caught up and the growth will be near the average for the country. With the increase of the number of farmers growing vegetables I expect rural land to become more expensive at a quicker pace than the average in areas with existing irrigation systems and in proximity with big settlements at the same time.



Says Tihomir Tsakov, Managing Director, Aristo Real Estate Agency: Return on Investment in Rural Land Exceeds The Average For Tihomir Tsakov is Managing Director of Aristo Group of companies since 1994. He is real estate appraiser, Certified International Property Specialist (CIPS) of the US National Association of Realtors. He was a member of the Board of Management of National Real Property Association of Bulgaria. Currently he is a member of the Board of the International Real Estate Federation FIABCI. Born in 1961 in Botevgrad Tsakov is graduate of the Technical University in Sofia with a M. Sc. Eng. He has specialized with a M. Sc. in applied mathematics.


Mr. Tsakov, what are the main factors influencing rural land market?
Bulgarian rural land market is influenced by the European Union and Bulgarian policies, finance supporting of the process of rural land consolidation, subsidies for the development of farmers, etc.


What are your expectations for the results of the execution of the EU Common Agricultural Policy on the price?
If the sustainable policy of the whole state administration in support of the agricultural manufacturers continues, the execution of the EU Common Agricultural Policy will inevitably lead to financial stabilization of the agricultural manufacturers and eventually would raise rural land values.


What are the advantages and the disadvantages of investment in rural land?
One advantage is high price growth of rural land in the two-three years to come as return on the investment exceeds the average figures in other segments of the real estate market. Additionally, the effectiveness is raised by the leasing payments that can go beyond BGN 20 per 1,000 sq m per annum.


How is land value determined?
For the last two years the supply and demand have been balanced. At the same time the profitability of the agricultural production is still very low. The vicious circle is closed by the impossibility to consolidate large lots.

For these reasons the key factor of the price is the size of the consolidated plot. The difference in the prices of closely located plots can be more than 50 per cent depending only on their area. Conditionally, we can divide it into two groups - up to 100,000 sq m and over 500,000 sq m.

Of course, important factors for the price of land are the specifications of the soil and the irrigation opportunities. In countries of developed agriculture the differences between irrigated and non-irrigated land might reach up to 300 per cent.


You expect rural land prices to grow but with what rate?Rural land prices in Bulgaria used to grow slightly but steadily for 2000 - 2003. Since 2004 they surged.

In countries with developed agriculture in the European Union for the period 1993 - 2003 prices have grown by about 80 per cent. But the average values of rural land in the EU countries exceed the prices in Bulgaria many times.

This clearly determines a trend of growth of the average prices of rural land in Bulgaria. In the same time, existing problems should be taken into consideration as well as relevant costs on transactions. In some cases the expenses for rural land consolidation could exceed 30 per cent of its price.

Given the initial phase of rural land market development I expect the growth to be within 20-35 per cent on an annual basis.


What are the perspectives for the sector in the different regions of the country?
There are huge differences between buying rural land in Southern and in Northern Bulgaria. For example, the average area of the purchased lot in the northern parts of the country can exceed by 70 per cent the average lot size in southern areas. The problem persists in the regions of southern Bulgaria despite the fact that the potential interest is always first directed there as a result of better climate, economic conditions and infrastructure in particular.



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