EU Accession and the Property Markets in Romania and Bulgaria

On the first of January 2007 Bulgaria and Romania joined the European Union; their membership has finally brought to an end the years of speculation about whether or not the nations meet the strict criteria for entry.  So what effect will EU accession have on the property markets in Romania and Bulgaria?

In this article we review the property markets in both countries prior to EU accession and examine what the future likely holds for the real estate economies in these, the two newest EU member states.

How Has EU Accession Changed the Property Markets in Romania and Bulgaria?

Both Romania and Bulgaria’s property markets fared very well in the lead up to EU accession as many investors believed they could cash in on the sort of price increases experienced in the real estate sectors of earlier entrants such as the Czech Republic and Hungary. 

In most recent months this active investor interest was fuelled by media hype and, especially in Bulgaria, met by keen property development activity.

The eagerness of overseas buyers to buy up property stock actually kick started active residential property markets in both nations prior to EU entry, where previously there was no active market to be generated purely off the back of limited local interest. 

Whether the creation of an active real estate marketplace based purely on international speculation will bode well for the long term economic prospects of either nation remains to be seen, and certainly depends a great deal on Romania and Bulgaria attracting both tourism and sustainable foreign direct investment in complimentary sectors.

An additional factor to consider relating to EU accession and real estate in Bulgaria and Romania is the legislation and laws associated with buying, selling and owning property…both countries have had to refine property law and make amendments to legislation to fall in line with property laws commonly accepted throughout the rest of the EU. 

For overseas buyers this is good news; over time the property buying processes in each country have improved and there are long term plans for the reduction of restrictions and bureaucracy that foreign buyers encounter in both Romania and Bulgaria.  On-going improvements are required to the mortgage market even in Bulgaria where it has already developed well.

How Will Property Prices Now Develop?

In certain areas of Bulgaria property prices have actually peaked.  In the most over developed parts of the coast mid-range property prices have remained stagnant for some time and until some quality stock is brought to the market this will remain the case…over development has ruined parts of Bulgaria and unless people are buying ‘site unseen’ there will be few to fuel a saturated market.  Particularly hard hit are Sunny Beach, and in the mountains Bansko is another resort in danger of over-development and reduced tourism appeal (and it is tourism appeal fuelling property investor interest for the large part).

In other parts of Bulgaria there is still room for property price growth – in Sofia for example demand for property is set to increase as long as Bulgaria maintains its determination to attract horizontal foreign direct investment into various employment sectors. 

In Romania property prices have got a long period of growth ahead, but an investor seeking speculative short term returns in either market is approaching the property investment potential in both countries from the wrong angle in our opinion.

As is always the case ‘location’ is key to the viability of a property investment – whether an investor is seeking decent rental yields or simple capital growth.  You cannot simply get on a plane, fly to either nation and buy up the first cheap off plan apartment you come across.  You need to know who you will be marketing a given property to and you need to know what they will desire.  Buy decent stock in popular locations in either nation and you will make money over the long term.

If you think any emerging market is a speculator’s heaven then look at the disaster that is Hungary at the moment - and in particular Budapest - and think again!  While you can get decent and most certainly attractively located property in Hungary that is rentable and will most certainly appreciate in value over the long term, you cannot buy today and flip tomorrow and make yourself an income.  Factors that have flawed the property investment potential in Hungary for the short term could so easily do the same in Bulgaria or Romania.

Are Bulgaria and Romania Still Interesting For Property Investment?

So many development companies have committed to both countries and such is the media promotion of investing in property in Bulgaria and Romania that both will remain of interest mainly to lesser experienced investment property buyers.  It is apparently a well known fact that both countries offer cheap property and easy accessibility as well as massive tourism potential, and so an investor who bases his due diligence on what others are saying will flock to Bulgaria and Romania for at least the short term.

Solid property investment portfolios can certainly be created in both countries - but investors have to be realistic about the tourism appeal of the location they are considering, and also look to the market they will be targeting their properties to for returns and buy property stock carefully and accordingly.

Personally it is our belief at Amberlamb that there are many more exciting markets around the world offering more attractive stock, better tourism potential, more impressive short term gains and equally good long term appeal – but yes, Bulgaria and Romania will remain firmly in many buyers’ sights for some time to come.

How Will Demand for Property Develop Now Romania and Bulgaria are in the EU?

Bulgaria in particular saw the most significant surge in overseas investment interest in its residential property market prior to EU entry.  As stated, early investors and developers entered Bulgaria prior to EU entry as they wanted to cash in on potential returns that they had witnessed being derived from the likes of the Czech Republic when it joined the EU.  Going forward, only those seeking a second home or who lacked confidence to commit to the market before EU entry was a given will push demand strongly.

Romania is a slightly different story.  It is lagging behind Bulgaria because it has had less spent on infrastructure improvement, it is considered a less popular holiday location, there are more tales about corruption and buyer’s being ripped off in Romania than in Bulgaria and all in all its great and undeniable appeal has not been so widely promoted.  There is room for an expansion of demand in Romania but unless the nation and developers targeting Romania begin a campaign of positive promotion and the government works harder to make the buying process safer and more attractive, active interest could remain subdued for the time being.

How Long Before Bulgaria and Romania Improve and Mature and Are Considered Established Markets Rather Than Emerging Markets?

Both improvements in infrastructure and improvements in the safety of buying, owning and investing in property in Romania and Bulgaria will now improve thanks to EU accession, and it is in these particular areas that accession will actually benefit the property investor most.  With EU entry comes significant investment…and also a requirement for the nation’s governments to be answerable for what the investment is spent on. 

Additionally both countries have been given set periods in which to comply with laws and standards adhered to by the rest of the EU regarding property laws.  It is realistic to expect infrastructure improvements to be significant and evident in Bulgaria and Romania in the short to medium term and for both markets to be considered ‘mature’ – as in ‘offering a safe buying environment’ - within the next 10 years.

Special Reports: Property News for Bulgaria

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