Buying a holiday home or a buy-to-let property in Eastern Europe can be a lucrative investment, finds Carol Davis – as long as you buy with care

An Article in Mortgage Magazine november 2004

Buying a £35,000 property in a beautiful Bulgarian spa town is probably the best thing that company director Robert Jenkin ever did. The spacious house has four bedrooms, two bathrooms and two kitchens, and is close to lush, dense forest. And an hour’s massage in one of the spas costs just £10.

As director of London-based property company Bulgarian Dreams, Jenkin has come to know the country well ever since he met and married his Bulgarian wife Maria a few years ago. “You hear very mixed reports about Bulgaria, and to be honest, the worst bit is close to the airport with its huge concrete housing blocks. There is also evident poverty, although people aren’t destitute,“ he says.

“But so much of the country is very beautiful. There are only eight and half million people, much of the country is covered in forest and you can walk for hours. There are many festivals, and everything is so cheap – a family of four can eat out for under £6, so you can dine out every night,” says Jenkin.

Jenkin set up his company to help British investors buy properties in Bulgaria, gain a wonderful holiday home and a steady rental income. And as stories of the difficulties of Bulgarian law circulate, Jenkin admits that he did do it the hard way: “Buying an older property presents more difficulties, but ownership rules are very well defined in Bulgaria – unlike in Croatia, where people might have been displaced and come back to claim a property.”

Jenkin used a Bulgarian notary, and says that notaries and interpreters are easy to find through the Bulgarian embassy in London – and for investors who do not want to fly out to be present when the property is signed over, a solicitor can be given power of attorney. And when the company sells new and off-plan properties on the beautiful Black Sea coast, the process is made much simpler, he adds.

Many British investors buy these new properties, says Jenkins, and adds: “They are easier to maintain, well located, and have good rental potential. Additionally, apartments that are part of managed schemes are secure and well-maintained – even the rent is looked after for you, so it can be a totally ‘hands-off’ investment.”

Go East
So why should British homebuyers be interested in Bulgaria? As house prices in France and Spain continue to soar, and Eastern Bloc countries join the European Union, former Communist Bloc countries have seen huge property price rises.

“There has been a lot of EU and company investment, and these countries are having to become more western fast,” says Simon Hill, chief executive at property development and investment company Letterstone. “Yet prices in Prague are a third of those in Paris, and investors are just realising that Croatia has a beautiful coastline.”

While prices are rising fast, observers say there are more rises to come. “The market in Bulgaria is about three years behind the first-wave countries such as the Czech Republic and Hungary, and look set to go the same way as these markets,” says Jenkins. “Prices are already two to three times what they were a few years ago, and this will continue to rise in the run-up to EU membership.”

Take advice
Bulgaria is set to join the EU in 2007, and mortgage specialists Conti Financial Services are among those who have just launched a Bulgarian mortgage scheme. Yet Bulgarian law can be complicated, says Conti senior partner Simon Conn: non-Bulgarians cannot own land in their own name, for instance, so outsiders need to do so through a company. Working with specialists makes sense, recommed Conn. “We can offer the assistance of specialists in Bulgaria who can help our clients and who have taken time to choose the right working partners in the country.” But, you need to do your homework first, insists Conn.

For buying abroad is fraught with problems, he argues, especially in Croatia, where “properties are handed down through members of the family who simply sign a piece of paper between each other, and the real owner of the property may have been dead for hundreds of years. People here rush to pay cash, and then may have to face a shepherd claiming to be the true owner.” Taking proper advice is essential, he urges.

Others agree. At City Trading Post, which helps investors buy a stake in Eastern European property, director Paul Hutton recounts stories of ransom strips, where property owners have been held to ransom over access by owners of neighbouring land. “You need to do your due diligence, but many investors believe it’s worth it as property prices have increased enormously across the entire Eastern Bloc.”

So how does it work? Conti’s Bulgarian mortgage, funded by Piraeus Bank and created by Bulgarian Dreams, is offered at a minimum of ˆ40,000. The euro-only loan is available for up to a 17-year term and is available to borrowers up to the age of 70 at a rate of around 7.5 per cent. The loan is not particularly competitive, but tied to the EURIBOR (the European equivalent of the LIBOR – the rate at which banks lend money to each other); projections suggest the rate will fall to 6.5 per cent, driven by convergence with the eurozone.

Conn points out that Poland’s new EU membership status gave the country a massive boost, which means that prices are set to rise. Variable rates on repayment-only mortgages are now as low as 3.2 per cent, says Conn.

“Lenders are naturally concerned about the legal issues and rights of title,” adds John Crabtree, MD at Blevins Franks Mortgage Services, “so you might find you cannot borrow as much as you want – in some cases, you can only secure 50 per cent of the value.”

As Eastern European countries become more accessible, they are increasingly attractive to Britons wanting to buy abroad, say experts. Prices have soared in Hungary and the Czech Republic, and British investors are now looking as far afield as Slovakia and Russia, where prices are also catching up fast. Buying in the Eastern Bloc can be extremely profitable, say experts, if you take expert advice and see these properties as a long-term investment.