Romania vs Bulgaria: a Market Comparison

Bulgaria has been promoted as the 'New Spain' in recent years. The promise of affordable property and a growing tourist industry has attracted a large number of UK investors. Recently, however, the fall in UK demand comes as a bitter blow to Bulgaria's property sector, which is "facing testing times", according to Homes Overseas Magazine.

The Bulgarian Situation

Bulgaria's appeal as an investment destination has stemmed from a combination of low-priced properties and its promotion as the 'next' tourist destination. However, this has left Bulgaria vulnerable to the problems that beset other destinations dependent on overseas holiday makers, namely changes in tourist trends and the prospect of over-development.

Over-development

Early investors have until now achieved decent ROIs on properties in places such as the ski resort Bansko and Sunny Beach on the Black Sea coast. However, investments now face diminishing returns as over-development becomes a reality. Such is the scramble to build new developments that laws designed to counter-act this activity are being regularly breached (Sofia News Agency).

Price Increases and Foreign Investors

Increases in property prices are maintained solely by the international tourist trade; local Bulgarians are in no position to step in and purchase the excess stock. What is disconcerting about this scenario is that there is always another, cheaper tourist resort being built around the corner (literally, if you consider construction in Turkey).

The Best Choice?

We do not wish to strike a note of alarm and investors with Bulgarian property in their portfolio should hopefully retrieve a return from their investment. However, we do believe that investors currently considering Bulgarian property should give the matter serious thought, especially with regards the exit strategy.

Romania's Prospects

Romania is a very different country to Bulgaria, not least in terms of population size: 21 million Romanians vs. 7 milllion Bulgarians. You may have noted that, in contrast to Bulgaria, Romania is not advertised extensively in property magazines. Such is the shortage of housing in Romania that developers simply cannot build enough to saturate the local market and will not be in a position to do so for at least another decade. This contrasts favourably with the Bulgarian situation where external demand is the driver of price increases.

Greater Foreign Direct Investment

A 2007 survey conducted by Ernst & Young found that not only is Romania the leading destination for FDI in South East Europe (capturing 40% of the region's FDI), it also commands the most positive perceptions about its future growth and prosperity. Factors that have made Romania, as opposed to Bulgaria, the destination of choice for relocating international companies include the larger market size and labour pool.

Romanian Tourist Resorts

Although Romania promotes itself more as a centre of commerce and industry than tourist destination, it does have a number of up and coming tourist resorts, including Constanta on the Black Sea Coast and the Prahova Valley in the Carpathians mountains (near Brasov). The difference is that these resorts cater for the country's burgeoning middle-class. It is for this reason that PIE offers property in e.g. Constanta, as local demand makes end-term purchasing and all-year-round rental returns a certainty.

Conclusion

Romania and Bulgaria share a similar geographical location and joined the E.U. simultaneously in January 2007. Beyond these points, it is odd that Romania and Bulgaria are very often lumped together in property discussions as they represent very different investment propositions. Bulgaria principally offers cheap real estate in tourist resorts, an attraction that is eroded by the very price increases demanded by the overseas investor. In contrast, Romania is a much larger country enjoying a period of intense industrial and commercial activity. Against a background of ever-increasing affluence, a desperate housing shortage in Romania drives demand for modern, stylish properties in both cities and resorts.