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Buy Land and Cash in on Profits

With shaky stock markets across the globe, more and more investors are looking to buy tracts of land with and without planning permission in emerging markets and in particular in Bulgaria, where agricultural land prices alone are twice as low as the rest of the Eastern bloc. Even more surprising given the economic situation, is the fact that agricultural land in the UK and USA has shown significant gains in recent months.
As holiday resorts and cities in Bulgaria see stabilization in demand from real estate buyers, an increasing number of private and institutional investors are turning their attention towards agricultural and regulated land.

 

Agricultural land has always been on the margins of the Bulgarian real estate market, overshadowed by the demand for property in the resorts and cities. As property prices stabilise investors are looking to expand and vary their investment portfolios to minimize their risk. Galina Mihaylova, Managing Director of flickr land Bulgaria has said that the increase in demand for agricultural land has come at the expense of buy-to-let ventures. “These plots will automatically be included within the city borders making the land pay for itself and generate profit for the owner at minimum risk and no additional cost.” At the moment, Bulgarian land must be bought through a limited liability company; however this law is set to change in 2010 enabling individuals to buy land and property in their own names without the need to set up a company. This change is expected to generate increases in demand and price.

Who is Buying?

Demand is coming from two main types of buyers.  The first category of investors are nationals who have emigrated and are looking to buy a plot now with the money they are earning abroad, the idea being that one day they will return to their homeland for good and build a permanent home there or if this does not happen, they have a strategic investment. Secondly, there is a growing number of large corporation who are looking to establish or increase their market share in up and coming markets like Bulgaria. These investors are hunting out strategic sites where they can build commercial, alternative energy or logistics operations.  

 

 

The Figures

Research into the Bulgarian real estate market by consultancy Sash Property Solutions showed that agricultural land prices have grown by 40% over the last three years. SPS assigns this growth to the fact that buying non-regulated land carries a lower degree of risk with fewer commitments for prospective buyers, who once the land is purchased can add it to their land banking portfolio without further ado. Bulgaria’s Agriculture and Food Ministry’s own independent research showed that in 2007, the average price per sq m of agricultural land was 120 Euros, which represented an annual increase of 19%. Around 125,000 deals for 1,153 billion sq m of land were conducted during 2007.  Svetla Buchvarova, the deputy Agriculture and Food Minister said that 8% of these deals included converting the land to regulation status and this in itself was a dramatic increase compared to the previous year. Dobrich and Blagoevgrad regions yield the highest prices for agricultural land with prices in excess of 200 Euros per 1000 sq m. Haskovo and Shumen have the cheapest land with prices around 90 Euros per 1000 sq m.

Location is the Key

Location is still playing a leading role in the choice of site, with many investors buying land and  undergoing the process of regulation, to enable them to sell for a good profit. One thing to bear in mind is that there is no guarantee that land will qualify for regulation immediately and buyers may have to bank the land for a longer time period than they expected. Land in the outskirts of Bulgaria’s larger cities is considered a sound investment bringing substantial profits; agricultural land on the outskirts of Bourgas, cost 9 Euros per sq m two years ago and with a change in status to regulated land now costs as much as 60 Euros per sq m. As Bulgaria develops, cities and towns will inevitably expand and land tracts on the edge of towns will be needed for housing, retail and commercial development. Ognyan Kalev, Executive Director of the real estate investment trust Agro Finance, maintains that demand is highest amongst large parcels of land rather than smaller plots of 1,000 sq m, which were previously popular with small investors looking to build a home. He maintains that Bulgaria is likely to continue to attract foreign investment for its land parcels over the next few years.