Even though yields have decreased in recent years, Bulgaria's property sector was still a sound investment, fetching satisfactory returns at low risk, the chief executive of Bulgaria's biggest bank, UniCredit Bulbank, Levon Hampartzoumian told news conference.

It was also unlikely to suffer the repercussions of global credit crunch, because business climate and economy models in the country followed a different pattern. After the initial bloom of real estate, price growth was expected to slow down to 15-20 per cent year annually, compared to 34 per cent rise last year, which showed a maturing market. There was no risk of the real estate sector suffering a sudden collapse and any talk of a real estate bubble were just insinuations, Hampartzoumian said.

The time of short-run strategies, oriented at striking fast and exorbitant profits through a purchase and subsequent sale of real estate units, had run itself out and the market was expected to shift towards long-term strategies, while banks and financial institutions would start assessing the long-run risk when considering project finance.

Location, good communication, construction quality, attractiveness to consumers, achieved occupancy rate, entrepreneur's investment experience, were among the key factors, subject to bank scrutiny when bank-rolling a property development.

"More than one third of the country's foreign direct investment last year went into the property sector, which means that there is an ongoing and solid interest in the field. UniCredit will continue to support real estate projects, but we are not likely to finance a seaside hotel," Hampartzoumian said, calling for common sense on the part of all industry participants. Real estate would continue developing at an even pace, restricted by increased price of lending, more conservative approach and circumspection on buyers' part and the fact that prices on Bulgarian market have already reached high levels, commensurate with the ones in other EU countries.

Mortgage lending in 2007 grew by 67 per cent, reaching 2.2 billion leva, Andrea Casini, Chief Operating Officer of UniCredit Bulbank, said. Some 60 per cent of the total number of construction permits issued last year were for residential buildings and that spoke well for a rapid growth in residential sector. It would record a more moderate performance in the forthcoming years, but as a whole it would retain its upward trend, which would be propelled by a number of factors, such as migration processes, lending expansion, expected 15 to 20 per cent increase of household income, rising home purchases by Bulgarians living abroad.

A considerable amount of resources, generated on the stock exchange or through land sale will be redirected to safer investment s in residential schemes. Housing purchase could be the best safeguard against inflation, which peaked at 12.6 per cent in 2007.

Holiday property sector was in a less favourable situation, due to British and Irish investors' withdrawal, under-developed secondary market and over-supply. Russian and Scandinavian buyers were unlikely to absorb the stock of low-quality resort establishments, which flooded the market and entrepreneurs should be very cautious before venturing into holiday market incentives, UniCredit said.

Martin Gikov, director of the property management division in UniCredit Bulbank, offered an extensive report on property market environment and trends in different sectors. Office developments would be in keen and stable demand, while the retail segment in big cities like Sofia, Plovdiv, Varna, Bourgas, Veliko Turnovo and Stara Zagora was flourishing - there are projects and intentions for large establishments.

Smaller cities like Pleven, Haskovo, Dobrich, Slven, Montana, Shoumen also attract investor interest. The minimum prerequisite for the success of a mall development is a catchment area of at least 140 000 residents.

There were five large towns and 40 smaller ones, which had the potential for setting up a retail scheme, according to UniCredit analysis. The commercial sector would continue to grow until 2010, when most of the currently erected projects were expected to come into fruition. The successful ones would be those in regions with robust economic development, high household purchasing power, good location, sufficient parking space, savvy management and a good tenants' selection.

After careful consideration and assessment of future supply and perspectives, some of the entrepreneurs were likely to redirect their interest from office and retail sector to logistics. The latter is less developed and offering higher yields, because it was associated with higher risk and larger investments. Most of the existing and planned industrial establishments were owner-occupied or build-to-suit ones.

Logistic market had a good expansion potential in view of the country's EU membership and planned infrastructure development. Five transport corridors, crossing Bulgaria, would be financed through EU funds which will benefit a number of Bulgarian cities.Sofia, Varna, Plovdiv, Bourgas, Pleven, Rousse and Vidin are the locations, which expect the most dynamic development and growth in this direction.

The following table represents the current average yields in different property sectors in Bulgaria and Romania.

Annual ROI (Returns on Investment) in per cent

Source: UniCredit