Coming out of the cold

If one country typifies the explosion of interest in eastern Europe it must be Bulgaria - but is it surrounded by hype or covered in genuine opportunity? Prices are startlingly cheap, especially for new homes, even if some of the architecture is reminiscent of 1970s Britain.

If one country typifies the explosion of interest in eastern Europe it must be Bulgaria - but is it surrounded by hype or covered in genuine opportunity? Prices are startlingly cheap, especially for new homes, even if some of the architecture is reminiscent of 1970s Britain.

A two-bedroom new house 21 kilometres from Varna on the northern Bulgarian coast of the Black Sea costs around £70,000 (Address Real Estate, 00 359 5260 5805); a three-bedroom maisonette only 300 metres from the sea in the same region is yours for £95,000 (Express Invest, 00 359 5265 0100).

Even cheaper properties can be found in high-density resorts being built close to the coast. Typical of these is Marina View Fort Beach on the edge of the Black Sea and consisting of 446 apartments with the cheapest starting at £40,000 (MacAnthony Realty International, 0808-178 5191).

Relatively low prices such as these, along with estate agents' talk of 40 per cent rises per year, have triggered worries of a price bubble. But analysts suggest most buyers just want a low-cost holiday home or a long-term investment and that, so far at least, the high volume of ongoing building has not undermined price gains made by early buyers.

"In proportion to new sales there are relatively few re-sales, suggesting the majority of buyers keep them for a length of time. There's evidence of over-construction in certain areas but to date there's been little impact on prices or demand," says Chris Northam of www.mybulgaria.info, an investment advice and property sales website that gets 2,500 hits a day from Britons.

But although investors are likely to get good appreciation there is only limited rental income from long-term or holiday lets. "There's little evidence it has a strong rental market. For most buyers, rental possibilities have been secondary," he says.

Qasir Ali of Bulgaria Revealed ( www.bulgariarevealed.com; 0845-054 8697), a UK-based property sales service, says value is still a factor: "A lot of our investors are people who have bought in western europe where prices have reached a peak and are now looking at the next best emerging market."

For investors, there is a clear appeal in the Bulgarian capital, Sofia. When the nation accedes to the European Union in 2007 there is much confidence that the capital will vie with the likes of Prague and Berlin as a base for the central European offices of many multi-nationals. The result would almost certainly be price rises in apartments and a booming corporate rental market. Meanwhile, the city is also surprisingly close to many long-standing and now newly refurbished and increasingly popular ski resorts.

But although market prospects remain strong, experts advise buyers to remember that this is still an emerging market. There are many eccentricities and many unregulated agents and builders wanting to cash in.

Stuart Law of Assetz International, a property investment consultancy, says buying a home can be complex because it involves setting up a Bulgarian company to meet the country's stringent rules on foreign property ownership: "The final price you end up paying is not even certain, as tax is estimated on the purchase deeds."

"Bear in mind that inflation in Bulgaria was 578 per cent in 1997 and the currency exchange rate with sterling is extremely volatile and hence purchase is risky," he says.

Independent property lawyers say buying in Bulgaria - or elsewhere in eastern Europe - is clearly a good investment but needs to be done with a level head.

Peter Esders of John Howell & Co says buyers must get independent legal, financial and surveying, even if all three are laid on. "There isn't necessarily anything wrong with having advisers on hand because the agent is providing a service to buyers, but professionally there's a conflict of interest. The lawyer's going to think if something's wrong he'll skirt around it, because otherwise the agent or developer won't send him any more work," warns Esders.

"Choose an established developer, who is able to provide references for previous projects. While some of the smaller developers are solid companies it is likely that some may not be, so always chose your suppliers carefully," advises Chris Northam.

Yet despite the uncertainties, Bulgaria increases in popularity. The country's economics ministry says 248,792 Britons visited in 2004; its London embassy says the number of visas issued to Britons in 2004 was double that of 2003; just one estate agency, BulgarianProperties.com, claims to have sold an average of 120 homes to Britons every month since late 2003.

Bulgaria's star is rising. But if you're going to buy, be quick - before the prices rise too.

FACT FILE: BULGARIAN HOTSPOTS

Burgas

The largest port on the southern coast of the Black Sea has 9,500 hectares of protected wetlands and a maritime park - but unexciting beaches. One of the cheapest parts of the country.

Varna

On the Black Sea coast with modern resorts nearby and an international airport. Enjoyed 23 per cent house price inflation in 2003/4.

Sofia

Unlike the coastal resorts there are year-round flights from UK to the capital, which is likely to benefit most from EU accession.

How to buy

*Foreigners can buy buildings as an individual but not land, so most purchases involve the creation of a company - many estate agents will do this for you

*Estate agents may charge fees for viewings. Expect to pay £1,000 for legal fees plus a municipal tax on property sales of about 2 per cent of purchase price

*Bizarrely, the actual price paid for a property may not be the price appearing on the title deeds - the deeds will carry a "tax estimation" price well below the purchase price to lessen the amount of purchase tax paid. This is a custom known even to the Bulgarian inland revenue

*Always get independent legal, financial and surveyor advice before considering purchasing. A comprehensive list of experienced lawyers is at www.bulgarianembassy.org.uk