During the last few weeks...,

...Neil Lewis – CEO, Property Secrets has been travelling Europe in search of locations for his 200% club - Locations that have achieved, or are set to achieve, 200% capital growth over a five year time period.

The final port of call for Neil was Sofia, which has proved to be a good contender for the 200% club. The city shows definite signs it is emerging but at a slightly slow pace compared to other more developed CEE countries.

Neil comments: “Sofia is a large sprawling city with very substantial green / park areas and beautiful mountains which start to rise just 5km to the south.”

“In addition, there are large ‘gaps’ in the city – these are areas that are not converted into parks or official green areas – nor is there any building or any usage made of the land.”

“This means that are large geographical city like Sofia will develop the ‘gaps’ first and the centre later.”

“Property development of Sofia is not starting in the centre and working out – but the other way round!”

City centre and downtown Sofia still remain quite poor areas. The downtown pavements haven’t been fixed and those that aren’t covered in cars are dangerous to walk on.

Large numbers of downtown houses are literally falling apart – with roofs unfixed, windows not fitting and people living in some rotten conditions.

The street markets are bustling with people, none in designer clothes or sunglasses – and hardly anyone uses a mobile phone.

“It felt like Petty Coat Lane in London about 30 years ago!” adds Neil.

This sporadic development pattern will mean that cheap immigrant and poor areas will remain in central locations and next to the main government buildings for some time – and that the well healed Sofia population will simply not use the centre very much.

At the same time the new malls and shopping centres are cropping up in the city fringes and supermarkets and shopping districts extending southward to the mountains.

Essentially, the shopping is going south and along the major infrastructure routes capturing the real opportunity in Sofia.

When looking at areas that are going to develop first and fast, we need to look at those with the best roads and public transport.

At the moment, a lot of the developments are focussed on the managerial middle class and they like to use their cars. So, road transport – ie fast access to a major boulevard – preferable the fastest boulevard – is highly desirable.

At the same time, the city is extending its metro – which currently runs from the North West suburb of Lyulin and reaches the centre but will shortly be extended across the city to the east.

Given that the Lyulin neighbourhood will be less car based and more dependent on public transport this is a key development area. It is also an area of 'middle class' panel blocks and so car usage will be lower.

Mean time, to the south of Sofia, and beyond the one-lane ring road, the mountains rise (which are visible from the city centre) and here the villas of the super-rich are being built.

There actually already are old villages in this area – and very expensive villas too (allegedly one sold for 3m Euros recently) so this will naturally draw the newly wealthy in this direction. These will become the urban villages of Sofia - like Hamstead in London.

Lastly, the district immediately south of the centre – Lozenets – is the location of the US embassy and is probably the prime central district of Sofia.

So, to put this together, the city is developing middle and upper middle class units to the south and also adding blocks in a fairly random spread in the outskirts.

Neil adds: “The killer factor for any development will be infrastructure – roads for the well off but metro and trolley bus too.”

“Hence, Sofia will develop from the outside in.”

Unlike other cities mentioned in the 200% club, Sofia still feels like it is tight with the spending and is not going mad to generate growth.

Instead Sofia has built a unique position as being the only government in CEE with surplus.

This means that currency is absolutely fixed to the Euro and the fix is secure because of the cautious approach of the Bulgarian government. Also, Local Bulgarians have been slower to take on credit given that their government has been slow to spend and they themselves would have experienced hyper inflation just 10 years ago.

The other effect of hyper inflation is to encourage investment in bricks and mortar – as these don’t disappear in value in the same way that cash does when inflation gets out of control.

However, there are now over 30 banks in Bulgaria – partly courtesy of the foreign holiday home buyer market on the coast and in the mountains – which is clearly turning its focus on the local home buyer market.”

Neil concludes: “This is good news for property investors.”

“It means that there is still huge pent up demand for property but that the property market probably lags that of other CEE investment locations, such as Bucharest by 1 to 2 years whilst offering a very stable potential growth path.”

“Sofia still has a feeling of austerity about it, which it is shaking off slowly (although faster in the rapidly developing districts in the south of the city).”

“And, for the first time, there is a general loosening of the purse strings and real signs of a willingness to take on debt among the local people.”

“This makes it an excellent candidate for the 200% club - but this might be achieved over 7 years but at least it will be almost without any currency risk!”

Bulgaria has had some bad press to date, as there has been excessive investment in the coastal areas resulting in an oversupply of property and no exit strategies in place.

Property Secrets strategy is to stick to with city locations for investment purposes and recommend this for Bulgaria.

Property Secrets feel that now is a great time to invest in Sofia and will be launching their first investment opportunity there in September, as they expect to see strong fundamentals and good levels of capital growth achieved in the next few years.