by Stanislava Ciurinskiene

Real estate gurus claim that Greece, Montenegro and Bulgaria vie for the same investors. Are the similarities only skin

A Greek, a Montenegrin and a Bulgarian real estate agent walk into a bar… It sounds like the beginning of yet another Balkan joke, but the scenario isn't very farfetched. The global credit crunch has affected the real estate sector all over the world and has forced many investors to explore less familiar markets. Recently, property companies have begun promoting Greece, Montenegro and Bulgaria as countries with holiday home markets unscathed by the world property crisis. Experts claim that since these three countries offer similar conditions in terms of price-quality ratio, safety level and investment returns, they compete for one and the same target group of investors. Is it really possible that these markets, which developed at such different times, vie for the same niche?


Out of the three “competing” countries, Montenegro is considered the riskiest investment spot and not only because it is difficult to foretell the dynamics of such a young market. The country's current political and economic state has also scared large investors away from the Montenegro holiday home market. After the fall of Communism in 1989, most Eastern European countries struggled with money laundering, the grey economy and rapidly changing laws and regulations, and Montenegro is no exception.

However, external monitoring organisations repeatedly point out that in Montenegro drug money laundering is closely tied to the real estate sector. Last year's developments raised many questions about the sources of money that foreign companies invested in real estate properties in Montenegro.

Authorities in Podgorica have been planning to enforce strict control over the real estate business in the country, but so far an effective monitoring system has not materialised. The government's claims that it will “analyse and follow up all reports of dubious real estate transactions” are still mere promises. So far, Russia has dominated the local real estate market and now the government is seeking more investment from the West to reduce Montenegro's dependency on a single country.

All these problems do not change the fact that Montenegro has 250 km, or 155 miles, of pristine coastline, a striking natural landscape and not-yet-overdeveloped resorts. Although in most Eastern European countries the development of real estate markets took no less than 12 years, in Montenegro prices have tripled within a year. This, in turn, shortened the “buy for less, sell for more” phase and speculative deals are no longer an option. Since the country's independence in 2006, prices have increased as much as those in Bulgaria or Romania have over 10 years.

At the moment, going rates in these three countries are comparable. Small studio apartments in seaside resorts sell for 40,000-50,000 euros, while standard one-bedroom holiday homes of 80 sq m in higher class resorts such as Kotor average around 110,000 euros. For a villa located near the beach, prices may jump to 150,000 euros and a house of particularly fine quality may cost as much as 500,000 euros. Land prices in resorts vary from 50 to 2,000 euros per sq m.


Forget Zeno's tortoise – the real Greek paradox is that the tourism sector could not be better developed, yet the real estate market has so far failed to capitalise on its potential. In 2002, fewer than 3,000 foreigners bought holiday homes in the country. Six years later, the situation has not changed substantially – and not only because the purchasing procedure is very complicated, especially for non-EU citizens.

Market analysts point out that the government's failure to promote the country as an attractive real estate destination has contributed to sluggish sales, as have the particularities of the local property market. Until recently, available holiday homes in Greece were primarily old villas, not necessarily in great shape. Quality is particularly important in Greece – a critical seismic zone – and houses can only be sold with a valid earthquake resilience certificate. Unfortunately, the certificates are often more resilient than the buildings themselves.

After 2006, the government introduced a policy encouraging new projects and now a few thousand holiday complexes are under construction. However, this has caused ecological problems – which were serious enough before mass building began. Thankfully, the legal building density in the country is 10 percent of the overall size of the plot – in certain special cases up to 20 percent – which will save Greece from turning into the concrete wasteland some Bulgarian resorts have become. Prices are twice as high in Greece than in Bulgaria and Montenegro.

In 2006, the average price for a low to middle class holiday home in a large resort was about 2,400 euros per sq m. The price for the same type of property in Bulgaria would be 1,200 euros per sq m. While luxury properties in Greece start from 4,000 euros per sq m, in Bulgaria they do not exceed 2,200 euros per sq m. Greek holiday homes have good liquidity, making investment returns possible, but this is not the place for speculative “buy for less, sell for more” deals.


The holiday home market in Bulgaria has its drawbacks, too, mainly in terms of environment and quality. Until last year, many holiday villages were built in flagrant violation of laws and regulations for ecological preservation. On several occasions, investors purchased holiday homes in complexes built on protected territory. These complexes were later demolished and buyers lost their money – with no chance to recover it. In 2007, as a condition for the country's accession to the EU, the Bulgarian government enforced strict environmental protection measures.

Unfortunately, these came a little too late, especially for Black Sea resorts like Sunny Beach, Ravda and Golden Sands, which had already become sprawling concrete monsters. Worse yet, these behemoths were built quickly, often at the expense of quality. The real segmentation of the holiday home market is now based on two factors: quality and location. Bulgarian properties that successfully meet both criteria are not easy to find and may cost anything from 1,300 to 1,800 euros per sq m. Yet these prices are twice as low as in Greece and at least twice as safe an investment compared to Montenegro.

Yes, some Bulgarian summer resorts are overdeveloped and, yes, no matter what real estate agents say, the supply of holiday homes along the Black Sea coast still exceeds demand. That, however, will change in the next few years.

While Bulgarian Black Sea resorts may not be as popular as those in Greece, 7.1 million foreign tourists visited the Black Sea from April to November 2007, a jump from 3.5 million for the same period in 2004. Rapidly increasing rental demand has been attracting more and more foreign investors – both buyers and developers.

Promises of 20 percent annual investment returns from holiday homes are, of course, farfetched, but realistic seven to 10 percent yields are nevertheless tempting.

Although Greece, Bulgaria and Montenegro share superficial similarities, a closer look reveals that they offer very different opportunities. While Montenegro is a high-risk investment destination and Greece is a boutique market, Bulgaria combines a new market's opportunity for high investment returns with the safety of a traditional one.


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