By Elaine Moore
Published: March 24 2007 02:00 | Last updated: March 24 2007 02:00
Loraine Pinel, co-manager of Lewis Charles' Sofia Property fund, thinks that Bulgaria differs from other emerging countries because its currency is fixed to the euro and therefore presents less risk than currencies that are more prone to fluctuations. This could be attractive for investors who want to diversify into property but are put off by high prices in the UK and US. The fund works with developers on projects aimed at Bulgarian residents.
The Guernsey-registered closed-ended fund, can be invested in Sipps and was launched on Aim at the end of September 2005. The fund invests around 80 per cent of the €52m (£35.5m) it raised before launching. It registered with its shares for sale at 80p, and these are now worth 90.5p.
How would you describe your investment style?
We are very analytical. We try to avoid the hotspots unless there is a very good reason to go there. At the moment the Black Sea is a hotspot and that means prices could start to come under pressure there.
We are looking for areas that could be the potential new hotspots, whether that's because of tourism or comparatively low unemployment. The time frame for projects varies - some are two years, but for longer schemes we run in phases so that if there was trouble then we could stop building.
At the moment 40 per cent of the fund is invested in Sofia, but there are other areas in the country that we really like.
One is Veliko Tarnovo which has low unemployment and new business coming in all the time. The city used to be the old capital of Bulgaria and has a lot of Roman ruins which attracts tourists.
Since the fund started, property prices in Bulgaria have risen because there has been a land grab going on, but we don't necessarily need prices to go up because we are playing on developer margins. These have stayed intact so the fund should continue to do well. We are looking for returns to be above 40 per cent on each development.
What is your outlook for the sector?
There is an imbalance at the moment, where the old buildings are crumbling and people are starting to take out mortgages, but the new properties have not yet been built.
The building sector in Bulgaria is very buoyant but it cannot keep up with demand. People are coming into Sofia because unemployment there is around 3 per cent compared with 10 per cent in the rest of the country and these people are all looking for property.
The only area we don't like for property development in Bulgaria is the coast.
What has been your best investment decision?
One of the best areas we have invested in is Razlog, near Bansko. Bansko is a perfect example of a hot spot that we did not want to invest in. Instead we bought land 5km away in an attractive area we felt the market had missed. We bought 125,000sq m of land for around €21 per sq m. Land in Bansko has been selling anywhere between €350-650 per sq m.
Bansko is no longer giving out building permits and this is something we foresaw because so many people were buying there. This means that nearby areas, such as Razlog, will start to be worth more. We are having the land re-zoned, and after that we intend to start building luxury apartments there.
And your worst?
One of the problems in investing in this area is that things do not always go along as fast as we always think it will. We automatically assume that projects such as re-zoning land will take a year but they can take much longer, as is happening at the moment.
What is your current top tip?
One of the areas we like is Plovdiv, which we expect to provide returns above our target. It is one of the best tourist destinations in terms of archaeology, has relatively low unemployment levels and a very pleasant climate. It is near Sofia and not far from the ski resorts and the coast.
The Financial Times Limited 2007