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Bulgaria Launches Eastern Europe's First Real Estate Investment Trusts

by Phillip Morton, Investors Offshore.com

03 November 2005


Bulgaria's nascent real estate market has moved beyond the current boom in holiday home construction by foreign investors as the country becomes the first in Eastern Europe to launch tax-efficient real estate investment trusts (Reits), the Financial Times has reported.

Already well established in many developed markets such as the United States and France, reits, which can be listed on stock exchanges, are not required to pay corporate tax as long as most of their income is passed on to shareholders in the form of dividends, which are taxable.

With its Black Sea coast and ski resorts, Bulgaria has become an increasingly popular choice for the purchase of second homes, particularly for UK investors priced out of the Spanish market.

By creating a framework for these vehicles, the Bulgarian government is hoping to broaden the scope of the property market, increase liquidity and transparency, and encourage investors to have their assets professionally managed.

The 10 funds currently listed on the Sofia stock exchange have a combined market capitalisation of around Lev100 million (US$61.6 million), equivalent to about 1 per cent of the bourse total. Another 6 Reits are also preparing to list on the exchange, according to its executive director, George Draychev.

"Reits are a bridge between the capital market and the booming real estate market. It's a narrow one for the time being but this is just the start of the process," Mr Draychev was quoted as observing by the FT.

The paper reported that the two largest funds, Prime Property and Bulgaria Reit, which both have net asset values of about Lev20 million, have already attracted strategic investors from abroad, including Austria's Immofinanz, Estonia's Hansa Bank and Danski Bank of Denmark.

The bulk of funds allocated for investment by Bulgaria's Reits are expected to flow into coastal and ski resort developments.


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