By Theodor Troev
Financial Times

Bulgaria has become a favoured destination for international holiday home investors.

But is has much to do if it is to avoid damage to its environment through overenthusuatic construction.

Investors turned off by high prices and overdevelopment in much of the Mediterranean are turning to Bulgaria's Black Sea coast and unspoilt inland lakes and mountains.

In the first half of this year, foreign investment related to property was ?216m, compared with ?98m for the whole of 2003.

Several investment funds are focusing on Bulgaria, where real estate prices rose more than 20 per cent last year and are expected to increase by an annual average of 10 to 15 per cent for the next few years.

"We want to increase our presence in Bulgaria with the expectation of real estate prices rising to meet those in current EU member countries," says James Hughes, who left his job as an equity derivatives trader at an investment bank to set up Euro Property Prospects.

The bulk of EPP's first sub-fund has been invested in Bulgaria and Poland, with smaller slices allocated to Slovenia and Spain.

Another sub-fund, focused only on Bulgaria and Poland, is planned for early 2005.

Andrew Piper, a former management consultant, who scours Europe on behalf of the fund, looking for properties to acquire, is particularly interested in Sofia, the Black Sea coast, and mountain resorts.

"The Black Sea coast is a bit like the Costa del Sol of 20 years ago, Mr Piper says. "Many developments are going up in and around the popular seaside resort of Sunny Beach.

"Consequently, prices are appreciating fast."

Developments vary from apartment blocks and hotels to modern luxury complexes with swimming pools, solariums, restaurants and a host of other facilities, he says.

Some property experts worry about the lack of clear regulations that would ensure development does not ruin the coast's qualities.

In the past two years, parts of the Bulgarian coast have become almost unrecognisable, locals say. One example is where Sunny Beach meets neighbouring Sveti Vlas, a village almost overrun by new building.

Another is Nessebar, an ancient port designated as a Unesco world heritage site which has about 40 medieval churches.

The proliferation of souvenir shops and other tourist traps are spoiling its traditional character.

Elizabet Cheshmedjieva of the Varna-based Kirov estate agency says many clients compare Bulgaria with Spain and warn: "Your country is very beautiful, but don't commercialise everything so much."

Legislation currently under discussion on conserving Bulgaria's coastline should - it is hoped - ensure that there is a better balance between construction and the natural and historical environment.

Bulgaria has much to learn from Spain about other pitfalls.

These include the difficulties foreigners have integrating with the local community and the need for tourism officials to work closely with developers.

Peter Lane, a London-based consultant who has promoted property in Spain for several years, is using his experience to help a new company, British Bulgarian Links, promote Bulgarian real estate in the UK.

He says: "The most important lessons for Bulgaria to learn include introducing very strict planning controls to ensure that supply never outstrips demand, and that the build-quality of all structures is maintained carefully - ideally with municipalities being able to force developers to comply."

He adds: "This must also include careful controls that safeguard the eco-environment."

Mr Lane believes that - apart from the Black Sea, the ski resort areas and the capital Sofia - most of the country has not been discovered by property hunters.

His view is echoed by Svetlozar Jeliazkov of BG-properties, a Varna-based estate agency that promotes properties with character, rather than run-of-the-mill holiday apartments.

"Bulgaria is an exceptionally diverse land, with a rich mixture of landscapes such as old villages and towns with fascinating architecture," says Mr Jeliazkov.

He adds: "We follow the principle of offering properties with character in good locations, and in some cases our clients have doubled the value of their property in a year."

The prospect of Europe's low-cost airlines expanding their network further east is likely to push up property values.

At least one low-cost airline is said to be considering opening routes to Varna and Burgas, the two main cities on Bulgaria's
Black Sea coast.