News | Wednesday, 27 May 2009

Maltese financiers to invest in Bulgarian property

David Darmanin

In 2006, Dhalia Investments set their eyes on a stretch of land facing an 18-hole golf course beneath the Pirin Mountains in southwest Bulgaria. After commissioning a world-renowned project management firm to develop the plot, a luxury apartment complex comprising 150 units, a spa, a restaurant and other facilities now nears completion.
Meanwhile, Dhalia owner Chris Grech forms a new company representing the ownership of the complex and brings on board two independent financial and management moguls as co-directors. In the next months, 150 new shareholders are expected to invest into this new company so that they can each enjoy a quota to spend their holidays at the complex; acquire dividends through short-lets to third parties; and finally reap the full investment benefit once the complex is sold off in 2017.

Choosing Bulgaria
When Dhalia had decided to venture into overseas investments four years ago, Chris Grech and Dhalia Group Executive Chairman Franco Valletta had toured Eastern Europe seeking new prospects of investment. Neither Albania, nor any other Balkan country including Croatia, Czech Republic and Slovenia fit the bill. Bulgaria on the other hand, was what they seemed to be after.
“Bulgaria is the smallest of all Eastern European countries – and this has clear advantages. When we were looking around in 2006, Bulgaria’s accession to the EU was just round the corner and the growing rate of tourism was very promising,” Grech explains.
In 2006, tourism in Bulgaria was increasing by 20 per cent each year – a significantly higher rate than that of Croatia, Slovenia and Romania.
“The Bulgarian workforce is also very highly educated,” Grech said, although he later remarked that the country has “a reputation for work that at times looks shoddy”. For this reason, Dhalia commissioned none other but Vector as their contractors – the UK group behind the construction of Heathrow Terminal 5 among others.
Grech chose Bulgaria also because “the destination is accessible by direct flight and there is a strong rapport between Malta and Bulgaria.”
But most of all, once his primary intention was to develop apartments for holiday rental, the village of Bansko proved ideal because it is an all year round destination.
Bansko is somehow perceived by locals as the St Moritz of the Balkans – albeit drastically cheaper and significantly busier in summer. Because it is set amid the Pirin Mountains, in winter, Bansko is packed with skiing tourists - most of whom German. The nearby mountains comprise 11 marked ski runs and four ski tracks, with a total ski area extending 65km in length.
But as summer draws nearer and the skiing season ends, the area keeps buzzing.
The Maltese development faces the Razlog 18-hole golf course designed by Ian Woosnam. Besides, many other summer activities and excursions are popular in the area. Such include whitewater rafting, horse riding, mountain biking, trekking, rambling, game hunting and quad biking.
Before picking Bansko however, Grech and Valletta looked into different alternative spots around Bulgaria – both “within the inner city as well as out of town.” But they gladly settled for Bansko to construct what they later dubbed “The Balkan Jewel”.

The Balkan Jewel
“We did not just want to build a residential resort but also a tourist complex – in a similar way an apart-hotel is designed,” Grech said. “The Balkan Jewel will in fact offer a host of in-house services and activities – such as a spa, a restaurant as well as transport and booking services for excursions and amenities in the area.”
According to Dhalia’s contract with Colliers, 120 of the 150 apartments in the Balkan Jewel must be allocated for rental purposes.
Initially, Dhalia intended selling 20 of the apartments to Maltese investors for private use, but thanks to an overwhelming response in Malta, they ended up selling 70 units. The new owners of 40 of the units sold agreed to the condition of handing their properties to Colliers for third party lease.
The ownership of the remaining 80 apartments will now fall under the wing of the Bulgaria-registered company Balkan Jewel EOED, whose board is composed of Chris Grech himself along with another two independent directors – John Cassar White, who needs no introduction; and former banker and financial services specialist Tony Camilleri.
The three directors are now offering a prospective 150 new investors to purchase shares of €50,000 each into the company. In return, the shareholders will be given a quota to use apartments for their own holiday needs, the possibility of earning dividends acquired by the Colliers operation and finally, an expected profit out of the sale of the apartments earmarked for 2017.
“Investors are effectively purchasing shares into the company that owns the property already,” said Dhalia Group CFO Nicky Camilleri. Essentially, this means that although investors will be putting their money into property – they will not have to fork out additional VAT and stamp duty expenses seeing that the property itself is a company asset already.
Camilleri stressed that “investors will be benefiting from property ownership at very reduced rates.”
In fact, the property value represents a rate 15 per cent lower than that valued by an independent firm.

The Bulgarian economy
Bulgaria became a member of the EU in 2007. The World Bank classifies it as an “upper-middle-income economy”. Bulgaria has experienced rapid economic growth in recent years, and although the country continues to rank as the second-poorest member state of the EU, standards of living have clearly risen.
Due to high-profile allegations of corruption, the EU has partly frozen funds of about €450 million until Bulgarian authorities speed up reforms.
Bulgaria plans to join the euro zone by 2013-2014.
Bulgaria’s economy contracted dramatically after 1987 with the dissolution of the Council for Mutual Economic Assistance (COMECON), with which the Bulgarian economy had integrated closely. The standard-of-living fell by about 40 per cent, but it regained pre-1990 levels in June 2004. United Nations sanctions against Yugoslavia and Iraq took a heavy toll on the Bulgarian economy. The first signs of recovery emerged in 1994 when the GDP grew and inflation fell. During the government of Zhan Videnov’s cabinet in 1996, the economy collapsed due to lack of international economic support and an unstable banking system. Since 1997, the country has been on the path to recovery, with GDP growing at a 4–5 per cent rate, increasing FDI, macroeconomic stability and EU membership.
The former NMSII government elected in 2001 pledged to maintain the fundamental economic policy-objectives adopted by its predecessor in 1997, specifically: retaining the Currency Board, implementing sound financial policies, accelerating privatisation, and pursuing structural reforms. As of 2006 the GDP structure comprised: agriculture at 8.0 per cent; industry at 26.1 per cent; and services at 65.9 per cent.



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27 May 2009

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