Boyko Gerginov, Partner
Despite the pandemic, the real estate investment sector in Bulgaria remains dynamic. While the interest in suburban housing and second homes has certainly risen as a reaction to the restrictions introduced in relation to the pandemic, urban real estate investments remain the focus of larger investors as demand continues to rise.
One recent tendency we have been observing is the transformation of former industrial sites into modern neighbourhoods. Most western European cities are familiar with this trend, as continuous urban growth seems to have “moved” former industrial areas from the outskirts to city centres. The situation in Bulgaria is similar, yet intensified by the unusually high number of obsolete communist-era industrial sites.
In terms of urban planning, former industrial areas within Bulgarian cities often fall today in the so-called “mixed multifunctional zones”. Such zones are particularly interesting for investors as they offer a much greater degree of flexibility compared to residential areas in terms of project planning and building restrictions.
From a legal perspective, investment projects to be developed on former industrial sites require particular attention. There are a number of pitfalls to acquiring such sites due to the complicated history of the land itself. Related real estate transactions would have to place a particular focus on the ownership transfer chain for the property, as it is likely to involve complex privatization deals and possible restitution claims from previous owners of the land. Unresolved issues in this regard have been an obstacle to several investment projects in recent years, resulting in lengthy court proceedings to establish the actual owner. Another important area to analyse is the environmental status of the land and the related regulatory requirements, considering the industrial background of the properties.
Although former industrial sites, due to their former function, are often well connected to the city’s infrastructure, the street infrastructure is something that would require a particularly careful legal assessment, since recent amendments to the Bulgarian Spatial Development Act have introduced certain additional infrastructure related requirements, without which a construction permit cannot be obtained. Meeting these new requirements is often dependent on the cooperation of the respective municipality and/or other real estate owners in the area. The lack of such cooperation could potentially lead to the investment project being blocked. The new provisions have already been challenged before the constitutional court on the grounds that they allegedly severely infringe the right to property. However, the case is still pending. In the meantime, an in-depth analysis of the surrounding area prior to acquiring the land remains crucial for the viability of the investment.
Subject to certain legal issues, the transformation of industrial areas in the larger cities is expected to remain interesting for both investors and residents. With some municipalities actively encouraging investors to shift their focus to former industrial zones, we may soon witness an even more dynamic development in this area.