Jersey-based Development Capital Management has established a closed-ended fund which invests in residential Bulgarian properties in prime areas along the coast and ski resorts.
The Black Sea property fund has sterling, dollar and euro denominated shares and also offers capital protected shares denominated in these currencies. The protected dollar shares offer 85 per cent capital protection after five years regardless of the fund performance, while the protected sterling and euro shares provide 100 per cent capital protection after seven years.
Investors who take the direct property shares with no capital protection will receive 100 per cent of the funds growth, but the participation levels for the protected shares will be announced at a later date.
The fund will focus mainly on beachside properties within an hour away from Vama or Bourgas airports but can look elsewhere in Bulgaria. It has options to buy 1,300 apartments and villas within three major schemes for a purchase price of euros 36,000 each. The fund will pay a 20 per cent deposit and will aim to sell the properties before completion.
Buying properties with a deposit means the fund is highly geared at the outset, which increases the risk but enhances potential returns. If properties cannot be sold before completion, the fund will take out mortgages to cover the cost, but this type of gearing will be limited to 100 per cent of the funds net asset value.
This is an unusual investment which could appeal to adventurous investors because it provides entry to an untapped property market that is difficult to access.
There is no buy-to-let market in Bulgaria and many international investors do not know the market well enough to invest or have been put off by the restrictions on foreign ownership of property. These restrictions are expected to be lifted when Bulgaria enters the European Union in 2007.
The option of capital protection adds a degree of comfort to an investment which may be too risky for most investors, but they will have to give up some of the growth potential to pay for this.