from The Wall Street Journal

by Maria Atanasov

Irina Krylova has always had a soft spot for the Bulgarian seaside. In 1995, after a recommendation from Russian friends, she bought a 100-square-meter, two-bedroom apartment in Santa Marina Holiday Village, in the historic southern seaside town of Sozopol, for €90,000 before the building's completion."Bulgaria not only has good nature, but also a fantastic climate," says the 47-year-old businesswoman, who runs a company in Moscow providing technical support for conferences. "It's the perfect weather for my 79-year-old mother, who has heart disease and high blood pressure." Indeed, like many Russians who own property along the seaside, Ms. Krylova lets her extended family use her apartment throughout the summer. "I have a big family. First I come, then it's my brother and his wife, next my 28-year-old son and my 2-year-old granddaughter and my mother."

Ms. Krylova even uses the apartment in the winter, when the climate stays at around 12 to 15 degrees Celsius, compared to the subzero Russian winters. "I come here to relax," she says. "The aura of the place re-energizes me."

Russians buyers like Ms. Krylova have marked a sea change in the Bulgarian vacation-home market. "Now, Russians are around 95% of buyers, and the Irish, British, Scandinavians and Romanians are the remaining 5%," says Iani Stoimenov, chief executive of Vision One, a property consultancy in Sofia. "By comparison, just three years ago, 60% of investments were coming from Britain and Ireland."

The shift in demographic is twofold: Tighter lending at home and a weakening pound dried up loftier investments from the U.K., while easing visa restrictions for Russians opened up travel for a middle class with purchasing power. "Russians have viewed Bulgaria, with its milder climate, as a tourism destination for two or three generations. The absence of a language barrier helps Russians tremendously and their aging parents, who now come over," says Strahil Ivanov, owner of Yavlena, a leading estate agent in Bulgaria, with 19 offices nationally and representatives in Russia.

Bulgaria's vacation-home market took off in 2007, ahead of the country's entrance into the European Union. New developments spread along the Black Sea coast, through Communist-era resorts and rinky-dink fishing villages and up into the mountain ski towns of Bansko, Pamporovo and Borotvets, revitalizing once sleepy and dated locales. Inland, villages, known as cela, attracted those in search of peace and quiet—many of whom couldn't afford to get on the property ladder back home but could buy a quaint cottage here.

With dreams of large investment returns, a wave of foreigners raced in, snapping up properties on the cheap in order to flip them a few years later. But as the global economy collapsed, so too did Bulgarian real estate, leaving an overabundance of properties on the market and development stagnant. "Those were speculative buyers and the crisis ended up badly for them," Mr. Ivanov says.

Today, the Black Sea cities of Varna in the north and Sunny Beach and Sozopol in the south, remain most desirable, Mr. Ivanov says, adding that "for a first-line [beachfront] property, it's very rare to find something below €1,000 per square meter." Just one kilometer inland, however, in some parts of Sunny Beach, prices have dropped to as little as €450 per square meter. Further inland, prices are even lower. "In the past five years, prices have fallen 50% on average for the country. The peak of the market ran through 2007 and ended September 2008, when the crash hit," Mr. Ivanov says.

At luxury developments such as Santa Marina Holiday Village, prices are at 2006 levels, averaging €1,450 per square meter. Considered by many industry insiders the best of the best of Bulgarian real-estate, Santa Marina prides itself on being an all-inclusive destination, with 1,200 of 1,500 apartments completed and amenities including swimming pools, restaurants, a spa and fitness center, hair salon, minimarket, day care, photo studio and ice-cream parlor—all set amid pines and leafy landscaping connected by a footbridge to the sea.

To combat the pinch, which the development began feeling in 2009, Santa Marina allowed buyers to finance their purchases over a two-year period, granting discounts for prepaying early. "We are thinking about what is necessary," says Manyu Moravenov, the chairman and chief executive of FairPlay Properties REIT, which developed Santa Marina. "Our goal was never to just market it and finish it, but also to maintain it so that the owners are happy there, offering them social and cultural life."

Overall, foreign buyers who have been successful in Bulgaria are those who have bought for the long term. Jenny and Phil Honeyball, of Colchester, England, spent ?8,000 in 2008 to buy a three-bedroom country house in the village of Razdel, inland near the Turkish border. "We were always looking to buy a house in France, but left it too late and the prices really shot up. We were watching a [TV program] on Bulgaria, showing how you could get something really cheap," says Ms. Honeyball, a 45-year-old drugstore assistant manager. "The way Britain is going, where our private pensions wouldn't go anywhere, we were going to look at this as a retirement home. The cost of living, that's the main thing for us."

The couple, who had never been to Bulgaria, contacted an estate agent and flew to the country for a three-day property tour that November. "It was a cold, miserable day and they were taking us to places with pig sties. We thought, 'Oh, what have we done,' " she recalls. "And then we saw our house. There was donkey dung in the downstairs and no inside toilet. But the views and the location were unbelievable."

Over the next year, the Honeyballs, who have five daughters between the ages of 10 and 24, spent another ?25,000 to renovate the house. "But then we got what we wanted: three decent bedrooms, an upstairs shower room and toilet, and the kitchen, open-plan living/dining room and toilet downstairs," Ms. Honeyball says. "We wanted to keep it as rustic as possible. My neighbor still uses my outbuilding and keeps his animals there. The Bulgarians are so lovely, so friendly. I couldn't want for nicer people. The neighbors keep giving us tomatoes and cucumbers."

The labor wasn't painless, however. "We had our ups and downs with shoddy work, and learned a lot through trial and error," Ms. Honeyball says, having lost funds to the estate agent, which initially managed the project but stopped monitoring it as time went on. Through word of mouth, she found new contractors to finish or redo the projects that were left undone or done poorly.

The upshot, she says: "I never had the country life as such and Bulgaria offered that. We go from being all stressed out in England and there, I can sit out on my patio on my swing chair, look out and get chilled out right away. No one puts on the airs and graces. Even my 20-year-old daughter doesn't worry about putting on her fake eyelashes when we're out there."

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