Buying Property in Bulgaria - Buyers' Guide Bulgaria

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Buying Property in Bulgaria

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Property Bulgaria – Buying Guide

There’s no denying the impact that EU membership is having on countries like Bulgaria.  With prices having risen by some 30% per annum and continuing to climb at a similarly steady pace in key tourist locations, property buyers are investing now while prices remain low and Bulgaria grows into a fully-fledged market economy.  With major investment going into new beach and ski holiday resorts, it’s clear that tourism is a major driver in the real estate market of Bulgaria and many buyers are snapping up idyllic holiday homes and buy-to-let properties in carefully selected locations.

Property Bulgaria - The Buying Process

This is uncomplicated and much the same as the process in the rest of Europe:

1. Research to find the right location to suit your needs and find a desirable property at the right price.
2. Negotiate.  It is quite normal to for some price negotiation to take place.
3. You make a verbal agreement to purchase and sign a Preliminary Contract, including a 10% deposit payment for the property.  This removes the property from the market.  The 10% is only refundable if the vendor pulls out of the sale.  The lawyer´s fee for drawing up the contract is approximately 150 euros.
4. The Lawyer (who will often represent both purchaser and vendor) checks that all municipal costs and paperwork are in order, prior to the day of completion, which is often within 3 weeks. 
5. The Notary deed is signed before the public notary and both the owner and the purchaser are present.  The purchaser pays the balance of the purchase price, along with the notary fee, which is around 5%, depending on the declared value of the property.  The Notary then registers the transaction in the Real Estate Registry in order to make the purchaser´s title deeds defendable against third parties. 
6. You are now the proud owner of a property in Bulgaria.  Don´t forget to insure it just as you would any of your other properties at home or abroad.

BE AWARE:
In order to avoid paying excessive amounts of Capital Gains Tax (which can amount to as much as 30% of the real purchase price), it’s likely that the current owner of the property will not want to declare the real price of the property on the Deed of Transfer.  The Title Deeds will therefore display a lower figure than the actual price you paid for the property.  This situation will have its financial consequences, such as not having official documents for the real money you spent plus liability for higher taxes if you decide to sell the property afterwards and declare its real value.  You will need to consult your broker/lawyer on this and all aspects of the deal to avoid any eventual misinterpretations or oversights.

EXPENSES:

• 2% State Tax - similar to a stamp duty and calculated on the purchase price.
• Notary Fee - calculated in accordance with the price stated in the Title Deed. Expect to pay approx. €350.00 on a typical 2 bed apartment.
• Land Registry - 0.1% of the value.
• Legal fees - expect to pay 1% of property value in most cases.

RUNNING COSTS:

Costs associated with a property in Bulgaria are much lower, compared with those in other European countries. The owner of a property pays an annual property tax, which is 0.15% of the declared value of the property. In addition, owners pay waste-collection fees, public lighting etc. which are also minor expenses compared with other countries.

In residential developments, the owner may pay a fee per year or community charge for 24-hour security, cleaning, swimming pool, gardening, insurance, etc.

Property Bulgaria: Off-Plan or Newly Built?

By far the most popular option is to buy off-plan.  It makes financial sense to get in there while the price is at its lowest and sell upon completion of the project. 

Take this example:

Purchase price = €200,000
pay 30% deposit =  € 60,000
plus 7% IVA (VAT) = € 4,200
Total investment   = € 64,200

• When the project is finished, if the developer puts up the price by 10%, then the increase is € 20,000.
  If you bought the apartment immediately when it was released at € 200,000, then your gain would be as follows: € 20,000.00 / € 64,200.00 = 31%
  If you had bought it newly built, after the increase, then you would have thrown away a 31% gain!

Remember, developers normally charge 1-2% to change all the paperwork from one name to another, but this is normally paid by the purchaser..

WORDS OF ADVICE:

• It is of utmost importance to know the financial stability of the developer.  If they have only been around for a few months with no track record, can you really trust them to deliver the product you expect?

• As prices creep up, remember that the price of an off plan development property must compete well with that of a similar finished or soon to be finished property in the surrounding area.  If it is no cheaper, then there is no benefit buying off plan.

• Many of these developments appear rather remote.  Make sure there are, or there are soon to be, amenities and roads to link the area to the facilities you need.  If there is no evidence of this, you could struggle to sell on when you need to, let alone achieve the price you want.

• There are developments that do not permit you to sell on your contract before completion so be aware of the stance taken by the developer before signing anything.  We never recommend a development to investors where the option to sell is not available.

Other developers may permit you to sell, but often under certain conditions, for example:

• only once they have sold all their other apartments. 
• they may allow you to sell but only if you don´t undercut the sale price of the remaining apartments
• or you may have to sell through the developer´s sales office only, while they burn you for a hefty commission. 

Property Bulgaria: Buy to LET

3 year guaranteed rental agreements are widely available for many of the newly built properties.  Management services are also commonplace and often provided by the development company themselves. So you can effortlessly rent out the property for the time you are not using it, leaving nothing more for you to do but enjoy your property, and/or sit back and watch your investment grow!

On average, annual returns of your investment are between 8 and 10 %, provided you allow 95% occupancy time.  You will receive regular monthly payments to your bank from the rental income generated by your property. Annually, this amounts to between 8 and 10% of the total investment price.

Mortgages in Bulgaria

Bulgarian mortgages are now available for property purchase in Bulgaria.  Their typical interest rates are variable and are currently around 7% with borrowing at around 70%.  As a result, many buyers prefer to take out a loan in their home countries.

See also: Property Investment in Bulgaria