Bulgaria Investment Property

There has been a lot of coverage, particularly in the British press, about the property investment potential available in Bulgaria especially in terms of the buy to let to tourist market; this is a guide for potential investors to Bulgaria investment property, the potential from the market and what buyers should watch out for when making a purchase.

We will cover the factors that have caused the market to expand, expert predictions for Bulgaria investment property in the short and medium term and the most important steps to take and the most important things to cover when buying Bulgarian real estate.

Media coverage of investment property and its potential in Bulgaria has tended to focus on the investment potential available to overseas investors in the sunshine and ski resorts that are steadily growing in Bulgaria thanks to an increase in awareness of the delights of the nation and the improved accessibility of Bulgaria from the UK, Ireland and mainland Europe. 

This media coverage has led to many private investors buying residential units along the Bulgarian Black Sea coast and in ski resorts such as Bansko with the intention of privately letting these properties to the tourism market and earning an income, and this demand has definitely fuelled growth in the Bulgarian property market to date. 

In addition, sustainable foreign direct investment has been attracted to the Bulgarian property market whilst Bulgaria was aligned for EU entry because investors were aware of the likely economic boosting that entry would provide - now that entry has been approved these investors’ speculative commitment will likely reap dividends. 

International investment has been made into both the commercial and residential property markets and investment has been poured into the development of facilities, amenities and infrastructure in Bulgaria making it a more attractive nation for companies looking to near-shore certain activities and also for international tourists looking for an affordable yet interesting country.

Also the fact that the Bulgarian government has been committing significant funds to the development of certain key sun and ski resorts means that the profile and desirability of these locations has been raised which has resulted in even stronger international interest both in terms of property and tourism.

In the short term over the next year or so there will definitely be continued price and activity growth in the Bulgarian property market - particularly in the residential and commercial markets in Sofia. 

However, investors still thinking about buying in Bulgaria must remember that the general property marketplace in Bulgaria actually started from such a low point in terms of property prices, therefore the initial surge in terms of property price growth percentages was pretty dramatic and it is unlikely that these huge percentage gains will be sustainable because properties in Bulgaria are no longer quite as cheap, relatively speaking, as they once were.

It’s important to mention that along the coastal regions and in the mountainous resorts property price growth could slow dramatically compared to the record rates of increase that they have enjoyed in recent years but they will still probably expand in the short term because there is still demand for property for sale and rent.  While that demand remains and as long as it outstrips supply there will be room for price expansion.

Private investors must be careful in some of the more developed locations such as Sunny Beach, Golden Sands and Bansko because often the best parcels of land have gone and developments coming to the market are in less desirable areas which will make them harder to let and resell and which will affect their profitability.

Sofia probably remains one of the most exciting markets in terms of growth potential for the next twelve months because EU entry is predicted to result in more companies establishing and expanding operations in the city.  This increase should boost the local economy and result in job creation and ultimately it will increase the demand pressure on commercial premises and residential space.  More companies means more demand for offices, retail space and even light industrial space and more jobs means a more affluent population seeking better properties for rent and sale as well as inward migration of professional workers seeking accommodation too.

When looking for the best Bulgarian property developers it’s worth considering the fact that those who have made the greatest efforts to provide buyers with well located and facilitated properties completed to European standards will consistently enjoy personal recommendations from buyers and therefore consistently welcome new clients, whereas some of the smaller and less professional development companies who attempted to jump on the booming property market bandwagon with little or no previous experience of construction and sales have thankfully fallen by the wayside. 

As the Bulgaria investment property market matures so the stronger players will come out on top which should make the market a more secure investment arena.

In terms of the best place to invest in Bulgaria this will depend on a particular investor’s requirements for his/her investment property – those hoping to secure seasonal income have the potential to generate an income from May to September along the coast or from December to March in the mountains.  Some believe that the development of golfing facilities in Bansko will generate a longer rental market there but at the moment such belief is speculative and the only place an investor can potentially achieve a year round income is in Sofia with well located apartments that can be let to professionals and expatriates working in the city.

For those hoping to generate strong capital gains only the very best located properties in either the ski or sunshine resorts will now provide strong property price increases.  Along the coast buyers must get property as close to the beach as possible and in the ski resorts apartments and chalets should be as close to the gondolas as possible.  In Sofia investors should consider the city centre and areas where there is good infrastructure and transport connections if they want to get the best returns on their investment.

When it comes to the property buying process the key to making a successful property purchase in Bulgaria is to use the services of an independent lawyer in Bulgaria who has been personally recommended to the buyer by those who have used the lawyer’s services in the past. 

When buying anywhere in the world there are all sorts of potential issues that can arise and when buying in a country like Bulgaria that has a relatively immature property market it is essential to take expert advice so that checks can be made into the validity of the title deed, the right of the vendor to sell, the correct application for and acceptance of building permissions etc. 

Without a decent lawyer a buyer could face many hurdles.

Additionally most people interested in Bulgaria are already aware that they will have to register a company in order to purchase and own real estate other than an apartment – even though Bulgaria is set to join the EU in 2007 this particular restriction will remain in place until at least 2014 so this is one issue that has to be taken into consideration by anyone thinking of investing in Bulgaria.  Whilst establishing a company is easy it does represent an additional cost…

In terms of the costs associated with buying one should factor in between 6 and 10% in addition to the purchase price for estate agent, lawyer, stamp duty, notary, translation services, bank and court fees.

Property tax is payable annually…it’s about 0.15% of the property value currently.

Buyers need to be aware of and avoid certain property tax avoidance practices that are common in Bulgaria where the declared price and the actual price of the property differ significantly or where developers require payments to be made to them into accounts outside of Bulgaria.  These practices are not only potentially illegal but they can ultimately mean that the buyer will end up paying more in terms of capital gains tax for example when they come to resell.  Also worth mentioning is the fact that those buying from a developer or a company must ensure that VAT is included in the asking price or they could face an additional bill of 20% on top of the property’s purchase price somewhere down the line.

In terms of income taxation due from rental income generated, this depends on the property owner’s taxation status – for example, someone who is classed as UK resident for taxation purposes will have to pay UK income tax on the yields generated from the Bulgarian property in addition to 15% withholding tax in Bulgaria which is offset against the UK tax bill…they will also have to pay Bulgarian income tax (not capital gains tax) on any capital gain derived from the Bulgarian property if it is resold within five years of the purchase date.

Finally, please note that because everyone’s personal financial circumstances including their taxation status are unique, expert advice should be sought regarding the fiscal and taxation aspects of buying, renting, owning and reselling property in Bulgaria.