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House price news in Bulgaria: Prices still heading upwards

Bulgarian property rising in the capital, despite a deflating population

Housing sales and prices

A strong economy, combined with low interest rates, continues to keep the housing market in Bulgaria strong.

By Q2 of 2018, the year-on-year housing price index rose by 7.51%, and during Q2, the prices rose 2.8%, according to official statistics provided by the National Statistical Institute.

During the year, up to Q2 2018, the prices of new homes rose by 7.2% and remained almost unchanged from the previous year’s 7.3%. Prices of existing homes rose by 7.7%, a drop from the previous year’s 9.2%

The average price of a home in Sofia during the 2018 was €2,300 per m2.

During Q1 of 2018, there was moderately high activity in the luxury property market, but mostly in the lower price segment of between €300,000-350,000. The most popular areas for these transactions were within the central regions of Sofia, the capital, and around Doctor’s Memorial. The majority of buyers, according to agents working with these clients, are looking for older, aristocratic homes, which can be renovated and resold.

The southern regions of Sofia are popular with those searching for apartments to invest in, especially for those wanting to let them out on holiday home platforms. These buyers concentrate their search around Bulgaria Boulevard, and the neighborhoods around the Vitosha Mountain.

Transactions of the middle price segment market ranging between €500,000-800,000 fell, mostly because of a lack of supply.

The upper luxury market of exclusive homes, from €1 million and up, also remains high, but supply is limited.

 

Contributing factors

Residential prices increased by 300% in Bulgaria during the period 2000 to 2008. The global crisis caused the burst of the property bubble.

With interest rates on bank deposits at almost zero, people prefer to invest in dwellings. There has been an increase in the purchase of pre-construction homes and despite the strong demand, construction remains low. Only 5,759 new units were completed by Q3 of 2018, a drop of 9.2% from the same period in the previous year. Despite the low construction levels and the limited supply, all the major cities in the country have an increased demand.

During 2017, there was a high demand for rental property in the center of Sofia, because of Bulgaria holding the EU Presidency. This demand has since dropped and the increased supply has caused a drop in rental prices. This oversupply was also caused by the increase in investment purchases.

Rental Yields

The gross rental yields in Sofia are moderately good and should be in the region of 6% in the center and surrounds.

The most sought after areas with expats are Doctor’s Garden, Ivan Vazov, Iztok and Lozenets. These areas offer the green spaces, parks and most of the embassies; museums and universities are situated here.

The prestigious suburbs of Boyana and Dragalevtsi are in the vicinity of the Vitosha Mountain in the south of Sofia.  The smaller apartments give the best yield in these neighborhoods at 6.4%.

Bulgaria has very popular beach and ski resorts, but due to the seasonal nature of the rentals there, it is difficult to provide yields.

Since 2012, all citizens of the EU can purchase any type of property in Bulgaria, including land.

Bulgarian law is pro-landlord, but their legal system is inefficient when it comes to evicting tenants. It can take an average of 660 days to evict a tenant.

There are no rent controls and the rent can be negotiated, with an agreed rent increase according to inflation at periodic levels.

Purchasing costs

The absence of a centralized property registry makes it essential that a competent and trustworthy lawyer investigates the legality and title deeds of the property to be purchased. This is also necessary if buying from developers; ask your trusted adviser for his opinion on a residential or investment property before committing.

The transaction costs are moderate and are usually split between the buyer and seller.  The total cost will be around 5.3% and 10.6% of the property value. The buyer pays the tax of 0.1% to 3%, the notary fee of 0.1% to 1.5% and a 0.1% registration fee.

Non-residents are taxed a flat rate of 10% on rental income with no deductions allowed.

The net gains of any property sold are subject to 10% tax.

Direct descendants are not taxed on inheritance and all other beneficiaries have varied rates which depend on their relationship between them and the deceased.

Residents are taxed on their worldwide income at a flat rate of 10%.

Conclusion

The transition into a free market society, after the fall of communism in Bulgaria, was difficult. Things started improving after 2001, when Tsar Simeon II was elected as Prime Minister and started the reforms necessary for the country’s accession to the EU.

Bulgaria enjoyed an economic boom between 2000 and 2008, and joined the European Union in January 2007, but was now under a coalition government. Widespread political corruption lost the country millions of Euros of EU financial aid.

The country is one of the poorest in Europe with a GDP of $9.000, 00 per capita in 2018, and is also one of Europe’s most corrupt.

Even though the country has faced many elections and changes of leadership its economy grew by 3.8% in 2017, 3.5% in 2018 and both the European Commission and IMF project a growth of 3.7% and 3,6 % respectively for 2019.

The country had a budget surplus of 0.9% in 2017 for the second consecutive year. European Union figures show a surplus of 0.8 for 2018 and it is projected that 2019 will be slightly lower at 0.6%.

Inflation was at a six year high in 2018, at 2.6% and the NSI expects it to increase by 2% in 2019. Unemployment rates have decreased slightly from 6.2% in 2017 to 6% in 2018. Eurostat expects a further drop in 2019, to 5.8%.

A little note t:o expats considering Bulgaria It is almost as bad as Greece when it gets to smoking in public. Whilst it is a poor country, it is rather awash with money and fast cars. With low corporate taxes and EU access, it is a magnet for foreign investors.

Rita Monteiro

Rita – After graduating from NYU with a master degree in history, She was also a columnist for many local newspapers. Rita mostly covers business and Technology topics, but at times loves to write about reviews as well.
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