Investors are wisely making the most of the run up to Bulgaria´s entry into the EU in 2007 and are snapping up some of the many bargains still available before prices rise.

Most people who buy property in Bulgaria are looking for holiday or retirement homes, but increasing numbers of investors are simply buying in order to make good short term capital gains.

The mood in Bulgaria is optimistic despite it still retaining many of the trappings of former Communist days. The architecture and general atmosphere of the place still has that distinct, and some may say eloquent, Communist feel.

Nevertheless, on the eve of its introduction to the EU, Bulgaria is on a rapid growth curve. The World Bank predicts economic growth to continue this year by some 6%. What is more Bulgaria´s infrastructure is undergoing major improvements to accommodate a booming economic growth, which can only be good news to the foreign investor.

What to Buy

Land

For foreign individuals, land purchase in Bulgaria is essentially not permitted. However if you set up a private limited company which then owns the land, you are free to do so. This is a simple enough procedure (formation costs around 500-700 euros depending on the value of the property) and it seems a small price to pay for the land investment opportunities still available. As soon as the law changes, which it will do in line with new EU standards in 2007, land prices are predicted to increase steadily.
Company Formation for Land Purchase
In brief:
A company is incorporated onto the Commercial Register in a district court. The application for registration and legal documents are filed with the Court by a managing body.
Commercial law stipulates that in order to become incorporated a Private Limited Company must:
• have Articles of Association or Memorandum of Association;
• have appointed a Managing Director or Board of Directors;
• have paid at least 70% of its authorised capital, including at least one-third of each member's contribution.

Resales

Investment in older properties is the cheapest way to buy property in Bulgaria and, bought in the right location, can offer good returns.

Bear in mind though, that your idea of paradise, next to a lake in superbly remote corner away from mass tourism, is not your average purchaser´s ideal location for a second home. When you wish to sell, it could therefore take you a good deal longer for the right purchaser to come along, than if you had invested in or near to tourist facilities.

Renovation is often easier and cheaper than building from scratch and avoids the problem of foreigners legally being obliged to own a company in order to buy land.

The cost to build is approximately 100-200 euros per m2 as opposed to a new build at 80-350 euros per m2.

Bear in mind though, the construction quality in Communist times is not comparable to the standards that are upheld today, so you may be in for more work than you bargained for…definitely an option for the more adventurous!

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

• With the absence of bank guarantees in Bulgaria, 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.

Buy to Rent

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.

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.

Fee Percentages

Approx.
2% Stamp duty
3-6% Estate agency commission
5% Notary fees
10% In ski resorts to cover agency and legal fees, but not stamp duty
12% Land purchases to cover formation of Limited company

Running costs associated with a property in Bulgaria are much lower, compared to 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 to in 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.

Mortgages

Mortgages are now available for property purchase in Bulgaria. Their typical interest rates are variable and around 7% with borrowing at around 70%.