Buying Off Plan Property in Bulgaria

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Guide to Guying Off Plan Property in Bulgaria

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Buying Property in Bulgaria

The real estate market in Bulgaria has gone from strength to strength in recent years. Starting back in 2003, a year that house prices doubled in most areas, the property market in Bulgaria has continued to hold steady and attain year on year growth. With the inclusion of Bulgaria into Europe in 2007 scheduled, international developers alongside local constructors began to take advantage of what was destined to be a very lucrative property market. Strategically building in areas for Bulgaria that had a tourist history it made sense to build new developments along the Black Sea, in Sofia, on the ski slopes around Bansko and close to the natural hot mineral springs that Bulgaria was already famous for.

Growth in Bulgarian Tourism

With an expected influx of tourists and growing University cities Bulgaria was essentially a predefined market that has fared very well in the subsequent years especially for investors who bought property to rent out. Currently Bulgaria is experiencing some of the strongest equity gains in its real estate market ever seen.

Aside from the beach properties and ski apartments, one of the most popular areas of real estate is in the golfing environment, with numerous golf courses being constructed throughout the country. These golf properties are aimed at wealthy Bulgarians and the ever present expatriate market. The Bulgarian government has seen the benefits of welcoming international tourism and are keen to promote Bulgaria as a long term investment for tourism and residents from overseas

The Bulgarian tourist sector is currently growing at around 20% per year and many analysts agree that these numbers could easily double in the forth coming years and become one of Europe's leading holiday destinations.

Growing Property Market

The Bulgarian property market is still in its infancy when compared to Spain, France or Florida, but this working to its advantage. Investors in Bulgarian property have already seen a sharp increase in property prices back in 2007 when Bulgaria became a member of the European Union. But it continues to offer Bulgarian property investors great value for money with a very positive future waiting to happen

Principle Areas of Interest

Principle areas of property interest are along the shores of the Black Sea and in the mountains that are home to the winter ski season in Bulgaria around Bansko. Outside of Sofia, these areas are the most expensive in the country as they are the most attractive to international visitors. If you fancy living amongst the locals you can still pick historic farmhouses on easy to handle plots of land of around an acre for under 25,000 euros. Where else can you do that?

Property Bulgaria - Buying Guide

Since joining the EU, Bulgaria has gone from strength to strength, with increases of around 20% per annum making property investors in Bulgaria very happy. With huge investment by the government into infrastructure, real estate in Bulgaria is destined to continue growing and demand for housing will no doubt continue as international companies move in to take advantage of tax breaks and highly skilled but cheaper labour.

The most active areas for investment are on the beaches and on the ski slopes and it is in these areas that international investment is most prevalent, with millions of euros being invested into tourist resorts and hotels.

Foreign individuals and investors according to the Bulgarian Constitution, are permitted to buy buildings but not land - this is why the multitude of investors buy off plan developments in Bulgaria as the land is owned by a company with a shared - Proportion - allocated to the individual owners of the homes.

Bulgaria has made agreements to amend their constitution which will allow individuals to purchase land as of 2014. If you wish to purchase land prior to then you will need to buy in a company name and for this we recommend that you speak to a good lawyer, experienced in this type of law.

The law on foreigners owning property in Bulgaria

According to the Bulgarian Constitution, foreign individuals can buy buildings but not land. Therefore the most common method for foreigners buying property in Bulgaria where they also wish to own the land is to set up a company which then owns the land and the buildings.

The law is expected to change on this within the short to medium term with the expected entry of Bulgaria into the European Union (2007). This historic restriction is one of the reasons why property in Bulgaria is so competitively priced compared to Western and Central Europe. Current amendments to the constitution will allow citizens of countries with which Bulgaria has agreements on land sales to buy land in 2007 when the amendments would come into effect, while EU citizens will have the right to buy land in 2014. In the meantime a company is still required for land ownership.

Property Bulgaria - The Buying Process

Buying a property in Bulgaria is as easy and uncomplicated as buying anywhere else in Europe:

• Do plenty of research to ensure that the property you wish to buy is in the right area to achieve your expectations and is priced at the right price
• Always negotiate wherever possible.
• Once you have made a verbal agreement on the price and terms of the property purchase you will need to formalise the agreement and sign a preliminary contract. It is at this time you will be required to pay a 10% deposit payment which will remove the property from the market. This deposit of 10% will only be refundable should the vendor revoke on the sale.
• Lawyers will typically charge you approximately 150 euros to draw up this initial agreement
• Your English speaking lawyer will perform essential due diligence to ensure that all of the municipal cost and paperwork are in order prior to the day of completion which is often within a month. Lawyers will often represent both purchaser and vendor on Bulgaria.
• The title deed of the property will need to be signed in front of a public notary with both the seller and the new buyer present. At this time the purchaser will pay the balance of the sales price along with the notary fee which will be around 5%. In Bulgaria it is common to under declare the sales price as it saves on taxes much as it used to be in Spain. Once the notary has registered the transaction of the sale and the new Title Deeds in the Real estate Registry, you will be protected against third party claims.
• Always insure the property as soon as possible or have your local representative do it a well change the utilities into your name giving a current mailing address

PLEASE NOTE:
As mentioned above it is common for owners/sellers to under declare the property price to avoid paying excessive Capital Gains Tax which is currently up to 30%. This has consequences for you, the new owner as you will not have official documentation showing the actual money paid for the property.

This in turn could lead to you paying more CGT in the future should you decide to sell your property. We recommend that you discuss this element of the purchase with a lawyer or your broker if they are qualified so as to avoid misrepresentation and oversights

Buying Property in Bulgaria: Expenses

• 2% State Tax - similar to a stamp duty and calculated on the purchase price.

• Notary Fee - This fee is 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.

Buying Property in Bulgaria: Running Costs

The monthly and annual expenses involved in owning a property in Bulgaria are essentially far lower than in other European countries. Annual property taxes are paid on 0.15% of the declared value of the property. Utility fees, garbage collection, public lighting are all inexpensive

If you purchase in a residential development or a resort, owners may be liable to pay a monthly, quarterly or annual fee to cover gardeners, swimming pool cleaners, insurance and 24 hour security to mention just a few .

Property Bulgaria: Off-Plan, Newly Built or resale?

One of the most popular options when buying a property in Bulgaria is to buy an off plan development as it allows the purchaser to pay less and often in stage payments throughout the course of the build. Many investors aim to buy at the earliest possible stage and sell prior to or at completion. By doing so they are only putting down the 30% reservation and leveraging the remainder until closing

Below you will find a typical example of the payments needed to be made when buying a new off plan property in Bulgaria

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 €20,000 / € 64,200 = 31%

If you had bought the property 'Key Ready' at completion and after the increase, then you would have thrown away a potential 31% gain!

Please remember that developers typically charge 1-2% to alter all the paperwork from one name to another, this fee is normally paid by the purchaser.

WORDS OF ADVICE:

• In Bulgaria as with anywhere else, it is critical to perform your due diligence. This will include finding out about the developer who you plan to purchase from. Are they financially stable? Do they have a good history? Do they have finished properties that you can inspect? If the answer to the above is NO then you perhaps need to find another developer!

• As property prices in Bulgaria continue to rise it is worth while comparing the off plan property that you are interested in against completed properties in the direct area that can offer the same quality and services. If the price is similar then perhaps it is better to purchase the completed property as you can see what you will be buying and especially because there appears to no financial gain in buying the off plan property.
• Many new off plan developments in Bulgaria will appear to be in the middle of nowhere. If this is the case then make sure that there are or soon will be road links built and easily accessible amenities. You may like the idea of buying in a more remote area, but should you wish to sell in the future you will then need to find someone else who wishes the same, which could lead to a lower sales price if this turns out to be difficult.
• Many new off plan developments in Bulgaria do NOT permit investors to sell your contract prior to completion. You will need to have a copy of this sale agreement before completion in writing to ensure that you are buying what you think you are.

Developers may allow you to sell your off plan property but only under specific conditions

• 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
• You may have to sell through the developer's sales office only, where hefty commissions could be charged. 

Buying Key Ready homes is a safer option for some investors as they can see what they are getting for their money and there is no 'Waiting Time' between paying for and using the property. The costs of the property will usually be higher than buying off plan. Some developers are still willing to allow these Key Ready properties to be accepted into rental schemes.

Buying a resale property is an option for families and regular holiday makers that wish to utilise their new property straight away. They have no risk that the property will not be constructed and the property will probably be established within any rental scheme that is available onsite. The downside is obviously the buyer will pay a premium for the property

Property Bulgaria: Buy to Let

Guaranteed Rental Agreements in Bulgaria are becoming widely available, especially on new off plan projects. In many cases the developer will contract a management company to manage the completed properties and some now also include furniture options. Typical Guaranteed Rental Schemes will offer 3 year agreements which are aimed to take away the strain of your monthly financial obligations in those first few years which are critical for so many overseas buyers.

Most Guaranteed Rental Plans aim to achieve 95% occupancy each year and offer a return in the region of 8-10% of the sales price. Normally, monthly payments will be paid into your bank account as the rent is generated.

Mortgages in Bulgaria

Mortgages in Bulgaria are now readily available for purchasing properties in Bulgaria. Interest rates are typically around 7% when borrowing 70% of the total sales price. As these interest percentages are relatively high, many buyers prefer to take a loan in their home country