Bulgarian Property Buyers Guide

Bulgaria offers some of the most exciting real estate prices inEurope. Investors are wisely making the most of the run up to Bulgaria´sentry into the EU in 2007 and are snapping up some of the manybargains still available before prices rise. Most people who buy property in Bulgaria are looking for holidayor retirement homes, but increasing numbers of investors aresimply buying in order to make good short term capital gains. The mood in Bulgaria is optimistic despite it still retainingmany of the trappings of former Communist days. The architectureand general atmosphere of the place still has that distinct, andsome may say eloquent, Communist feel. Nevertheless, on the eve of its introduction to the EU, Bulgariais on a rapid growth curve. The World Bank predicts economicgrowth to continue this year by some 6%. What is more Bulgaria´sinfrastructure is undergoing major improvements to accommodate abooming economic growth, which can only be good news to theforeign investor.What to BuyLand For foreign individuals, land purchase in Bulgaria isessentially not permitted. However if you set up a privatelimited company which then owns the land, you are free to do so.This is a simple enough procedure (formation costs around500-700 euros depending on the value of the property) and itseems a small price to pay for the land investment opportunitiesstill available. As soon as the law changes, which it will do inline with new EU standards in 2007, land prices are predicted toincrease steadily. Company Formation for Land Purchase In brief:A company is incorporated onto the Commercial Register in adistrict court. The application for registration and legaldocuments are filed with the Court by a managing body.Commercial law stipulates that in order to become incorporated aPrivate Limited Company must: * have Articles of Association orMemorandum of Association; * have appointed a Managing Directoror Board of Directors; * have paid at least 70% of itsauthorised capital, including at least one-third of eachmember's contribution. ResalesInvestment in older properties is the cheapest way to buyproperty in Bulgaria and, bought in the right location, canoffer good returns. Bear in mind though, that your idea of paradise, next to a lakein superbly remote corner away from mass tourism, is not youraverage purchaser´s ideal location for a second home. When youwish to sell, it could therefore take you a good deal longer forthe right purchaser to come along, than if you had invested inor near to tourist facilities.Renovation is often easier and cheaper than building fromscratch and avoids the problem of foreigners legally beingobliged to own a company in order to buy ...

...land. The cost to build is approximately 100-200 euros per m2 asopposed to a new build at 80-350 euros per m2. Bear in mind though, the construction quality in Communist timesis not comparable to the standards that are upheld today, so youmay be in for more work than you bargained for...definitely anoption for the more adventurous!Off-Plan or Newly Built?By far the most popular option is to buy off-plan. It makesfinancial sense to get in there while the price is at its lowestand 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 priceby 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 youwould have thrown away a 31% gain!Remember, developers normally charge 1-2% to change all thepaperwork from one name to another, but this is normally paid bythe purchaser..Words of Advice* With the absence of bank guarantees in Bulgaria, it is ofutmost importance to know the financial stability of thedeveloper. If they have only been around for a few months withno track record, can you really trust them to deliver theproduct you expect?* As prices creep up, remember that the price of an off plandevelopment property must compete well with that of a similarfinished or soon to be finished property in the surroundingarea. If it is no cheaper, then there is no benefit buying offplan.* Many of these developments appear rather remote. Make surethere are, or there are soon to be, amenities and roads to linkthe area to the facilities you need. If there is no evidence ofthis, you could struggle to sell on when you need to, let aloneachieve the price you want.* There are developments that do not permit you to sell on yourcontract before completion so be aware of the stance taken bythe developer before signing anything. We never recommend adevelopment to investors where the option to sell is notavailable.* Other developers may permit you to sell, but often undercertain 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 thesale price of the remaining apartments - or you may have to sellthrough the developer´s sales office only, while they burn youfor a hefty commission. Buy to Rent3 year guaranteed rental agreements are widely available formany of the newly built properties. Management services are alsocommonplace and often provi...

...ided by the development companythemselves. So you can effortlessly rent out the property forthe time you are not using it, leaving nothing more for you todo but enjoy your property, and/or sit back and watch yourinvestment grow!On average, annual returns of your investment are between 8 and10 %, provided you allow 95% occupancy time. You will receiveregular monthly payments to your bank from the rental incomegenerated by your property. Annually, this amounts to between 8and 10% of the total investment price.The Buying ProcessThis is uncomplicated and much the same as the process in therest of Europe.1. Research to find the right location to suit your needs andfind a desirable property at the right price. 2. Negotiate. It is quite normal to for some price negotiationto take place.3. You make a verbal agreement to purchase and sign aPreliminary Contract, including a 10% deposit payment for theproperty. This removes the property from the market. The 10% isonly refundable if the vendor pulls out of the sale. Thelawyer´s fee for drawing up the contract is approximately 150euros.4. The Lawyer (who will often represent both purchaser andvendor) checks that all municipal costs and paperwork are inorder, prior to the day of completion, which is often within 3weeks. 5. The Notary deed is signed before the public notary and boththe owner and the purchaser are present. The purchaser pays thebalance of the purchase price, along with the notary fee, whichis around 5%, depending on the declared value of the property.The Notary then registers the transaction in the Real EstateRegistry in order to make the purchaser´s title deeds defendableagainst third parties. 6. You are now the proud owner of a property in Bulgaria. Don´tforget to insure it just as You would any of your otherproperties at home or abroad.Fee Percentages Approx. 2% Stamp duty 3-6% Estate agency commission 5% Notaryfees 10% In ski resorts to cover agency and legal fees, but notstamp duty 12% Land purchases to cover formation of LimitedcompanyRunning costs associated with a property in Bulgaria are muchlower, compared to those in other European countries. The ownerof a property pays an annual property tax, which is 0.15% of thedeclared value of the property. In addition, owners paywaste-collection fees, public lighting etc.which are also minorexpenses compared to in other countries.In residential developments, the owner may pay a fee per year orcommunity charge for 24-hour security, cleaning, swimming pool,gardening, insurance, etc. MortgagesMortgages are now available for property purchase in Bulgaria.Their typical interest rates are variable and around 7% withborrowing at around 70%.