Bulgaria: Overview
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House prices start to fall in Bulgaria
Bulgarian house prices started to slip in the last quarter, as the property bubble starts to burst due to the global financial meltdown. During the first three quarters of 2008, Bulgarian house prices, nationwide, were still rising.
In Q4 2008, the average price of dwellings in Bulgaria was BGN1,359 (€695) per sq. m., down 4.1% from the previous quarter (-5.3% when adjusted for inflation), according to figures from Bulgaria National Statistical Institute (NSI).
At the end of 2008 the average price of a dwelling in Bulgaria was up 11.7% from a year earlier, but Bulgaria’s high inflation rate pared these gains to 2.3%, in real terms.
This is clearly the end of a cycle. Much stronger annual house price increases took place in previous years, around 27% in 2007, 16% in 2006, and 37% in 2005. With the expected accession of Bulgaria into the EU in 2007, Britons and other Europeans joined a buying frenzy leading to a house price and construction boom. Russian buyers also followed.
Foreigners were keen to get their hands on properties along the Black Sea Coast. Demand then spilled to areas near or along the Danube River. The increase in construction activity led to GDP growth of more than 6% from 2004 to 2008.
With the global financial crisis crippling the economies of UK, Germany, and other developed countries, demand for properties has dried up. Residential permits were 15% down by the end of 2008 compared to a year earlier. Many new developments have been put on hold.
Acquiring property in Bulgaria is a simple and straightforward process. But foreign non-residents cannot acquire freehold land directly, only a structure e.g. apartments and condo units on a plot of land.
According to changes in the Bulgarian Constitution, Bulgaria's accession to the EU on Jan. 1, 2007 should have given EU citizens the right to own land. But there is a seven-year moratorium, so the right will not take effect until 2014.
RENTAL YIELDS
Last Updated: Sep 17, 2009
Yields down again, despite house price collapse
Bulgaria has suffered a catastrophic drop in house prices this year (2009). The average price of dwellings has dropped from 1418 LEVs/per square metre (sq. m.) in Q3 2008, to 1075 LEVs/sq. m in Q2 2009. However the Bulgarian LEV is pegged to the Euro, so dollar-based investors will not have done so poorly.
When prices rose in Bulgaria during the boom years, there was a significant decline in gross rental yields, a fact noticed by the Global Property Guide in early 2007.
• In 2006, central Sofia yields were over 10%.
• By 2007, yields of 7% were more typical.
• By 2008, yields in central Sofia were under 5%.
It is worrying that despite the significant drop in house prices, yields in central Sofia are down again this year – and are between 4.2% and 4.8%. Suburban Sofia yields have also moved slightly down to 5.2 to 6%.
Data is not available for ski resorts and the black sea coast, because rents for those types of units tend to be seasonal.
Bulgaria’s very low yields are an unhappy sign. We urge investors and buyers to wait, till things get better.
TAXES AND COSTS
Last Updated: Sep 14, 2009
Low taxes in Bulgaria
Effective Tax Rate on Rental Income |
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| Monthly Income | €1,500 | €6,000 | €12,000 |
| Tax Rate | 10% | 10% | 10% |
| Click here to see a worked example | |||
Source:![]() |
Disclaimer | ||
Rental Income: Gross rent earned by non-residents is taxed at a flat rate of 10%, withheld at source. Deductions are not allowed for non-residents.
Capital Gains: The sale of real estate by non-residents in Bulgaria is subject to 15% withholding tax on the net gains received. However, properties owned for more than five years are not taxable.
Inheritance Inheritance of direct descendants is not taxed. For all other beneficiaries, the inheritance tax rates vary between 3.3% and 6.6%.
Residents: Residents' worldwide income is taxed at a flat rate of 10%.
BUYING GUIDE
Last Updated: Apr 17, 2007
Total transaction costs in Bulgaria are among the highest in Europe
Closing costs are quite high in Bulgaria. Total roundtrip transaction costs range from 24% to 26%, with the bulk of the cost going to the 20% VAT, which is payable on old as well as new building sales. An agent’s commission of 2.5% to 3% is equally borne by buyers and sellers. To these transaction costs, of course, the foreigner who is buying land will have to add the costs of forming and administering a company, see forming a company in Bulgaria.
LANDLORD AND TENANT
The laws are pro-landlord
Bulgarian law is pro-landlord.
Rent: There are no rent controls, so rents and terms and conditions can be freely negotiated between the parties. Any method of rent increase can be agreed upon, including indexation, and periodic progressive increases.
Tenant Eviction: Bulgaria’s weakness is the inefficiency of the court system, which can, in practice, make it difficult to evict a tenant. Usually it is the landlord who initiates litigation. But the length of proceedings often dissuades them. It takes an average of 660 days to evict a tenant.
ECONOMIC GROWTH
Last Updated: Mar 11, 2009
Poorest EU country
struggles with economic slowdown
Bulgaria, with Romania, became the EU’s newest member after joining in January 2007. It is also the poorest country in the EU in terms of GDP per capita (around 40% of the EU-27’s average in 2008). As part of EU-accession conditions, the government must to take steps to fight corruption and organized crime, and to improve border-control systems and environmental safety.
The economy grew by 6% in 2008, slightly down from 2007’s 6.2% growth. Average annual growth was 6.4% from 2004 to 2006 and 4.7% from 2000 to 2003. Unemployment fell to 5.6% in 2008 from 18.2% in 2002 and 6.9% in 2007.
With the house price bust, global credit crunch and economic recessions in Europe, the economy sharply slowed during the fourth quarter of 2008 with 3.6% y-o-y growth. This was in sharp contrast to the average annual growth rate of 6.9% during the first three quarters of 2008.
Bulgaria’s economy is expected to slow further in 2009, with estimates ranging from 1% to 2%. The Economist expects the economy to contract by 0.6%. All estimates point to a mild recovery in 2010.
The main reasons for the slowdown are the dramatic fall in foreign direct investment and reduced access to finance mainly due to the global financial meltdown. Foreign direct investments in Bulgaria shrank 16.68% to €5.4 billion in 2008, from €6.5 billion in 2007 and €6 billion in 2006. Industrial production also registered an 8.8% drop in output in November 2008.
Bulgaria’s transition from communism has not been easy. Things only really started to improve when Bulgaria’s last Tsar Simeon II became the democratically elected prime minister from 2001 to 2005. His government pushed market reforms intended to ease accession to the EU.
In June 2005 elections, the Socialist Party led by Sergei Stanishev won most seats in parliament. After weeks of wrangling the main parties signed a coalition deal under which he became prime minister, but he has largely continued previous policies (partly constrained by EU membership conditions). However, the political environment remains volatile.
The next elections are due in mid-2009. The sagging economy, corruption, and organized crime will be the main issues.

RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
Looming housing slump in China
America & Caribbean
The great U.S. housing market crash
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): €1,759 For a 120 sq. m. property, usually an apartment. | Rental Yield: 4.16% For a 120 sq. m. property, usually an apartment. |
| Rent/month: €732 For a 120 sq. m. property. | Income Tax: 10.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
24.9%
The total cost of buying and then reselling an apartment. Includes: * all transaction taxes and charges: * lawyers' and notaries' fees * agents' fees Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000. |
Cap Gains Tax: 0.0 Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Pro-Landlord Rating is based on a detailed study of each country’s law and practice. | |
AUGUST 2009
- Figures show extent of property slump in Bulgaria - Property Wire
APRIL 2009
- Euro won't help, says Bulgaria - The Move Channel
- Bulgaria's hot properties market turns ccld - New York Times
MARCH 2009
JANUARY 2009
- Global economic crisis will hits Bulgaria by April - Bulgaria News Net
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