Bulgaria's housing market still resilient
Lalaine C. Delmendo | September 14, 2021
- Prices of new dwellings rose by 6.7% during the year to Q1 2021, sharply up from the previous year's 2% y-o-y rise. When adjusted for inflation, prices increased 6%. During the latest quarter, prices of new dwellings were up 3.4% (2.5% inflation-adjusted).
- Prices of existing dwellings rose by 8% (7.3% inflation-adjusted) in Q1 2021 from a year earlier, the biggest y-o-y growth since Q1 2018. Quarter-on-quarter, existing house prices increased 3% (2.2% inflation-adjusted).
In recent years almost zero interest rates on bank deposits have encouraged people to invest in real estate. That's why the housing market started to rise in 2014 and has been accelerating ever since, recovering from a massive crash after the boom from 2000 to 2008, when residential property prices surged around 300%.
Demand continues to rise. In Sofia, Bulgaria's capital, there were 6,683 registered property sales in Q1 2021, up by 26% from a year earlier, according to the Registry Agency.
“The housing market made a very strong start in 2021. The activity was greater than in the beginning of 2020 before the pandemic, and from the same period of 2019. At times it was even euphoric. It seems that the housing market has overcome the pandemic crisis and continues its upward cycle,” said Polina Stoykova Mrics of Bulgarian Properties.
In H1 2021, residential building permits rose by 21.3% y-o-y to 3,291 while completions increased 13.8% y-o-y to 1,763 units. However construction is expected to slow in the short term due to the rising construction materials costs. New construction prices will go up by 10% to 13% in the coming months, according to Bulgarian Properties.
“It is expected that demand will outpace supply, due to its high levels and the slower pace of new construction in the second half of the year,” said Colliers International in its H1 2021 Residential Market Report. “The rising prices of construction materials could affect the start of some projects, postponing them until next year. In the short term, this will lead to a decline in supply and higher prices.”
The economy is projected to grow by 4.6% this year and by another 4.1% in 2022, after declining by 4.2% during 2020, according to the European Commission. In Q2 2021, Bulgaria's economy expanded by 9.9% from a year earlier, following a 1.8% contraction in Q1, according to NSI. It was the first quarter of y-o-y expansion in five quarters, mainly due to low base effect from the pandemic shock last year.
European Union citizens can purchase properties in Bulgaria, including land. Before January 2012 foreigners could purchase land only in the name of a legal entity and were not allowed to own a property.
Rental yields are moderate in Sofia, Bulgaria
Sofia has moderate gross rental yields - i.e., the rental return on a property if fully rented out, before all expenses. Yields in the centre vary from around 4% to around 6.0 %.
Doctor´s Garden, Ivan Vazov, Iztok and Lozenets are among the most sought after addresses in the centre. Embassies, museums and universities are located here. These areas also have many parks and green spaces, making them popular with expats.
In the southern part of Sofia in Vitosha Mountain (or in the vicinity) are prestigious suburban neighborhoods like Boyana and Dragalevtsi.
For those who are really chasing yields, Studenski Grad apartments may be worth considering, with gross rental yields of 7% for the smaller sizes.
We aren´t able to provide yields in Bulgaria´s beach and ski areas, because rents in these areas are highly seasonal.
Transaction costs in Bulgaria are moderate, and more or less evenly split between buyer and seller. See our Round trip transaction costs on residertial property purchases in Bulgaria and Transaction costs in Bulgaria on residential property compared to the rest of Europe
Low taxes in Bulgaria
Rental Income: Gross rent earned by nonresidents is taxed at a flat rate of 10%, withheld at source. Deductions are not allowed for nonresidents.
Capital Gains: The sale of real estate by nonresidents in Bulgaria is subject to 10% withholding tax on the net gains received.
Inheritance Inheritance of direct descendants is not taxed. For all other beneficiaries, the inheritance tax rates vary, depending on the relationship between the donor and the heir.
Residents: Residents' worldwide income is taxed at a flat rate of 10%.
Total transaction costs in Bulgaria are moderate
Total roundtrip transaction costs are around 5.30% to 10.60% of the property value. The buyer pays for transfer tax (0.10% to 3%), notary fee (0.10% to 1.50%), and 0.10% registration fee.
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.
Economy recoveringIn Q2 2021, Bulgaria’s economy expanded by 9.9% from a year earlier, following a 1.8% contraction in Q1, according to NSI. It was the first quarter of y-o-y expansion in five quarters, mainly due to low base effect from the pandemic shock last year.
In Q2 2021:
- Domestic consumption rose by 6.2%, a sharp improvement from the prior year’s meager growth of 0.4%
- Gross fixed capital formation surged 12.2%, in contrast to a y-o-y fall of 14.1% in Q2 2020
- Exports rose strongly by 20.4% y-o-y, in stark contrast to a 19% fall in Q2 2020
- Imports surged 28.4% y-o-y, a sharp turnaround from the prior year’s 19.1% decline
On a quarterly basis, the economy expanded slightly by 0.6% in Q2 2021, a slowdown from a 2.5% q-o-q growth in the previous quarter but a sharp improvement from the record 10.1% fall in Q2 2020.
Bulgaria’s economy is projected to grow by 4.6% this year and by another 4.1% in 2022, after declining by 4.2% during 2020, according to the European Commission. Before it contracted last year, the economy had been expanding by an annual average of 3.6% in 2015-19, sharply up from an average growth of 0.4% in 2009-14.
During 2020, the budget deficit reached BGN 4.06 billion (€2.76 billion), equivalent to 3.4% of GDP, in contrast to a surplus of 2.1% of GDP in 2019 and breaking the country’s four consecutive years of surpluses.
Unemployment declined to 5% in July 2021, down from 7.9% a year earlier, thanks to the government’s job support schemes aimed at helping businesses weather the effect of the pandemic. Nationwide unemployment averaged 5.2% in 2017-20.
Inflation accelerated to 3% in July 2021, the steepest rise since March 2020, amidst an increase in housing and utilities, and transport costs, based on figures from the NSI. Overall inflation is expected to increase to 1.9% this year, from just 1.2% in 2020, according to the European Commission.
Bulgaria is one of Europe’s poorest countries, with a GDP of about US$10,000 per capita in 2019, based on data from the International Monetary Fund (IMF). The country is also one of Europe’s most corrupt. Bulgaria’s transition from communism was not 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.
Bulgaria enjoyed an economic boom from 2000 to 2008, with the economy expanding by an average of 5.6% per year. But in the June 2005 elections, the Bulgarian Socialist Party (BSP), successor to the Bulgarian Communist 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 largely bound him to continue previous policies (partly constrained by EU membership conditions).
Bulgaria joined the European Union in January 2007. In the coalition’s second term Bulgaria lost millions of euros of EU financial aid due to allegations of widespread political corruption. In the July 2009 elections, the center-right party, Citizens for European Development of Bulgaria (GERB) led by BoykoBorisov, soundly defeated the BSP.
In October 2011 presidential elections, Rosen Plevneliev of the GERB emerged victorious. Then in May 29, 2013, Prime Minister Plamen Oresharki of the BSP came to power after anti-austerity protests forced out former Premier Boyko Borissov’s GERB party and triggered a snap vote.
Oresharki faces strong opposition, the key issue being the appointment of controversial media mogul DelyanPeevski as head of the state security agency DANS. Then in July 2014, Oresharki stepped down from office, paving the way for a snap election in October 2014. BoykoBorissov returned to premiership as his GERB party forms coalition with fellow centre-right Reformist Bloc. Then in May 2017, Borissov became PM for the third time, following the victory of his GERB party in the April snap parliamentary election. However, following weeks of anti-government protests over his handling of the pandemic and failure to tackle vast corruption, Borissov resigned in April 2021. A former defence minister and an ally of President Radev, Stefan Yanev formed an interim government in May 2021 to oversee the July 2021 elections. Yanev has been recently reappointed until the country holds its third parliamentary elections in November 14, 2021, following inconclusive elections in April & July.