Bulgaria's house price rises decelerating
Lalaine C. Delmendo | November 07, 2020
The nationwide house price index rose by 4.72% (1.69% inflation-adjusted) during the year to Q1 2020, following y-o-y rises of 6.21% in Q4 2019, 5.58% in Q3, 5.02% in Q2 and 7.29% in Q1, according to the National Statistical Institute (NSI) - the slowest house price rises since Q1 2016.
- Prices of new dwellings rose by 2% during the year to Q1 2020, sharply down from the previous year's 11.9% y-o-y rise. In fact when adjusted for inflation, prices dropped 0.9%. During the latest quarter, prices of new dwellings fell slightly by 0.9% (-1.2% inflation-adjusted).
- Prices of existing dwellings rose by 6.3% (3.2% inflation-adjusted) in Q1 2020 from a year earlier, higher than the 5% y-o-y growth in Q1 2019. Quarter-on-quarter, existing house prices increased 2.4% (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 is now falling. In Sofia, Bulgaria's capital, property sales fell by 6.3% to 5,285 units in Q1 2020 from a year earlier, according to the Registry Agency.
In the first half of 2020, newly built dwellings soared 52% y-o-y to 7,133 units, following an almost 49% increase in 2019. Yet dwelling permits and starts have been derailed by coronavirus-related restrictions. In H1 2020, dwelling permits fell by almost 25% y-o-y to 12,245 units while dwelling starts dropped 9% y-o-y to 9,220 units.
House prices are expected to remain more or less steady in the medium term, amidst falling demand as well as supply.
“Supply is expected to shrink. It is likely that some sellers postpone the sale of their properties until the containment of the pandemic,” said Colliers International. “Projects that are scheduled to start construction in 2020 could potentially be delayed or suspended until next year. This will reduce supply in the short term and keep prices at their current level.”
Bulgaria's economy is expected to contract by 7.1% this year, according to the European Commission, following expansions of 3.4% in 2019, 3.1% in 2018 and 3.8% in 2017 and annual average growth of 1.2% from 2009 to 2016.
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.
Coronavirus hits Bulgaria’s economyIn Q2 2020, Bulgaria’s economy shrank 8.5% from a year earlier, as the COVID-19 pandemic hit the economy, according to the NSI. It was the biggest y-o-y contraction since Q4 1996.
In Q2 2020:
- Domestic consumption growth slowed to 0.4% y-o-y, following a 4.1% growth in Q1 2020
- Gross fixed capital formation fell sharply by 14.1% y-o-y, following an annul decline of 5.6% in the previous quarter
- Exports were down 19% y-o-y, following a decline of 1.9% in Q1 2020
- Imports fell by 19.1% y-o-y, far worse than the previous quarter’s 1.2% drop
On a quarterly basis, the economy contracted 10% in Q2 2020, the second-largest decline on record.
The Bulgarian government declared a State of Emergency on March 13 due to the pandemic, shutting down many businesses as it introduced social distancing measures. The declaration has been extended several times, most recently until end of September.
Bulgaria’s economy is expected to contract by 7.1% this year, according to the European Commission, following expansions of 3.4% in 2019, 3.1% in 2018 and 3.8% in 2017 and annual average growth of 1.2% from 2009 to 2016.
Bulgaria’s deficit is expected to rise to 3% of GDP this year, amidst falling revenues coupled with rising spending. The country recorded a budget deficit of about 1% of GDP in 2019, mainly due to the country’s US$1.256 billion deal with the United States to acquire eight F-16 fighter jets.
Unemployment stood at 7.5% in August 2020, down from 7.9% in July, 8.3% in June, 9% in May and 8.9% in April, thanks to the government’s job support schemes aimed at helping businesses weather the effect of the pandemic. But it remains far higher than the 5.3% unemployment rate in August 2019.
Inflation was 1.2% in August 2020, down from 2.9% a year earlier, based on figures from the NSI. Overall inflation is expected to slow to 1% this year, according to the European Commission.
Bulgaria is one of Europe’s poorest countries, with a GDP of almost US$9,500 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 PlamenOresharki of the BSP came to power after anti-austerity protests forced out former Premier BoykoBorissov’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, Borrissov is currently under pressure by protestors to resign after heavily armed security personnel raided in July 2020 the offices of President Rumen Radev, a vocal critic of the ruling party’s alleged vast corruption. Recently, Borissov declared his intention for a constitutional change that would limit the authority of the president.