Sharp rise in house price index
Lalaine C. Delmendo | March 07, 2022
However in real terms, house prices actually fell by 1.9% y-o-y in Q2 2022, amidst surging inflation. Overall inflation accelerated to 17.7% in August 2022, sharply up from just 3.7% in the prior year and the highest reading since May 1998.
Quarter-on-quarter, nationwide house prices rose by 3.1% in Q2 2022 but actually declined 1.4% in real terms.
By property type:
- Prices of new dwellings rose by 12.3% during the year to Q2 2022, up from the previous year's 7.2% y-o-y rise. When adjusted for inflation, prices dropped 3.9%. During the latest quarter, prices of new dwellings were up 2.4% (-2.1% inflation-adjusted).
- Prices of existing dwellings rose by a huge 16% (-0.7% inflation-adjusted) in Q2 2022 from a year earlier, the biggest y-o-y growth in recent history. Quarter-on-quarter, existing house prices increased 3.5% (-1% inflation-adjusted).
Demand continues to rise strongly, thanks to growing household incomes, low mortgage rates, as well as low unemployment. In the second quarter of 2022, the number and value of residential property transactions in Bulgaria soared by 26.8% and 38%, respectively, as compared to the same period last year, according to figures from the NSI.
Despite rising demand, residential construction activity is now showing signs of slowdown, due to the rising prices of building materials, coupled with supply chain disruptions. In the first half of 2022, dwelling completions fell by 6% y-o-y to 8,125 units.
Bulgaria's housing market is projected to continue growing in the medium term, albeit at a slower pace, amidst weaker economic growth and an expected rise in interest rates. The nervous political situation in the country also increases uncertainty in the housing market, with President Rumen Radev calling for a snap election on October 2 – Bulgaria's fourth parliamentary vote within two years – after the collapse of ex-Prime Minister Kiril Petkov's government in June. The country is currently under the caretaker government of Prime Minister Galab Donev until a new administration is formed.
National Real Estate Association Chairperson Dobromir Ganev expects house prices in the country to increase by just 2% to 3% by end-2022. Yet Ganev reiterated that prices are unlikely to fall due to limited housing supply, especially in Sofia.
Bulgaria's economy had been expanding by an annual average of 3.6% in 2015-19, before it contracted by 4.4% in 2020 due to the Covid-19 pandemic. The economy returned to growth in 2021, registering a real GDP growth rate of 4.2%. Economic growth is expected to slow to 2.8% this year, according to the European Commission.
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.
Analysis of Bulgaria Residential Property Market »
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.
Modest economic growth, surging inflation
In Q2 2022, Bulgaria’s economy expanded by 4% from a year earlier, following y-o-y growth of 4.2% in Q1 2022, 5% in Q4 2021, 5.3% in Q3 2021 and 7.8% in Q2 2021, buoyed by strong domestic consumption, according to the NSI. Over the same period: - Domestic consumption rose by 5.2% y-o-y, following a 5.1% growth in the previous quarter
- Gross fixed capital formation declined by 7.8% y-o-y, after falling 5.7% in Q1
- Exports were up 10.4% but imports increased at a faster rate of 16.7%
On a quarterly basis, the economy expanded by 0.8% in Q2 2022, at par with the previous quarter.
Recently, the European Commission raised Bulgaria’s economic growth forecast for 2022 to 2.8%, up from its spring estimate of 2.1%. However, it downgraded its 2023 growth projections from 3.1% to 2.3%.
“Overall, real GDP is expected to grow by 2.8% in 2022 and 2.3% in 2023. Compared to the Spring Forecast, the real GDP growth rate is 0.7 pps. higher in 2022 and 0.8 pps. lower in 2023,” said the European Commission. “The upward revision in 2022 reflects mainly the strong recovery in the first quarter of this year. The weaker external environment and tighter lending conditions, combined with the weaker real wage growth, explain the downward revision for 2023.”
Before it contracted by 4.4% in 2020 due to the Covid-19 pandemic, 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. The Bulgarian economy bounced back in 2021 with a 4.2% growth.
During 2021, the budget deficit reached BGN 5.43 billion (€2.78 billion), equivalent to 4.1% of GDP, based on figures released by the NSI, slightly up from a 4% shortfall in 2020 and in sharp contrast to a 2.1% surplus in 2019. The government debt amounted to BGN 33.28 billion (€17 billion) last year, which is equivalent to 25.1% of GDP.
Inflation accelerated to 17.7% in August 2022, sharply up from just 3.7% in the prior year and the highest reading since May 1998, amidst surging food and energy prices. Overall inflation is expected to increase to 12.5% this year, from just 2.8% in 2021 and 1.2% in 2019, according to the European Commission.
Despite this, the labour market remains strong. Unemployment declined to 4.7% in Q2 2022, down from 4.9% in the previous quarter and 5.6% a year earlier, as economic activity increases amidst the easing of pandemic-related restrictions, coupled with the government’s job support schemes aimed at helping businesses. Nationwide unemployment averaged 5.2% in 2017-21.