Investing in Bulgarian real estate remains profitable

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Bulgaria Property Growth

A balanced economy and low interest rates are the main pillars of the strong house prices in Bulgaria that enter their 6th consecutive year of growth now.

Bulgarian Property Prices

The following indicators also show a positive trend. Prices of new properties went up by 11.9% in 2018 compared to a 2.3% y-o-y increase in the year before. At the same time prices for existing properties went up by 5% in 2018 compared to a 9.7% y-o-y increase in the year before.

Interest rates in Bulgaria are close to zero on deposits and therefore many people put their money into real estate development. As a result, the sales of pre-construction residential units has rapidly increased. In spite of the increased demand for new properties, the supply lags behind. In Q2 2019 the number of newly developed properties (2.250 units) decreased by 1.5% compared to the previous year. This is not something new as 2018 (-3%) and 2017 (-10.3%) also saw declines in the number of delivered properties.

One of the reasons for this decline is the history of Bulgaria’s housing market. 2000-2008 were the golden years of Bulgarian real estate with prices increasing by 300%. However, this came to an end with the financial crisis of 2008 and prices only started to recover in 2014. This explains why developers are careful to increase the supply of new residential units and why 60% of projects under construction have already been sold.

Gross rental yields in the center of Sofia are moderate, ranging between 4-6%. In this area, you can find museums, embassies, and universities. Furthermore, the abundance of parks and other greenery make this a popular area among ex-pats. Boyana and Dragalevtsi are suburban areas that are also highly sought-after and that will return favorable yields.

Transaction costs in Bulgaria are average and are, in most cases, divided evenly by buyers and sellers with the total of these costs varying between 5.3-10.6% of the total value of the property. Buyers pay the 0.1-3% transfer tax, notary fee (0.1-1.5%) and a 0.1% registration fee.

Bulgarian taxes are considered to be low. Here are the most common taxes applicable in Bulgaria:-

● Rental income: 10%
● Capital Gains: 10%
● Inheritance: 0% when inheriting from a direct descendant. Inheritance taxes apply to all other individuals, with the rate depending on the type of relationship between the deceased and the heir.
● Income tax: 10% (called resident tax and is applicable to income gathered worldwide)

Written by Nicholas Wallwork