Bulgaria’s house prices rising rapidly, due to strong economic growth
December 28, 2017
The nationwide house price index rose by 8.59% (6.55% inflation-adjusted) during the year to Q2 2017, from y-o-y rises of 8.98% in Q1 2017, 8.11% in Q4 2016, 8.8% in Q3 2016 and 6.55% in Q2 2016, according to the National Statistical Institute (NSI). During the latest quarter, house prices increased 2.41% (2.53% inflation-adjusted) in Q2 2017.
- Prices of new dwellings rose by 7.32% (5.3% inflation-adjusted) during the year to Q2 2017, an improvement from the previous year’s 4.9% y-o-y rise. During the latest quarter, prices of new dwellings fell slightly by 0.82% (-0.69% inflation-adjusted).
- Prices of existing dwellings surged 9.2% (7.15% inflation-adjusted) in Q2 2017 from a year earlier, higher than the 7.48% y-o-y growth in Q2 2016. Quarter-on-quarter, existing house prices increased 4.16% (4.29% inflation-adjusted).
The almost zero interest rates on bank deposits have encouraged people to invest in real estate, and also encouraged purchases of pre-construction residential property.
“Increased activity, including the summer months, increasing volumes of sales, stabilized prices and constantly increasing interest by Bulgarian buyers - these are the main trends for the year that is soon to come to its end,” said Polina Stoykova, the Executive Director of Bulgarian Properties.
From 2000 to 2008, Bulgaria had a house price boom, with residential property prices surging around 300%. The bubble burst at the end of 2008:
- In 2009, Bulgaria’s average dwelling price plummeted by 25.72% (-26.14% inflation-adjusted);
- In 2010, the average dwelling price fell by 4.96% (-9.08% inflation-adjusted);
- In 2011, the average dwelling price fell by 5.81% (-8.33% inflation-adjusted);
- In 2012, the average dwelling price fell by 1.3% (-5.33% inflation-adjusted);
- In 2013, the average dwelling price fell 1.2% (increased 0.4% when adjusted for inflation);
- In 2014, the average dwelling price increased 2.78% (3.69% inflation-adjusted);
- In 2015, the average dwelling price increased 3.98% (4.37% inflation-adjusted);
- In 2016, the average dwelling price rose by 8.11% (8.01% inflation-adjusted.
Bulgaria’s property market is projected to remain strong in the medium term. Demand for properties in the major cities continues to grow, and supply is increasingly limited by low levels of new construction.
Bulgaria’s economy is expected to expand by 3.6% this year and by another 3.2% in 2018, from growth rates of 3.4% in 2016, 3.6% in 2015, and an annual average growth of just 1.1% from 2010 to 2014, according to the International Monetary Fund (IMF).
European Union citizens can now purchase properties in Bulgaria, including land. The 5-year moratorium on land purchases, set as a condition in the Accession Treaty between Republic of Bulgaria and The European Union, was lifted in January 1, 2012.
Previously, foreigners could purchase land only in the name of a legal entity and were not allowed to own a property. The lifting of the ban now gives European citizens the right to own property as individuals.
Rental yields are moderately good in Sofia, Bulgaria
Sofia has moderately good gross rental yields - i.e., the rental return on a property if fully rented out, before all expenses. Yields in the centre are around 6.0 %. Yields a little further out are similar.
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. Though new developments being built here are increasing the stock of rental apartments, we find better yields here on the very smallest apartments, with yields stretching up to 6.4%. Two years ago we found that the very biggest apartments commanded exceptional yields at 8.4%. We weren´t able to gather enough data the last two years, but that may be worth investigating.
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.
Economic growth, budget surplusBulgaria is one of Europe’s poorest countries, with a GDP of more than US$7,000 per capita in 2016, 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.
Bulgaria’s economy is expected to expand by 3.9% in 2017, its strongest performance since 2008 and one of the fastest growth rates in the European Union, according to the European Commission. In Q3 2017, Bulgaria’s economic growth accelerated to 3.9% compared to a year earlier, from 3.7% in the prior quarter and 3.4% in the previous year, according to the NSI.
The budget surplus was 1.6% of GDP this year, in sharp contrast to a deficit of 2.8% of GDP in 2015 and 3.7% of GDP in 2014. It was the country’s first budget surplus since 2008. During the first nine months of 2017, the country recorded a consolidated budget surplus of BGN2.42 billion (€1.24 billion), which is equivalent to 2.4% of this year’s estimated GDP.
Consumer prices are expected to increase by about 1.1% this year, after deflations of 1.3% in 2016, 1.1% in 2015 and 1.6% in 2014, according to the IMF.
Unemployment stood at 6.7% in October 2017, down from 8% in 2016 and an average of 11% from 2012 to 2015, according to the NSI. Unemployment is expected to be 6.4% this year, according to the European Commission.