Buying in Eastern EuropeThis week, Bulgaria got the green light to join the EU in January. Daniel McLaughlin looks at the pros and cons of buying property there
Bulgaria is being marketed as the place with a dream property for every investor but, even if the Balkan nation joins the European Union as planned next year, financial experts and even estate agents are urging buyers to look very closely before they leap.
Whether it's a mountain chalet at Bansko, a Black Sea beach pad or a bolthole with investment potential in the capital Sofia, the property roadshows insist that Bulgaria is awash with unbeatable bargains that offer high rental yields and stellar resale value.
But amid warnings that a glut of new-builds is depressing the market, tales of tax dodges by developers that carry a sting in the tail for foreign buyers, and widespread disappointment at rental returns, a re-assessment of Bulgaria seems to be taking place.
"Bulgaria is facing a period of readjustment after a huge initial foreign investment," Stuart Law, managing director of UK property investment firm Assetz, cautioned this month.
"While longer-term investors are still set to benefit over the next five to 10 years, as low cost property continues to attract holiday homebuyers, there are no longer instant returns to be made in the short term," he said.
"Annual house price growth has slowed considerably in (Bulgaria) from 36 per cent to 17.8 per cent, with the popular Bansko ski region reporting price falls of 2.1 per cent. Bulgaria as a whole only grew by 1.6 per cent in the second quarter," Assetz reported.
Sean Boylan, managing director of Co Monaghan-based Property in Bulgaria, says buyers should not bank on some agents' promises of 20 per cent annual appreciation.
"There is steady appreciation, but I advise people to relax with their property, and to let a few years go buy before thinking about re-selling," he says.
"There are lots of very cheap apartments, houses and plots of land in Bulgaria, but they can be off the beaten track. For rental and resale, the location is essential, and you should ideally have property in a place that you like to be."
Tom Fingleton of Buy in Bulgaria says buyers should see the country as "an investment over five or more years. If you expect to re-sell the property very quickly you may well lose money." He also warns that "agents have been overselling Bulgaria's rental potential when talking about 8-12 per cent yields."
"A 4-5 per cent level is more realistic, and while Sofia offers the opportunity of year-round rentals, the coast and mountains obviously do not," Mr Fingleton adds.
"What's more, you really need a self-catering holiday market for really good rental opportunities in resorts, and that doesn't exist yet in Bulgaria. It is where Spain was 10-15 years ago."
For David Readman of Bulgarian Properties Ltd, Sofia and Bansko offer better investment potential than the Black Sea coast.
"Bansko is the best ski resort in eastern Europe, planning restrictions mean it shouldn't get overdeveloped, and construction quality is better than on the coast," he said.
Other Bulgarian property specialists suggested Pamporovo and nearby Chepelare - east of Bansko and close to the historic city of Plovdiv - were better than their more illustrious rivals for people who wanted to "ski straight from their front door". Prices at both locations can also be considerably lower than at Bansko, where agents quoted prices of €1,000-1,800 per sq m.
In Sofia, brokers recommended sought-after southern districts with cleaner air and a view of the nearby mountains, particularly Dragalevski, Boyana, Simeonovo and Pancherevo. They said prices ranged from €750-€1,800 per sq m in the city of one million people, which is growing all the time as people flock to the capital for work.
"Sofia property is grossly undervalued in comparison to other east European cities," says Mr Fingleton. "I believe it has been forgotten in the rush to the coast and mountains, and offers very, very good investment opportunities."
Several agents said lesser-known spots by the Black Sea, south of the heavily developed Sunny Beach, were now coming into their own, with Tsarevo being one resort recommended. Coastal properties were valued at €1,000-€2,000 per sq m.
Real estate experts say EU membership will not greatly simplify the fairly straightforward legal business of buying a property in Bulgaria.
Foreigners cannot buy land or a free-standing house without forming a Bulgarian-registered firm, which is a relatively simple process for a local lawyer, usually taking one to three weeks, costing about €600 and requiring a bank deposit of €2,700.
Potential buyers should also have a lawyer resolve any outstanding disputes over ownership of their desired property or land, and make sure the full purchase price is stated in the title deeds, rather than a lower price that a developer may favour.
By understating the price he received for the property, the developer cuts his own tax liability but increases that of the buyer, who upon resale will have to pay 20 per cent capital gains tax on more profit than he actually made.
Buyers should also be aware of extra costs: two per cent of the purchase price to cover stamp duty and, experts recommend, another two per cent to comfortably cover the necessary fees for notaries and lawyers.
