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Bulgaria Property - Investments Bulgaria Property Investments

Bulgaria Property Sofia

Bulgarian Property - Why Invest?

· The Bulgarian Economy is growing steadily - Strong growth in industrial production, employment and credit has resulted in high GDP growth over the last few years. The economy has grown at an average rate of 4.8 % over the last five years and despite this, inflation has been reduced to the low level of 2.3 % in 2003. Foreign direct investment (‘FDI’) into Bulgaria has increased on a year on year basis over the past three years. FDI reached US$7.4 billion in 2003 from US$5.7 billion in 2002 (a 30% increase). The growth in the Bulgarian economy should underpin a strong property market and lead to increased Bulgaria property prices.

· Bulgaria Property prices are relatively low - Property in the better residential areas of Sofia sells for around €1,000 – 1,200 per square metre (roughly £67 – £82 per square foot). To give regional comparisons, the best residential property in Zagreb, Croatia sells for €2,200 – 2,500 per square metre, in Belgrade, Serbia €2,000 – 2,200 per square metre, in Romania for over €1,500 per square metre and in Athens, Greece for €7,600 – 8,800 per square metre. It is clear that Bulgaria property is significantly cheaper than many other countries in the immediate area. By way of comparison, in London, property in a number of residential areas (such as Knightsbridge, Kensington and Chelsea) can sell for approximately €16,000 per square metre (£1,000 per square foot).

· Low Currency risk - The Lev has been pegged to the Euro since its introduction at a fixed rate equivalent to €1 to Lev 1.9558. From 1997 the Lev was pegged to the DM at a rate of 1 Lev to 1 DM.

· The current cost of domestic borrowing is relatively high - The rate that ordinary Bulgarians pay for a floating rate mortgage is in the range of 10 – 12% pa. We believe that once Bulgaria joins the EU, interest rates should fall in order to harmonise with rates in the Euro zone. Lower interest rates should help stimulate the Bulgaria property market.

· It is currently possible to achieve high rental yields on property - Rental yields on residential property are currently in the range of 10 – 12% of the purchase cost and on commercial / industrial property yields of 16% or more may be obtainable. We believe that the company should be able to achieve higher rental yield on properties which it has developed or refurbished.

· Much residential property available is unsuitable for letting - There is currently no mechanism whereby individual leaseholders can be compelled to contribute towards the cost of repairs to common parts and exterior of buildings unless their leases specifically contain provisions to this effect. Whilst suitable provision is sometimes made in the leases of recently constructed blocks, blocks constructed in the communist era, or earlier, rarely have such clauses in leases. The result is that unless all the owners in a block agree to repair, nothing may be done. Even in the best residential areas of Sofia the common parts of older blocks are frequently unattractive and are, therefore, difficult to let. Good quality modern blocks of flats therefore command a premium in the letting market.

· The Bulgaria property market is relatively unsophisticated - Whilst there are estate agents in Sofia, they generally do not have shop fronts displaying Bulgarian properties that are for sale with prices clearly stated. It is common practice that estate agents charge fees to both buyer and seller. This increases costs and hence reduces the liquidity of the market. With accession to the EU, it is probable that this situation will change, with a consequent beneficial impact on the Bulgaria property market. Premier Property generally receives fees from the vendor.

· Little modern commercial and industrial property development - We believe that there has been little commercial and industrial Bulgaria property development, particularly of warehouses and distribution centres including cold storage.

· Property Taxation and VAT - Real estate tax is an annual tax and amounts to 0.15% on the assessed value of the property. The tax base for a legal entity is the real estate's cost as per the balance sheet of the company (the real estate’s net book value plus the accumulated depreciation costs). The real estate tax applies to land (but not to agricultural land and forests) and buildings. The tax is payable regardless of whether the immovable property is used or not. The tax liability is on the owners of the immovable property. A 2% municipal tax is paid upon the acquisition of immovable property based on its value. For the transfer of property where notary certification is necessary, a notary transfer fee is due. It is defined in a regressive scale depending on the value of the transferred property. The fee cannot exceed Lev 3,000. In addition a notary fee of 0.1% of the value of the property is payable on registration. VAT on property transactions and on development costs would normally be charged at the Bulgarian VAT rate of 20%.

· The Bulgarian property market is characterized by poorly clarified regulatory and tax policy resulting in inconsistent implementation and varying valuations (both market related and tax based); all of which if misunderstood may result in potential tax liabilities in future periods combined with lower debt/equity borrowing facilities been available to the acquirer. In this section we attempt to clarify and demystify the situation.

· Taxation in Bulgaria:

For offshore investment in Bulgaria, there are many varying tax and company structures available. We are in a position to suggest possible structures for individual investors, but would always suggest our clients to get independent advice (see below for links).

Tax rates will vary for every individual depending on the origin of funds and the repatriation of profits, therefore we look at each investment on a case by case basis.

Whatever the extent of your investment, we are able to offer advice and are continually monitoring of the situation.


        · Bulgaria Tax Summary
        · KPMG Bulgaria
        · Deloitte Sofia
        · Price Waterhouse Coopers' Report
        · Comprehensive tax guide

Bulgarian Corporate Tax

Operating subsidiaries in Bulgaria in the form of special purpose vehicles ('SVPs') will be subject to tax in Bulgaria on their taxable profits at the rate of 19.5%. In the 2005 financial year corporation tax is expected to be reduced by 15%.

On 1 January 2007, Bulgaria is expected to join the EU. Under the 1990 EC Directive 90/435/EEC, dividend payments by a subsidiary in one member state eg Bulgaria to a parent in another eg the UK, will not be subject to withholding tax, subject to the parent holding at least 25% of the share capital of the subsidiary. Credit will continue to be available in the UK for any underlying tax suffered in Bulgaria.

Foreign ownership in Bulgaria:

Under the Bulgarian act on Foreign Ownership, foreigners are not allowed to own land but may own buildings. Foreigners can however own land by setting up a Bulgarian company to hold the Bulgarian property for them.

The situation is summarised below:


      · No land ownership for foreigners in Bulgaria.
      · Buildings can be owned by foreigners.
      · Foreigners wishing to own land can do so through a company.
      · Bulgarian company incorporation costs less than £600.
      · Bulgaria’s ownership policy will be harmonised with the EU in the future.
      · We recommend company ownership for security of your investment.

 

Take a look at our properties for sale page

Here you can find a free Bulgarian property buyers guide.

For further information please contact us.

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