Not the most interesting of subjects, but extremely important nonetheless! Before it is possible to realize the dream of purchasing a property in Bulgaria, it is important to have a good idea of how the purchase will work for you, financially and legally. Issues such as how a property can be funded and what the purchase process is are vital, if you do not want to end up with a nasty shock further down the line.
Bulgarian Mortgages
When purchasing in Bulgaria, an investor has two key options: buying via a local Bulgarian mortgage provider, or raising the cash in their home country and buying the property for cash. There are, of course, companies that sell off-plan properties that offer their own financing structure. However, investors should be particularly wary of these companies and should always obtain independent financial and legal advice, before agreeing to any payment plan.
With so many providers, it is virtually impossible to give a definitive answer as to which option will prove the cheapest in any individual set of circumstances. As a general rule, most individuals who have a relatively straightforward financial situation will be better off raising the cash against their existing property. Although interest rates are low in Bulgaria, the choice of companies that offer mortgages to foreign investors is extremely limited, resulting in limited bargaining power and therefore fewer deals.
At the time of writing, the only three companies that offer mortgages to foreign individuals are the Greek banks Piraeus, DSK and BulBank. Mortgage rules in Bulgaria are rather simple and, in general, a UK citizen earning at least 15,000 a year can obtain a mortgage for up to 200,000 Euros. Interest rates are around the 6 to 7 percent mark, but only 70 percent of the propertys value can be borrowed and the term is set at 20 years. These restrictions mean that it is often better to consider a home mortgage and then to buy in cash.
Another potential issue with Bulgarian mortgages is that they take a lot longer, administratively, than most other countries. Expect the process to take somewhere in the region of 12 weeks. Also, if you are buying off-plan, be aware that you will often be unable to obtain the full mortgage value until the property is complete, although there will be staged payments normally expected throughout the build process. Make sure that you consider how these payments will be met.
Legal Issues
One of the most fundamental issues, at the moment, for foreigners hoping to purchase a Bulgarian property, is that under the Constitution of the Republic of Bulgaria, anyone who is not a citizen of Bulgaria cannot own property, personally. Actually the law states that you cannot own land, but can own buildings, but this, in reality, does little to help the situation!
This will eventually change after Bulgaria joins the EU, but investors should not expect to be able to hold property directly until around 2014.
Instead, foreign investors will have to set up a Bulgarian company which will then purchase and own the property. Although this sounds complicated, the process in fact is relatively easy and only costs around 700.
Be aware as well that it is common place in Bulgaria to expect a purchaser to sign a power of attorney to allow issues such as insurances to be dealt with. Many foreign investors are wary of this procedure, as it is not common place in countries such as the UK.
Taxes
A foreign investor will normally be taxed in line with the country where they are resident; any gains will have to be declared in their annual tax returns in their country of residence. When purchasing a property in Bulgaria, investors are subject to a purchase tax. This is based on the tax estimation price which is set by the vendor or his agent. Generally, this price is much lower than the actual sale price. Bear this in mind when reading the advertisements and do not expect to be able to buy a property for its tax estimation figure.
When purchasing abroad it is vital that you receive English speaking, knowledgeable and independent advice, so that you can be certain that you are getting the best deal possible, both financially and legally. |
