THE BUYING PROCESS

Despite all the coverage and press hype, Bulgaria is still an incredibly small market and has a long way to go before reaching her full potential–the Bulgarian Building and Construction Chamber envisages yearly construction growth of 15% over the next three years. Buying in Bulgaria is certainly not for the fainthearted and it is imperative to secure yourself a knowledgeable lawyer. Thanks to recent EU membership, the country is moving in the right direction for foreign investors, with mortgage rates dropping from 16% to 5.5%, and restrictions on the purchase of land soon to be abolished.

Stage 1: Restrictions on foreigners

As a foreigner buying in Bulgaria, there are restrictions on the purchase of land, but not on property. However, now that Bulgaria is part of the EU, legislation has been drawn up to abolish the restrictions on land purchase, although this is unlikely to be fully ratified until 2012. In order to buy land, you need to set up a limited company. This is a relatively straightforward process and a regular occurrence, and most agents are willing to organise this for you as part of the purchasing process.

In order to set up a company you are required to do the following:

• set up and register the property, including registration with the tax authorities. This costs £515;
• set up a bank account. To do this you will be required to make a minimum deposit of £1,700, although this will be refundable once the company has been official registered.

The registration process normally takes four weeks. Once the company is established, it can purchase any land, or a building with any land attached to it.

Stage 2: Funding your purchase

Mortgage rates have recently been slashed in Bulgaria, and it is only in the last couple of years that foreigners have been able to secure a Bulgarian mortgage through UK lenders. This is down to the recent admission of the country into the EU. Generally, the maximum loan will be 70% of the property’s value, leaving the buyer to find a 30% deposit. Interest is normally levied at 6–7%. Consequently, a buyer may find it cheaper to secure equity from their first home and buy with cash.

Stage 3: Background checks and surveys

As with every purchase, you need to check the title deeds at the land registry office. Your checks need to ensure that you are buying the property you think you are, that it’s available for sale, that the seller is the actual owner and therefore entitled to sell it and whether or not the property is sold with land–if it is, you will need to set up a company in order to purchase, (see Stage One above). Your lawyer should also check for any outstanding debts that may be attached to the property.

It is advisable that you get a survey carried out, especially if it is an older or resale property. As this is not standard procedure in Bulgaria, you should arrange for a full structural survey. This will cost you between £200 and £300.

Stage 4: Reservation and preliminary contracts

The first stage in the purchasing process is to pay a reservation fee in order to take the property off the market. Before committing to paying a reservation fee ensure that the property will actually be removed from the market, check whether the sale price is inclusive of VAT and what price will be declared on the final contract–the estimated or actual–as this will impact on the amount of tax you will have to pay.

Make sure you obtain a reservation receipt from your estate agent, which recognises payment of the fee. This should also contain an accurate description of the property and its location, and the amount you have paid in reservation, the duration the reservation period will last and whether or not the fee is deemed refundable should you pull out of buying.

Once the reservation fee has been paid, the preliminary sale contract should be drawn up within a couple of weeks. This will set out all the agreed details of the purchase and the amount of deposit to be paid, which is usually 10% of the sale price. You don’t have to be present to sign the preliminary contract as you can arrange for your lawyer to sign it on your behalf by giving them power of attorney.

Off-plan property

When buying a newly-built home, the preliminary contract needs to include details and dates for the completion of the property, along with details of the construction materials and agreed payment options. Once construction is completed, you will then be required to sign a delivery acceptance record to show that you are happy the property meets the agreed standards. On signing the preliminary contract, your first payment will be due and you must ensure it is paid on time–otherwise you you could lose your property and deposit.

Stage 5: Completion

Once the preliminary contract has been agreed and the deposit paid, the final contract is then ready to be signed by both the buyer and the seller. This must be witnessed by a notary.

The whole purchasing process can often take less than a month and you will receive the title deeds proving your ownership of the house roughly two weeks following the date of final completion. While the originals will be in Bulgarian, you can–and should–request an English translation.

Be aware that the actual price paid for the property by the buyer and the price listed on the title deeds may differ. This is because in Bulgaria, property has both an estimated tax price and a separate purchase price. The tax estimation price is much lower than the actual purchase price, allowing Bulgarians to pay much lower rates of tax.

If the property is occupied at the time of completion, do not expect the buyers to move out straight away. In Bulgaria, it is normal for the sellers to be given one month following completion to vacate the property.

Stage 6: Additional costs

If you are buying an apartment off-plan then the estate agents’ fees are usually paid during the signing of the preliminary contract, rather than on completion of the purchase, so you’ll need to ensure that you have the funds available at an earlier stage.

As well as the cost of the property, there will also be additional fees and taxes to be paid before you can take ownership of your home. In Bulgaria you should budget for an extra 4–5% of the cost of the property for these charges. They may include:

• Transfer fees: 2–2.5%.
• Notary fees: 0.5–2%.
• Legal fees: 1–1.5%.
• Surveyor’s fee (optional).
• Mortgage fees (if applicable).
• Foreign exchange costs (if applicable).
• Estate agents’ fees 3–5%. Payable by both the buyer and seller.
• Registration fees: 0.15% of the price of the property.
• Maintenance fees usually in the region of €7 to €10 per sq m.