Bulgaria is a popular destination for Russia's developing middle class to buy property, particularly for those seeking an alternative summer residence for the family.
With over 250,000 Russian-bought properties in the country since 2007, Bulgaria has become Russia’s favorite vacation destination. Located on the west coast of the Black Sea and bordering Romania, Turkey, Greece, Macedonia and Serbia, Bulgaria offers a diverse range of landscapes from the Alpine snow-capped peaks in central Bulgaria to the mild and sunny Black Sea coast.
In 2007 5.2 million tourists visited Bulgaria, making it the 39th most popular tourist destination in the world. Most of the visitors are attracted by the varying and beautiful landscapes, in addition to the well-preserved historical and cultural heritage. Following Bulgaria’s admission to the European Union in 2007, the real estate market grew steadily, attracting foreign buyers who acquired plots of land and apartments at some of the lowest costs in Europe.
It is perhaps little wonder that so many Russians are buying property in the country. As Moscow properties hit an all-time high in summer 2008, with average prices reaching the $6,000-per-square-meter mark in the city, a square meter in Bulgaria cost an average of only 1,000 euros. And that was for a property that was ready to be lived in. However, it is not the only reason why Russians are so attracted to Bulgaria: the country’s Orthodox culture, weather, investment opportunities, EU membership and low living costs all make Bulgaria, which is only a relatively short trip from Moscow, popular for a growing number of Russians.
Ties between the two countries span the linguistic, economic and historical spheres. The Russo-Turkic War of 1877-78 gave rise to the creation of an independent Bulgarian state and the beginning of Russo-Bulgarian diplomatic relations that, in many ways, were strengthened in the twentieth century by the countries’ socialist governments. At the same time, linguistic similarities have been fostered by religious affinity; many of Russia’s high-register words have been adapted from religious language, with its roots in a common liturgical language variously named Old Church Slavonic on Old Bulgarian, rather than from East-Slavic origins. This was then compounded by the countries’ close relations during the Soviet period and the widespread teaching of Russian in Bulgarian schools.
Who Is Buying Where?
The Black Sea coast is one of Bulgaria's main attractions, with Russians favoring managed resort complexes, such as the 257-apartment yooBulgaria development.
Most buyers from Russia that acquire Bulgarian properties are today’s Russian middle class. They are on average between 35 and 40 years old, with a steady income. Most of them are self-employed with families. Russians commonly use their Bulgarian holiday property for the whole summer season, often sending their family off to stay on the coast of the Black Sea instead of spending summer at the dacha. In the winter breaks some go to ski resorts in the country.
The main destinations in Bulgaria include the coastal Black Sea resorts of Zolotiye Peski — or Golden Sands — Albena, Solnechny Bereg — or Sunny Beach — Varna, Bourgas and the winter resorts of Pamporovo and Borovetz. Sofia, the country’s capital, is of less interest to Russians; on the whole buying property in the city is only considered as an income generating investment, or for those who regularly travel on business to the country.
Bulgaria offers two types of seasonal properties that are popular with Russian buyers: on the coast of the Black Sea and in the mountains. Apartments are the most common choice for Russians, as they require very little maintenance, the construction is solid, and a professional management company usually runs the complexes. Also, it is easily transferred by deed to an individual’s personal name, although land purchases require buyers to register a company. Obviously, location, design and infrastructure play a major role when it comes to choice, so most Russian buyers prefer an apartment with a decent view of the sea for a summer property or close to a ski lift for winter holidays.
Prices for apartments vary depending on location, infrastructure, the quality of finish and size. Distance from major international airports is an important factor too; there are only two coastal airports, in the cities of Varna and Bourgas, and one that can serve mountain travelers, in the city of Plovdiv. On the Black Sea coast, about two kilometers from the shoreline, apartments can go for as low as 600 euros per square meter, while apartments with direct sea views could reach as high as 2,500 euros ($3,570) per square meter. An average apartment has one or two rooms with around 75 to 80 square meters of space, completely finished and ready for use. The developer selling the property usually offers a set of furniture, with what is needed for a comfortable stay, therefore, making a purchase even more attractive.
Alternatively, most developers offer a rental guarantee option. This provided buyers with a minimum five-percent annual rate of return on their investment, when they rent out the property while they are not in residence. As a result, while away from the apartment, owners can use it to generate a small income that is nevertheless large enough to cover all expenses and to carry the property throughout the year. This is another option that is popular with Russians.
Sofia attracts fewer Russian buyers, as it is mainly only business travelers interested in the capital city.
A good example of a development that successfully attracted Russian buyers is the yooBulgaria complex, which is located in the coastal town of Obzor, near Sunny Beach. Its secluded location, sea views and the seven-kilometer-long sandy beach are all part of a development by an international company, operating under the brand YOO, that is owned by Philippe Starck, a well-known designer, and an English developer, John Hitchcox.
The first phase of the development includes a 257-apartment complex on the Black Sea coast. Within first year of sale over 80 percent of the complex had been bought by Russians. Priced from around 1,500 euros ($2,140) per square meter and now in operation, it is a solid example of what Russians are buying on the Bulgarian real estate market. The complex offers a range of floor plans from studios to two-story penthouses, and services that are a mix of holiday complexes and those for more permanent living. These include a restaurant, bar, gym, spa center, kindergarten, mini market, swimming pools, tennis court, underground parking, room service and security.
The price comparison that one buyer made exemplifies the attitude taken by some of Russia’s middle earners. “My family has decided to give up on buying one underground parking spot in the center of Moscow and purchase a one-bedroom apartment in the complex.”
A second example could be the Dream Lake complex, located in Pamporovo, around a mountain lake and 500 meters from a ski lift that takes visitors to over 50 kilometers of ski slopes. Properties at the complex, which is located 80 kilometers from Plovdiv’s international airport, are currently selling for around 1,200 euros ($1,710) per square meter.
Purchase and Maintenance
Aside from properties on the Black Sea, Bulgaria's mountainous regions with popular ski resorts, such as in the Rhodope Mountains in the southwest of the country, also attract Russian buyers.
The buying process is very simple; however, it does require the help of a Bulgarian attorney, who will tend to charge around 700 euros per property registration. Property ownership registration will cost about 3.2 percent of the purchase price of an apartment and usually includes a local real estate property transfer tax, administration fees and notary fees. A 20-percent Bulgarian value added tax, or VAT, is usually included in the sale price. The VAT can actually be claimed back by a buyer, provided that the property is to be registered to a buyer’s company registered in Bulgaria.
The services of a Bulgarian accountant are also required, as are those of a real estate lawyer. If buyers decide to sell their property within the first year of ownership, an additional 15 percent income tax will be charged on the difference between the original purchase price and the resale price. Provided that buyers have owned their apartment for over one year before they sell it on, no income tax will be charged on the difference.
As the Bulgarian authorities have realized that Russia now represents a continuous supply of property buyers for the country, the visa process for Russian owners of Bulgarian properties has been simplified, and it is possible to obtain a multiple-entry visa for up to three years. However, the maximum amount of time Russians are allowed to stay in Bulgaria annually is six months. Visas are also guaranteed for the buyer’s closest relatives, according to Bulgarian government officials. The prospect that Bulgaria is likely to become a member of the Schengen Agreement in 2011 should provide another great advantage of owning a property in Bulgaria for a Russian. Current Bulgarian law also permits the submission for permanent residency, provided a buyer has spent over 300,000 euros to purchase a Bulgarian property.
Maintaining property in Bulgaria is also cost effective. Fees for a professional management company currently stand at around 8 to 12 euros per square meter per year and include all the usual services for maintaining the property. This means that the cost for a 75-square-meter apartment is around 68 euros per month. In addition, each individual apartment features a separate water and electricity meter, so the charges only occur while the apartment is in actual use. Annual property taxes are also inexpensive at around 0.015 percent of the purchase price per year.
While average prices per square meter for Bulgarian property jumped by 28 percent in 2007-2008, the international financial crisis has affected the Bulgarian real estate market. Frozen construction projects due to a shortage of financing, plummeting sales volumes, and Bulgarian banks’ suspension of offering mortgages to foreigners since January 2009 have all contributed to some developers offering up to 30-percent discounts to buyers.
Bulgaria’s aging municipal infrastructure also requires capital investments. Recently, the Bulgarian government announced capital expenditures, a 35-million euro loan from the European Bank for Reconstruction and Development (EBRD) to upgrade Bulgaria’s municipal infrastructure. These funds are to improve the efficiency of Bulgaria’s local utilities and facilitate the economic integration of less developed regions. The types of projects that will be supported include local water and sewer investments, waste management and local road repair. Also, an investment of 400 million euros into the international airports in Varna and Bourgas has been announced.
However, what is in demand on the Bulgarian holiday property market is a good quality real estate product — location with great a view — is always sellable. So when it comes to choosing a Bulgarian property, it is important to realize that location and the quality of construction play an important role, as quality can rise over time with newer developments coming out, but the number of top locations is limited and will soon be in short supply.
Notably, over the years, Bulgaria has offered a healthy developing real estate market. This has mainly been due to strong competition among developers themselves, offering more attractive apartment designs, better infrastructure and management services, locations and prices. As a result of this, demand for quality in construction will continue to grow, and Bulgaria will be considered a holiday playground for Russians.
Furthermore, compared to other favorite vacation spots such as Montenegro, Spain, Italy or Sochi, it costs very little to enjoy. It is safe to say that Bulgaria was, still is and will be always in demand by Russian holiday seekers. Sales volumes should come back to 2007 levels by 2011 as the crisis cannot last forever and the economy will bounce back. Meanwhile, for Russians vacationing remains very important. Maybe some Russian developers will enter the Bulgarian market. It is still to be seen how the remainder of the year will turn out for Bulgaria, but one thing is for sure — prices will not stay this low for long.