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Guide to Expats, buying Property in Bulgaria – part 1

This article would provide the expats, planning to buy property in Bulgaria with some key advices, which shall help them navigate through the real estate landscape in Bulgaria. If you have particular questions, you can contact us to receive some free of charge insights.

  1. Can Foreigners Legally Buy Property in Bulgaria?

The short answer here is “yes”, which is of course followed by a “but”.

When it comes to apartments, houses, garages (i.e. separate units in buildings or buildings), all foreigners are entitled to acquire these.

However, when we talk about the acquiring of land, there are differences between EU and non-EU citizens.

EU citizens are allowed to acquire land in Bulgaria. Non-EU citizens are in principle not allowed to do so, whereas two clarifications are needed here. When the land constitutes “ideal parts” from the land plot, on which the building is built, and if these ideal parts are adjacent to the apartment/garage, owned by the foreign citizen, then according to the current notarial practice, the foreigner is allowed to acquire these ideal parts – for example 0,978% from the land plot. There is a workaround even if the foreigner would like to buy a land, where nothing is currently built, but it includes several additional steps – including company formation.

  1. What Checks Should
    You Do Before Signing Anything?

The short and quite disappointing reply here is that in practice you are unable to do any significant checks before signing the so-called “stop-deposit” agreement and paying this deposit. The reason is that most of the realtors refuse to provide the interested party with documents about the property before payment of this sum – there are, however, tools to tackle this situation, which we would explain below.

Before we continue, we shall clarify what the “stop-deposit” actually is. This is an amount of money that you are paying to the realtor offering the property (not to the owner, but to the realtor) with which you are showing that you are seriously interested in the property and want to move forward with further steps for the transaction. The realtor on their end shall stop offering the property to other persons and shall give you back this amount once you have a formal agreement with the owner.

What you must try to check before deciding to pay the stop deposit is at least the reputation of   the real estate agency, which offers it – for example to see whether there is some concerning info about them on the internet. If you are buying in a newly built building, you shall definitely ask about the building company, try to find information about them on the internet and ask the realtor about the building company’s previous portfolio. In the best case scenario you would be able to see finished projects of them.

 

Here is the moment to share a quite significant insider tip. Most of the real estate agencies would try to do the so-called “double” deal, which means that if you approach them without having a realtor on your side, they would force you  to pay them a  commission fee, even though they are receiving one from the seller too. The problem in such scenarios is that it is practically impossible for them to protect the interest of both parties, since these are intrinsically opposite. The seller wants to get a price as high as possible and the buyer of course wants a discount. In order to avoid such situations and given the fact that you are paying a realtor’s fee anyway, it is more prudent to have a realtor employed by you, who would take care of negotiating terms more favourable for you. We from Xstate BG would be glad to do so, if you decide to contact us.

Let’s get back to the stop deposit and see how you can mitigate the risk of paying this sum (varying from 2 000 to 20 000 EUR depending on the property price) without having any legal documentation. To do so, you need to have on your side a law-savvy realtor or even better: a realtor, who is a lawyer, as in the case with Xstate BG. We would review the “stop-deposit” agreement and negotiate with the other agency clauses, which would allow you to receive your money back, if after the review of the documentation, it turns out that there are some issues with the property. You probably expect to have this clause in every stop deposit agreement template, but disappointingly enough, this is not the case…and you can end up in the situation of deciding whether you prefer losing several thousand euros, paid for the stop deposit, or going forward into a transaction for a property with legal, constructive or other issues.

Once you have paid the stop deposit, you (or better – your own realtor) would receive all documents about the property. And here begins the phase, where the participation of a trained lawyer becomes crucial. Despite what you would hear from many realtors, the Bulgarian real estate law is an extremely complex system full of many risks and loopholes. It is very important to check the property as deep as possible, even before signing a preliminary contract. Many realtors would tell you that the ownership history of the property can be checked after the signing of the preliminary contract and would push you to sign asap. Yes, you can indeed check the property after the preliminary contract, but the problem is that a) you pay 10% of the price upon signing of the contract and b) the contract, even though not notarized, is legally binding and you can be brought to court with a claim to finalize the deal and hence pay the rest of the money.

Let’s go through some of the key checks that shall be done:

  1. You shall insist on having a certificate for encumbrances (удостоверение за тежести), issued by the Registry agency that shows the ownership history of the property for at least 10-year period;
  2. If you are buying in a building, which is being currently developed, you shall ask for a document, showing the current phase of the project (commonly known as act 14,15,16) and get from the building company a forecast (or even better – a formal commitment) when the building would be allowed for exploitation;
  3. Ask about the maintenance fees, which you would pay for the common parts. In new buildings these might be quite high. On the other hand, if you are buying in an old building and the maintenance fee is too low, this indicates that most probably the neighbours would not care much about the condition of the building;
  4. Check whether your apartment has or is being situated below a roof terrace, since leakages from these terraces are very common even in newly built building;
  5. If you are buying a recently renovated apartment in an old building, check whether the electricity and water communications both in the apartment and in the building have been recently renovated. Also ask the seller whether there are some changes in the layout – for example movement of the kitchen or the bathroom, as many of these would require approval from the authorities.

 

  1. All the Taxes and Fees You Must Budget For

There are several different types of expenses, arising in the real estate purchase process.

If you enter into a deal with a realtor (which is rather the rule), you shall prepare a realtor fee varying between 3% and 3,6% of the purchase price.

You have notary fees which are calculated according to a special formula, but for the sake of convenience you can expect them to be around 0,5%. You shall also pay 0,1% to the Registry Agency. If you are using bank financing, you would have to pay the fees for the registration of the mortgage, whereas you shall calculate the above mentioned percentages (notary and Registry agency) only on the amount of the credit.

You also have a pretty significant sum for the tax, payable to the municipality. Depending on the municipality this can vary between 0,1% and 3%. In Sofia, Plovdiv, Burgas and Varna this tax is 3% from the purchase price.

In order to make this clearer, let’s have an example with a 250 000 EUR purchase, whereas the buyer would use 200 000 EUR of bank financing. He would have to pay:

 

  1. 7 500 EUR to the realtor (3%);
  2. 1328 EUR to the notary;
  3. 450 EUR to the Registry agency;
  4. 7 500 EUR to the municipality (3%).

 

  1. How the Buying Process Works Step by Step

We already mentioned some of the stages of the buying process, but let’s try to get into more detail here. We would review the situation, in which the building is already allowed for exploitation (the steps when buying property in development are quite different and would be covered by another article):

 

  1. If you are going to use a bank to finance the purchase, the best case scenario is to get a pre-approval of your income. Some banks offer this opportunity, which gives you much more comfort when executing next steps.

 

  1. Once you find your property, you would usually pay a stop-deposit to the realtor, offering it. This sum is determined by the realtor (there isn’t a legislative rule). It is usually around 1% of the negotiated price.

 

  1. Upon signing the stop-deposit agreement and paying the sum, the realtor shall stop offering the property to other people and you shall receive the documents about it, so that you can start reviewing them – as we already advised, with a lawyer.

 

  1. Once the property is checked and confirmed to be OK, you shall sign a preliminary contract and pay the seller 10% of the purchase price. The preliminary contract outlines all the details about the final transaction and gives both parties enough time (from several weeks to a month) to get prepared for the conveyancing.

 

  1. Upon signing of the preliminary contract and paying the 10% from the price, the preliminary contract is presented to the bank for approval and preparation of a credit contract. A crucial part of the credit approval process is the assessment of the market value of the real estate, because it would determine the amount of the credit that the bank would provide.

 

  1. Once the parties are ready, they go to a notary office, where they sign the notarial deed (final contract) for the sale of the property. The Buyer and the bank sign documents for the registration of the mortgage. Once the bank has documents, proving that both the sale and the mortgage are duly registered (usually happens within 3-4 business days), it then allows the utilization of the credit and the seller gets all of his money.

 

  1. Once the buyer has acquired the property, it is advisable to check whether the municipality has registered the new owner. If the owner is going to use the property as a main address, this shall be declared before the municipality, because in such a case the yearly real estate tax would be decreased by 50%. The notary deed shall be registered in the cadaster too and the new owner shall contact the electricity, water and heating suppliers to ask to be registered in their systems.
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