SOFIA RENTAL MARKET FAQs

Letting Property in Sofia as a Foreign Owner

Renting property abroad will never be as straightforward as it is in your own language and culture, however it needn’t be stressful, costly or complicated. This article will take you through the essentials for successfully renting in Sofia under the current market conditions, the procedural norms and what to look out for if a managing agent tries to take advantage.

Unlike the holiday markets throughout Bulgaria the city of Sofia has domestically generated demand that is constant and self sustaining. The size and maturity of the market means that trends and patterns can be analysed, unlike the ski or beach markets where rental is more hit and miss. Like any major city there are good and bad areas, those that are desirable and growing and those that are not. However, you can rest assured that wherever you have purchased there is sure to be a suitable tenant, the price will always determine the speed at which you find that tenant and how long they stay before moving onto spending their money with your competition.

 

How has the recession affected the Sofia rental market?

It is crucial to consider the affects of the current economic climate in order to understand the processing affecting availability of stock, tenants and shifts in market rates. Before 24 months ago rental properties were clearly of two types; those that were modern new builds and those that we 1960’s-80 communist concrete constructions. The new builds were relatively few in number as few ‘off-plan’ projects had completed, those that were finished were desirable and thus in high demand, this pushed prices up. These off plan purchases were being made by some shrewd foreigners but the vast majority were Bulgarian owned.

It is generally accepted that buyers were investing for future growth and not for their own habitation. However, since the recession took hold mortgages have been all but annihilated and belief in property as an investment has plummeted, the combination of these factors has made breakeven resale nigh on impossible. Prices have dropped by up to 25% and most owners are either facing a loss if they sold today or are into negative equity.

As a result, buyers who invested with the intent to flip on for profit suddenly all became landlords. Simultaneously every other off plan development completed and became habitable causing an exponential wave of new properties to hit the market. Very few can now be resold unless at considerable loss, all are suddenly available to rent.

 

Sofia Demography – Who is renting?

Like any populace, Sofia has a variety of sectors and cohorts who can and cannot afford the new build properties that many foreign owners have invested in. By far the most common enquiry originates from 25-35yr old employed couples seeking furnished one bedroom apartments in new serviced buildings within the ringroad, preferably near an underground station or at least regular public transportation.

Two bedroom apartments are in demand but typically take longer to rent and often the additional rental income generated by the extra bedroom does not yet warrant the extra investment it took to acquire. However, this is likely to change in tandem with the general standards of living, tastes, desires and affluence over the coming 10-15 years as increased disposable income will inevitably be primarily spent on the home. The minority demand comes from families with children; these tenants will almost always demand two bedroom apartments and often remain in place longer, often only moving when purchasing their own property.

Studios are certainly in demand from young professionals, singles, expats etc they typically rent quickly if keenly priced and well finished, owners will encounter the highest competition within this category. The return on investment yields can be the highest available per square metre, but nominally the returns are less likely to impress. Turnover of tenants is generally higher on these smaller cheaper units attracting those who need somewhere smart to live for a short period before upgrading to something superior or long term. It is worth keeping in mind the impact of agency fees every time a tenant moves.

Three bedroom apartments are rare and trends are not clear.

Wealthier students can also be a viable source of tenants for new builds; a two bedroom apartment can rent to 6x students often raising more net income than 1x family or 2x couples. However, tenancies rarely extend beyond the September to June academic year and typically leave 1-2 months void in any calendar year.

 

Sofia Properties to Let - Furnished or unfurnished?

90% of enquiries are for fully furnished apartments only. It is a false economy not to furnish because tenants rarely stay longer than 18 months and unfurnished apartments are typically empty and available (being marketed) for twice as long as those that are furnished. Tenants will always negotiate lower rates for unfurnished properties as they will have to invest into items themselves, thus between the months of lost revenue and lower gross income it is financially viable to furnish. The only advantage to having the tenant move in their own furniture is that they will be more inclined to stay longer and take good care of the apartment and its content, of course this is only true in some cases.

It is not necessary to spend 5,000 Euros on furniture, the basic essentials will be absolutely acceptable; fitted kitchen, double bed, wardrobe etc. If your funds are tight then do not purchase a sofa, TV etc; have the agent market the property as ‘fully furnished’ using images of the essential furniture items whilst offering a negotiable rate depending on the tenants full requirements. Some will have their own sofa, TV etc some would rather pay slightly less and bring their own. For those who want the apartment and also want these items included then the deposit and the first month of rent can be used to fund these acquisitions so no further funds are required from your pocket.

Deal with an agent who also has the ability to furnish as well as rent, but don’t pay over the top for this ‘one stop shop’ service. As a group of companies we own a real estate agency as well as a furniture importer, as such we offer to furnish an apartment, rent it, then recoup the costs of the furniture from the rental income that we create. The risk of finding a tenant to cover the costs becomes ours and not yours.

 

Expats – Is it true they pay more to rent in Sofia?

It is not worth believing marketing hype that suggests thousands of expats are relocating to Sofia on behalf of multinational corporations, all need top class accommodation and are willing to pay vast sums for it. The truth is quite different. Whilst there are an increasing number of MNC’s now opening subsidiaries in Sofia, they are just as aware of the market prices as anyone else and they are not prepared to pay more for the long term tenancy of an apartment.

On the contrary, most large companies seek lower rates for bulk booking apartments. We meet all the accommodation needs for several MNC’s operating from Sofia’s new business parks; every new ‘expat’ has a package, some include accommodation (tenancy signed and paid for by the company) and some just offer to have options ready for their arrival (tenant signs directly). In any case they stick to the apartments that are offered by the entrusted agency as accommodation problems need to be directed to the agent and not back to the employer.

None of the above enables the owner any further scope to profiteer, if there is any benefit to the expat market it is only to have a consistent supply and a fixed leave date as they are much less likely to seek alternative accommodation. Naturally some expats / their employer require and demand the highest quality, high calibre properties, which many foreign owners have bought, but they will only pay as much as anyone else in the regular domestic market so there is no specific benefit.

If lettings agents pullout the ‘expat card’ as a marketing tool suggesting they can achieve more income by comparison to the ‘rest of the market’, best to put the phone down and seek an alternative agent.

 

Why are rental rates down - What should I expect?

It really depends on what and where, however any figures that are quoted from pre-recession data or experience are absolutely inaccurate and should be entirely dismissed. We do repeatedly hear the assumption that 1 bedroom new build properties should be rented for no less than 450 Euros / month, however this was true when there were very few on the market and when the property boom was happening, today is a different story.

In every building there are distressed owners who never planned to keep their property and always intended to ‘flip it’ on. Now they can neither resell nor remortgage so their only choice is to rent; in order to attract the tenants quickly and satisfy their own financial repayments they need to offer attractive prices to secure income from their investment. The same is true for developers who haven’t sold the last of their stock, they have furnished unsold apartments and also offered them for rent at ‘below market values’. With the market flooded tenants are spoiled for choice, two or three distressed owners in the same building competing with an equally distressed developer, prices fall and end result is a ‘buyers market’ which is where we are today.

Even if you manage to get a tenant to signup at a healthy rate / profit they will soon learn that the same or similar apartment is available for less in the same building (often adverts are placed at receptions) and they will ask for a rent reduction or they give 30 days notice to move out. This has happened often over the past 18 months and our bottom-line advice is to now market at a rate that can’t be beaten, get it rented quickly and minimise months of lost revenue, then plan to increase the rates when mortgages and resales become a reality in the market again.

Key points to remember:

• Rental rates in Sofia are amongst the lowest for any capital in Europe, however so are the earnings and property prices.
• Rental rates have dropped 30% since peaking in 2008.
• Evidence that rates continue to fall in the least popular areas, more stable in others.
• Smaller apartments are faster to let, large apartments always take longer.
• Better to rent at a lower than ideal rate for 12-18 months than try to get what you want and have it empty for 12-18 months.
• An empty apartment will cost you in tax, maintenance fees, insurance.
• Winters in Sofia are extreme with the average temperature being below 0°C for 3 months of the year and down to -20°C, an unused, unheated apartment will inevitably incur damage from non-usage.

 

Management of Sofia Properties – How does it work and is it necessary?

There are two commonly available services; the placement of tenants only or the full management of your property. Typically, we can find tenants and place them in your property, agree contracts, terms, deposits etc for half of the first month of rent. Thereafter the tenants will need to deal with you directly, you will need to be available and speaking Bulgarian to address problems, complaints etc. Full property management places the tenants for the same fee plus 25 Euros / month or 10% of the rental value, whichever is greater. Under this service you can have as little involvement with the property as you choose as everything can be taken care of on your behalf.

 

Sofia Lettings Agents – Who to use and who avoid.

Some so called ‘lettings agents’ are structured only to receive a flat monthly fee from you as the owner, often around 40 Euros / month which is chargeable before the flat is rented and for the duration of it being empty. This is an unnecessary cost to you and in reality these ‘agents’ have very little intention or ability to get your property rented. In many cases these same agents are promising high rental returns, often claiming access to the ‘expats’ suggesting that 500 Euros / month is plausible and they are always on the cusp of getting you a tenant. In truth, they are only there to fleece foreign owners of their 40 Euros / month and have not made the investment in advertising campaigns to properly market and represent properties for rent. Furthermore, such companies are profiting from the gross overcharging of furniture and kitchen packs, also claiming their necessity for the ‘expats’ they have access to.

Other fees to avoid are any key holding charges, snagging costs or inspection fees. None of these will bring you a tenant and many agents will want you to pay for them before there is any sign of a tenant. It is a short term strategy for such companies as soon enough landlords will find alternative agents who can genuinely offer a professional service in return for modest remuneration.

In the case of our lettings division:

• No tenants = no fee
• We do not charge any fees whilst the property is empty
• No signing up subscription costs or charges
• No marketing costs

 

Legalities and Contracts – What to do if the tenants do not pay?

It is standard in Bulgaria to sign contracts for 12 months based upon a 30 day notice period for both the landlord and the tenant. This shorter notice means that we see very few tenants not pay. Quite simply, when tenants have a change of financial circumstance, lost their job, want to move, don’t like the area anywhere etc, they give us their notice and go rarely missing any payment. Nine out of ten times we will find another tenant to fill their place within that 30 period, thus resulting in minimal loss of rental income for the landlord.

In the UK, similar tenancies are often fixed for a term of 12 months and as such if a tenant has a change of circumstance they default on payments because they have no option to leave quickly. Naturally that risk should be considered when signing, but it does mean that rather than chasing tenants through court to collect unpaid rent, we find replacements to fill those expected payments instead.

There is no ‘Deposit Protection Scheme’ offered by the Bulgarian government, deposits are retained by the managing agent and returned only once a full inspection and inventory has been concluded.

Damage does happen but less frequently than most fear, insurance policies should include furnishings and malicious damage. For a typical furnished 1 bedroom apartment worth 70,000 Euros, a fully comprehensive policy should not cost more than 150 euros / year, half as much if buildings only insurance.

 

How does the Landlord get paid the rent – Is tax deducted?

The very best avenue to achieve payment efficiently is to open a Bulgarian bank account and have funds deposited there. Not only will the interest rate be 5+% but it will remove the requirement for an international transfer every month. The managing agent will often be paid by the tenants in cash, a physical visit to the property is required every month to collect this. These funds can either be held for a collection later or deposited in an account of the landlord’s choosing. Most owners visit Sofia occasionally and collect funds in person, others will set up online banking and sweep funds across to their personal bank account when desired.

Through our unique company structure we have ensured that tax is not deducted from you at source, we have invested into the necessary accountancy to allow and enable you as the owner to decide where and how you are taxed. Unlike other agencies, from us you will receive the full amount due and it will be up to you or your accountant as to how you are taxed on income received.