Bulgarian real estate market has not had much to cheer about lately however the introduction on  January 1st 2010 of a new system where all real estate transactions in Bulgaria will be by law conducted via bank transfers may inspire more confidence from overseas property buyers.

 

The amendment to the Notary Act put forward by the Justice Ministry when approved by Parliament will ban all real estate payments made in cash.

The amendment’s aim, first raised a year ago, is to reduce real estate fraud and money laundering. The move is part of the Ministry’s policy of adopting legislative amendments to a number of laws as a way of reducing corruption and crime as well as ensuring that all fees and taxes owed to the state are paid.

The highlight of these efforts will be the adoption of a Law on State Depositary Bank which would serve as a guarantee for all payments in the form of the state acting as custodian for deposits. It will not have the functions of a commercial bank, hence it will not appear as their competitor, the draft bill says, according to Bulgarian-language Dnevnik. It will not charge interest but will levy a certain fee on every deal.  

The idea is that it would be used by notaries and lawyers irrespective of the deal, whether it be the purchase of real estate or a vehicle or other transfer of ownership or bankruptcy.     

The draft bill adopts France’s experience where there is a similar model, Dnevnik said. The main advantage of such a deposit bank is that it would cut down on fraudulent deals and tax evasion.

The risk is that there will be a waiting period during which the money subject to the deal will be blocked at the deposit bank. The French experience shows that this period can be about 25 days during which the seller cannot touch the money. Another setback is that the deposit bank will keep a fee for servicing the transactions. So clients will have to pay yet more money, Dnevnik quoted real estate brokers as saying.

Many people are willing to risk not reporting the real amount of the sum as long as it saves them taxes, Biserka Marinova, owner of real estate agency Lega Real, told Dnevnik. Tax authorities and the National Revenue Agency have worked hard over the past couple of years to curtail this negative practice.

The new regulations will without a doubt complicate matters, she said. One such complication will be the combination of having a bank loan as the means to fund the deal and the waiting period to get them from the depositary bank. And there is the question of the funds required for the setting up of the new state body and its staff.

For now, that idea is at the draft bill stage but judging by the regular pronouncements by Justice Minister Margarita Popova and Finance Minister Simeon Dyankov on the subject, it could become reality by the end of the year.

Meanwhile the crisis on the Bulgarian real estate market has affected severely the budget of the capital Sofia. In the first three quarters of 2009, the Sofia Municipality raised only 28% of the total revenue for the period that it expected from property deals, according to data for the performance of the municipal budget. The local tax on real estate transactions is one of the major sources of revenue for the budget of the Bulgarian capital.

 

 

Source: Sofia Echo