Have you ever noticed how many windows in newly built blocks of flats remain completely dark in the evening? At the same time, property prices continue to rise, whilst local authorities are struggling to provide adequate infrastructure for the new neighbourhoods.
Tax valuations of property in Bulgaria have not been updated for almost two decades. This has created a huge paradox against the backdrop of rising house prices. Raising these valuations is a step that is not only expected but also long overdue. It is precisely because of this backlog that local authorities have remained chronically underfunded for years and lack the resources to build the necessary infrastructure, such as roads, street lighting, sewerage systems, nurseries and green spaces.
The impact of the update on the household budget will not be dramatic. At present, local taxes in Bulgaria are nominal. For a standard two-room flat in Sofia or Plovdiv, the total annual cost is around 80–130 euros. Even if the rates were doubled, the total would amount to 160–260 euros, which works out at a difference of just 10–15 euros a month. By way of comparison, in a medium-sized Italian city such as Bergamo, the annual council tax for a similar property can range from 800 to 1,400 euros. Bulgaria remains, without a doubt, one of the countries with the lowest property ownership costs in Europe.
The major benefit of this change will be greater transparency in the market. The corrupt practice of selling flats on paper at significantly undervalued prices (based on the tax valuation), with the difference paid ‘under the table’, will be drastically reduced. Yes, transactions will inevitably become more expensive due to higher notary fees and local taxes. However, this will provide the necessary capital resources for the towns and cities. The critical issue here concerns the efficiency and transparency of how these funds are spent – local authorities must clearly demonstrate that this increased revenue goes directly towards improving the neighbourhood environment.
This brings us to what is perhaps the greatest absurdity of the domestic property market – the so-called ‘dark windows’. Bulgarians traditionally buy property as an alternative to a bank deposit – simply to protect their money from inflation. As the tax burden on property ownership has so far been negligible, owners have had no financial incentive to deal with tenants or to sell. The result is that a huge proportion of the housing stock in major cities remains locked up and unused.
It is entirely appropriate that these unoccupied properties should be subject to higher taxes. In a number of European and global capitals, the so-called ‘vacancy tax’ has long been in place.
To tackle the housing crisis, countries such as the Netherlands are already introducing similar measures. There, local authorities such as Almere are starting to fine landlords whose properties have stood empty for more than 12 months without a valid reason. The fines start at €2,000 a year and are set to rise to a staggering €16,000 a year by 2028.
The logic behind such a tax is simple – homes are designed to meet a social need: to provide a place to live. When you keep a resource tied up in a city with a housing shortage, you’re holding back the economy and paying a ‘luxury tax’ for that privilege.
An increase in tax valuations could be combined with a mechanism such as this: if your property is your main residence or you are legally letting it out, you pay the standard tax; however, if you have kept it vacant for years, the tax increases significantly.
If vacant properties are brought onto the market (through sale or long-term let), we will see an overall positive effect:
In conclusion, the era of extremely cheap property ownership in Bulgaria is slowly but surely coming to an end. A transformation is on the horizon, in which the level of taxation is likely to be directly linked to the energy efficiency of buildings. And whilst nobody likes new taxes, these changes have the potential to bring order to the market and make our towns and cities better places to live.
