The deadline for re-registration of companies in Bulgaria will expire 39 days ago. In practical terms this means that all companies registered in Bulgaria prior to 2008 (when the new Commercial Register started working) will have to submit documents for re-registration. All companies failing to do so will be terminated by the State authorities and their owners will be required to cover the expenses for the proceedings.

Unlike some websites who claim that this should be done before June 2010 in fact there is enough time to complete the procedure but in any case this matter requires urgent attention from anyone who has a company in Bulgaria registered before 2008 and especially if this company owns property in Bulgaria (apartment, land, house, etc).

Should you wish to use our services for re-registration of your company in Bulgaria please do not hesitate to contact us for a quote.

With changes in the Commercial Law the minimal required share-capital to register a limited liability company in Bulgaria has been lowered to 1 Euro. The changes have been published in the State Gazette today and shall be in full force and effect as of 20 October 2009. Before the change the minimal amount required was almost 2600 Euros.

Bulgaria has a budget surplus but it can easily slide into a budget deficit of 1.5% of the GDP, according to the Italian Unicredit Group. The recession in Bulgaria is inevitable and will last 2 years, say the analysts. According to the expectations, the country’s economy will shrink by 3% in 2009 and by another 1% in 2010. It is expected that the budget will move from 3% surplus in 2008 to a 0.4% deficit in 2009 and a deficit of 1,5% in 2010.

The inflation is expected to fall to 3.5% for 2009 and to 1,8% in 2010 – which will be one of the few positive effects from the shrinking of the economy. The other positive effect will be the decrease of the current account deficit.

The most serious problem of Bulgaria is the sharp decrease of the foreign investment in the country which is expected to lead to a high unemployment exceeding 10%. It is expected that the unemployment will reach 12% in the next year.

The foreign investment will be 50% less than last year – from 16.7% to 7.5% of the GDP.

Although banks’ interest rates of savings accounts are still high, in February those of one- and three-month deposits started decreasing. At the same time the interest rates for six- and twelve-month fix term saving deposits are still increasing.

UniCredit Bulbank did not continue with their promotions and decreased the interest rate of the fourth period of their Increasing Interest scheme from 12% to 9% for the deposits in levs and from 10% to 7% for the deposits in Euros. The interest for their one year fix term deposit has dropped from 8.80% to 4.85%.

First Investment Bank did not continue their promotion Golden Deposit. The bank has launched their product March Deposit, a three month fix term deposit with interest rate, both for deposits in Euros and in levs, of 8.75% instead of 9.75% like the previous promotion.

Most other banks still keep increasing the interests of savings accounts in order to attract fresh money. Among them are: PostBank, Raiffeisenbank, Eibank, Invest Bank and Alpha Bank.

Concerning customer loans, all banks have increased their interest rates by about 1% in February, apart from Alpha Bank who decreased it by 0.7%.

Most of the mortgage rates have not increased and in the rare cases of an increase, it does not exceed 1%.

In 2008 the number of newly built properties kept  increasing, according to the new information released by the National Statistics Institute. The number of new buildings has increased by 9% in 2008 in comparison to 2007 and has reached 2939 and the number of apartments in them has increased by 11.5% and has reached 21 041. At the same time the area of the average apartment has decreased by 2 sq. m. from 80.6 sq. m. in 2007 to 78.2 sq. m. in 2008.

The new year is wonderful for the buyers of properties in Sofia. Those who have money and can negotiate are able to secure unexpected reductions and perks. Most of the sellers are immediately ready to reduce their price by 20% and at the moment there are no purchases without bargaining.

According to estate agents, in the last year virtually in all parts of Sofia the prices of properties have dropped. The most stable market is in the southern districts of the city where the demand is generally higher and in the last months prices have dropped by merely 5 to 15%. At the moment the prices there vary from 1050 to 1250 Euros per square metre. In the central parts of the city, the decrease is insignificant and the highest price is 2000 Euros per square metre. There are no more offers in the range 3000 to 6000 Euros. The most significant drop of prices is in the northern and western parts of the city where the decrease have reached 20%. New properties in Nadezhda and Levski are offered for 700 Euros per square metre while exactly a year ago they were offered at 900 Euros per square metre.

Due to the recession the banks have now offered higher interest rates for savings accounts which range from 6% to 10%. The most popular are fifteen day, one month and three month savings accounts because there is no loss of the interests.

With the increase of the savings accounts’ interests, the loan interest has also increased by 2% on average. Concerning  mortgages, in the last months there has not been any increase due to the fact that customers are unwilling to take new mortgages. The interest rates remain 8% for the mortgages in Euros and 9,5% for the mortgages in levs.

The situation on the Bulgarian property market in the beginning of 2009 remains similar to the one in the end of 2008. There are no deals, the number of the properties for sale increase, while serious buyers take their time before they commit themselves to a purchase. The new features are – perks offered by the developers, estate agencies who do not take commissions and the birth of a new type of property in the property web sites – “property with falling prices”. Only on 3 and 4 of January 2009 the number of the properties with falling prices increased to fifteen. In this category the decrease of the prices of  houses beats all other properties  -  15 – 20%. Plots of land are in the second place, closely followed by offices and garages.  House prices fall everywhere – from Sofia to small towns like Smolyan. Even prestigious locations in the centre of Sofia can not prevent prices from falling.  The price of a house in Dondukov Boulevard in Sofia which has been for sale for some time has dropped by 40% to 450 000 Euros. It is difficult to say whether this will attract new buyers. One thing is certain, the Bulgarian property market has entered a period at the end of which the prices of properties will be very different from the price of the last two years.

The developers are the ones who experience the harshest problems. This is the reason why they look for solutions in all possible ways. Apart from dropping the prices, they have started to lease the apartments built by them to buyers with a minimal interest. Their return has been delayed by 15 years in some cases, thus preventing them from making new investments. Other bonuses include fitted kitchens costing up to 3000 lv and in the cases of two-bedroom apartments complete furnishing plus one or two parking lots. Some developers add to this a plasma TV. However, the analysts do not believe that these perks will do the trick and attract more customers. All these bonuses can not solve the problems of the buyers in getting a mortgage.

The maximal new foreign debt of Bulgaria in 2009 will be increased by 25% or 2.5 billion levs (about 1.2 billion Euros) according to the decision of the parliamentary budget and finance committee. The council of Ministers will not make any changes in the credit framework during the year as the loans and the beneficiaries have been already chosen. The largest loan is of 600 million Euros and it is for the construction of the nuclear power station Belene.

Bulgaria lost 220 million Euros with the decision of the European commission not to resume the accreditation of the two PHARE agencies in the country which has been taken in July of this year. The two agencies, one at the finance ministry, the other at the regional development ministry, have been administration 560 million Euros coming from the EU, of which 340 million Euros have already been allocated. The rest – 220 million Euros – had to be contracted in November 2008 but have been frozen and can not be used now.

The reason for this is that according to the European Commission, the measure which Bulgaria introduced in the last six months have been only promises and there have not been any concrete results. The problems linked to corruption, the application of law, the conflict of interest, the qualification and the number of the employees in administration and the management of the funds. This decision of the European Commission aims to protected the interests of all European citizens, including the Bulgarians, said Kristina Nagy, the speakeswoman of the European Commission. This action against an EU member state is without precedent in EU history. The aid that has been canceled or frozen is for farmers, road-building and other infrastructure projects.

Рublished in the Financial Times

By Kerin Hope and Theodor Troev in Sofia

There are warning signals everywhere, yet the European Union’s poorest member insists it can weather the global financial crisis.

Standard and Poor’s last month downgraded Bulgaria’s long-term debt to BBB. Fitch this month cut its rating to BBB- just one notch above junk bond status.

On Friday, the Bulgarian Industrial Association urged the finance ministry to redraft next year’s budget and cut the growth forecast from 4.7 per cent to 2 per cent of gross domestic product.

“We are witnessing an unprecedented global crisis… for the first time, the tensions in Bulgaria’s economy are caused not by internal but by foreign factors,” the association said.

However, Plamen Oresharski, the finance minister, rejects a suggestion that after bail-outs of Hungary and Ukraine by the International Monetary Fund, Bulgaria may be among the next in line.

“We are not in a similar position. Our banking system looks sound, with a good level of liquidity and healthy reserves,” he said. “Our concerns about the real economy are greater, but we still expect comparatively strong growth next year.”

Thanks to a record grain harvest, the economy is projected to expand this year by 6.9 per cent.

But the current account deficit – the highest in south-east Europe at about 24 per cent of GDP – appears unsustainable given an accelerating decline in foreign direct investment.

Investment inflows fell 48 per cent in the third quarter, according to central bank figures, following the collapse of a holiday-home construction bubble and a freeze on transfers by eurozone banks to their Bulgarian subsidiaries.

“Construction has been the most important growth driver, even more than in Spain, so the outlook is grave,” said Lubomir Christoff, a former chief economist at the central bank.

Sergey Stanishev, prime minister, has suggested Bulgaria should join the EU’s exchange rate mechanism next year. But although Bulgaria can point to a budget surplus and a low public debt (about 18 per cent of GDP), an annual inflation rate above 10 per cent rules out any chance of an early entry to the euro.

Mr Oresharski argues that an accumulated fiscal surplus of Lev12bn ($7.8bn, €6.2bn, £5.2bn) provides a cushion.

“One relief is that the government doesn’t have any short-term borrowing requirements,” he said.

In spite of rapid credit expansion since EU accession last year, total bank indebtedness is still low at about 30 per of GDP.

Lending is tight because foreign banks have lost access to funding from parent groups squeezed by the global credit crunch.

“We’ve been told to rely on our own resources, which means lending will slow,” said a senior executive at a foreign-owned bank.

Bulgaria’s currency board, which pegs the lev to the euro, is intended to eliminate foreign exchange risk. The arrangement also requires that money in circulation does not exceed central bank reserves.

With reserves at 180 per cent of currency in circulation, the lev was buttressed against an all-out attack on the currency board, Mr Oresharski said.

But other currency boards in the Baltics look less stable following Latvia’s request last week for EU help to fend off a crisis.

Because of the lack of demand in the last year the prices of rural properties fell dramatically. Plots of land around Sofia have decreased in price by 50%. The trend at the Bulgarian Black Sea coast is exactly the same. In the last 12 months  mainly Bulgarians bought properties near to the big cities according to Dobromir Ganev, executive director of Foros Estate agents. The main reason for this is the world financial crisis and  prospective buyers have become more cautious, especially when applying for mortgages.

A regulated plot of land of 1020 sq m situated between Sofia and Pernik has decreased by 50%  in price and it is now on offer for 12 000 levs (apprx 6 000 Euros). An old two-storey house in a village with a garden of about 1500 sq m can be purchased for 6-7 000 levs (apprx. 3 000 Euros). In the past the prices of rural properties in the area of Bansko, Sunny Beach and Burgas have been artificially increased but now they have fallen dramatically. The purchases of property for investment have almost stopped and most people buy for their own needs.

The financial crisis have affected the sales of land for the construction of industrial developments. All investors have experienced difficulties in financing and several projects in Varna and Sofia have stopped.

The sharpest fall of the prices according to analysts and advisors are in holiday properties. Due to over supply in Bansko only the prices have fallen by 48%. The number of one-bedroom apartments on offer is astonishing and prices range from 780 to 2015 Euros per sq m.

The average price of properties in Bulgaria in the first half of the year has been 1418 levs per sq.m. according to the National Statistics Institute. The most expensive properties have been in Sofia where on average they sold for 2470 levs per sq. m. Varna has been in the second place with 2130 levs per sq.m. In third place was Burgas with 1755 levs per sq.m., closely followed by Plovdiv (1655 levs per sq.m.) and Veliko Turnovo (1331 levs per sq.m.). The cheapest properties have been in Kiustendil (751 levs per sq.m.) and Silistra (763 levs per sq.m.).

According to the analysis of UniCredit Group presented at the Euromoney Conference in Salonica, the average Bulgarian household consists of 2.8 rooms, while the average for the European Union is 4.2 rooms. However, the size of the living area in Bulgaria fairs better than in many other countries in Eastern Europe like: Romania (2,6 rooms), Ukraine (2.3 rooms), Lithuania (2.5 rooms) and Latvia (2.4 rooms).

According to the UniCredit Group Bulgaria has the highest number of home owners in the EC. There are on average 486 apartments per 1000 people in the country, while this ratio for the EU is 472 apartments and in South-East Europe – 413.15% of the Bulgarians intend to buy their own property in the next decade. However, according to the legal and financial advisers the recession will lead to slowing down in crediting. The growth of crediting in 2007 has reached 63%, while this year it will barely come to 40% and it is expected to slow down to only 25% in 2009.

Despite the looming global financial crisis. New developments open in the Bulgarian Black Sea resort of Sunny Beach.

Oasis VIP Homes and Blue Pearl Apartment Complex in Sunny Beach will be presented at the largest property exhibition on the Balkans – BalPex. Oasis VIP Homes is the first luxury development of Galaxy Property Group in Sunny Beach. The development is in Mediterranean style with a park of more than 10 000 sq.m. and with three swimming pools. This project includes also Royal Sun development with 530 apartments.

The other project Blue Pearl is a development with apartments situated in the central part of the Sunny Beach. It comprises of 85 apartments overlooking the bay with Nessebar and St. Vlas, 16 shops, barber shop, gym and two swimming pools with a bar.

The sales of properties have decreased twice in the first three months of 2009 in comparison with the same period in 2007. The main reason is the shrinking of the market. The investments in the property market are much less than in previous years.

In order to attract clients the construction companies now tend to building longer – up to 3 years. At the same time they  accept smaller instalments during the construction and a bigger final instalment when the project is ready. It is difficult to make predictions at the moment but for the time being there are no significant changes in the cities.

Despite the financial crisis, the property prices in the suburbs of Sofia have been constantly increasing due to the migration of people from smaller towns and villages who seek employment in the capital. In the last year, more than 30 000 people have relocated to Sofia, while 12 000 people have moved to Varna, the second largest Bulgarian city. The same tendency can be seen in Plovdiv, Russe and Burgas. The newcomers to the cities usually look for cheaper properties in the suburds. As result the prices of apartments in those areas keep rising. The average porperty price in Sofia is 1094 Euros per square metre, while in the county it is 588 Euros per square metre. The studios seem to be very popular and their sales have increased by 17% in the last months. At the same time the demand for one-bedroom apartments have decreased by 28% and of larger apartments by 3%. Most of the sales are of newly built properties.

The Bulgarian banks have introduced tougher rules for lending money after two days of stopping crediting. Now they lend money only for the purchase of properties which can be easily sold if reposessed. Families with total income under 1500 levs per month can not take a mortgage to purchase an apartment in one of the larger cities. To such families the banks offer only small size credits with monthly instalments not exceeding 50 Euros. While in the past the banks were satisfied if the monthly repayment instalments were up to 50% of the total income of a family, now they restrict the instalments to not more than 39% of the monthly income. The average mortgage interest is 8.2% per annum and the average instalment is 360 Euros per month, which is an increas of 40 Euros for the last six moths.

The direct foreign investments in share capital in Bulgaria have increased by 237 million Euros in the fist six months of this year in comparison with the same period of last year according to Stoyan Stalev, the director of the Bulgarian Investment Agency.

According to the Bulgarian National Bank, the investments in share capital has increased to 2.029 billion Euros in the first seven months of 2008. This increase is due to the low taxes in Bulgaria, the monetary board and the fixed Euro-BGN rate, Stalev explained.

The forecast of Bulgarian and American analysts for the future of the real estate business in Bulgaria are absolutely different.

According to the National Revenue Agency, the business climate in Bulgaria has got worse by 1.1 points. According to 69% of the interviewed industrial and construction business managers, the sale prices will not change in the next three months, 20,5% of them expect a decrease, while only 10,5% predict an increase. The unstable business environment and the lack of qualified workers are the reasons for the decrease by 2.5 points of the business climate in the construction industry in July alone. The increasing competition and the rising prices of materials make the business more difficult. At the same time more clients delay their payments. Despite this developers expect price rise in the next three months.

According to the US analyst Nouriel Roubini, Bulgaria’s future is bright due to the good financial policy and the high level of the foreign investments in the country. However, he expects slowing down of the Central and Eastern European economies in 2008 which is in tune with Western Europe. The new EU-member states are tied to the West as 65% of their export is in the Euro zone. It is expected that Bulgaria and Romania will show steady but stable progress.

Having in mind the current account deficit of 20% of the GDP and the frozen EU funding it is difficult to predict Bulgaria’s future.

More than 97 Bulgarians have drawn loans exceeding 1 million Bulgarian levs, they owe 153.1 million levs to the banks, or in other terms, on average each one of them owes 1.56 million levs. Generally, the individual borrowing in the country has increased, according to the Bulgarian National Bank. The average personal loan is 5841.42 levs, which is an increase of 1139 levs in comparison to 2007. The size of the most of the personal loans does not exceed 10 000 levs. 2.46 million personal loans totaling 4.71 billion levs have been lent. Although these are as much as 88.4% of all loans, in terms of money, they are only 29% of the total amount of the loans measured in levs. The concentration of the credits is between 10 000 and 250 000 levs. In this price bracket the number of the loans is 320 000 but their volume in levs is 10.43 billion which is 64.1% of the total amount of all personal loans. The tendency shows that within a few years time the amount of the personal loans will exceed the company loans in Bulgarian.

During his visit to Sofia OLAF’s Director Franz-Hermann Bruner said that Bulgaria must deal with the corruption within the next few months. In his meeting with PM Stanishev, Bruner expressed his hope that the judicial system will see dynamic improvement and that there will be concrete results in the fight with corruption.

Foreign investments in Bulgaria exceed 25 billions Euros for the last 12 years. The worst year was 1996 when the foreign investments barely reached 137 million Euros, while in 2007 they exceeded 6 billion Euros, according to the Bulgarian National Bank. Since 2002 there is a tendency of interrupted increase of the level of the annual foreign investments in the country. In 2003 and in 2006 the increase has been 90%. Only in the last two years the direct investments have reached 12 billions Euros.

The deputy minister of health Dr. Matey Mateev has handed his resignation in protest against “the campaign against leading Bulgarian neurologists in connection with the used by them methods for treatment with stem cells.”

Last Friday, the Ministry of Health announced that due to illegal transplantations of stem cells to patients suffering from complicated genetic and neurological disorders at St Ivan Rilsky Hostpital, the director of the hospital Assistant Professor Roumen Stoilov has been sacked.

“The problem with the stem cells is scientific, not administrative and it has to be resolved by the academics,” declared Dr. Mateev.

The Bulgarian Stock Exchange has reacted to the expectation of the negative news from the report of the European Commission ahead of its publication later today. The negative tendency has started from the beginning of 2008 when the first news about possible freeze of the funding of programmes financed by the European commission appeared. One of the most affected emitions are those of infrastructure companies. It is expected that their performance will suffer if the European Union stops the funding.

The construction of the second underground line in Sofia from Nadezhda to Cherni Vruh Boulevard will be carried out by the Turkish company Dous Insaat and the Metrotrace consortium. The project will cost 471 million levs, 386 million of which have been provided by the Operative programme Transport of the European Union. Work will commence in September 2008 and the completion will be in the summer of 2012.

The biggest Bulgarian legal practices have made a claim at the Commission for the Protection of the Competition against 8 foreign legal firms operating in Bulgaria. The Bulgarian legal firms are unhappy that their foreign competitors are registered only as companies but not according to the Law for the Lawyers and thus avoid many requirements. This puts the Bulgarian lawyers in a position of disadvantage. Batkov, Stoev, Botev and partners, Boyanov and Co, Georgiev, Todorov and Co, Penkov, Markov and partners insist that the commission imposes sanctions for disloyal competition on DLA Piper, CMS Cameron McKenna, CMS Reich-Rohrwig Hainz, Wolf Theiss и CHSH Cerha Hempel Spiegelfeld Hlawati. According to the foreign legal firms, this is just an attempt by their Bulgarian competition to limit their activities in the country. According to the Bulgarian lawyers this is not true, and the law is new and it complies with the EU directives. Four of the foreign legal practices with offices in Bulgaria do not carry out legal work at all which is a precedent. The commission must come with a ruling in 14 days.

The tendency of the recent years households in Central and Eastern Europe to take credits has made them more dependable on international economic crisis according to the report of UniCredit Group. Now they have to pay the expenses for servicing of these loans. In 2007 alone the households in Central and Eastern Europe have taken credits amounted to 100 billion Euros. The banking sectors which are most dependable on foreign funding are the Baltic states, the Ukraine, Kazakhstan and Romania. The burst of the property bubble has been most noticeable in Latvia. Property prices in Riga have fallen by 25% in the first 6 months of this year.

According to the draft of the monitoring report of the European Commission on Bulgaria (the official report will be published on 23 July 2008) the country’s progress is slow and more limited than expected. The fight against corruption is unsuccessful and Bulgaria does not demonstrate capacity for governing the European funds. The Penal Code is outdated and it is the reason for the overload of the judicial system, there are no results from the ongoing investigations, the administrative capacity of the judicial system is unsatisfactory and there are proofs of endemic corruption in the health and the education systems. Despite these, it is expected that the European Commission will not impose a safety clause on Bulgaria. However, it is expected that the commission will stop financing exceeding 1 billion Euros from the SAPARD and PHARE programs because of abuse of funds and corruption

After the property boom in the last 5 years, the market has calmed down according to the big Bulgarian property agencies. The supply has exceeded the demand by 50%. At the moment more than 4 million square metres of living area is being built in Sofia alone, which in other terms means about 60 000 apartments that will be on the market in 2 years time. In the first six months of 2008 the prices of apartments have increased on average by 17% in the Bulgarian regional centres, while for Sofia this figure is 21%. Due to the increase of the interest rate and the inflation the number of the purchases has decreased after April by 10%. At the same time, banks have been trying to activate the market by keeping the interest rates low and by giving mortgages in stable but not so popular currencies like Swiss Francs. Four factors determine the development of the property market – the supply, the inflation rate and the higher price of mortgages and the more strict criteria of the banks. According to specialists, the property market in Sofia has reached its peak and a secondary market of the newly built properties has emerged. However, more serious conclusions can be drawn in the end of the year.

The Deputy Prime Minister Meglena Plugchieva and the managers of the National Road Infrastructure Fund and the Ministry of Regional Development and Public Works will divide the remaining 119 km of the highway that need to be completed into lots and will decide how to provide funding for this project. It is expected that the stretch will be divided in three parts and three different companies will complete the highway. The government decided to allocate 120 million levs from the budget’s surplus for infrastructure. However, this will have to pay for three more projects – Hemus Highway, the Sofia Ring Road and Maritsa Highway. The completion of Trakia Highway will cost 300 million levs, while the completion of the Sofia Ring Road will require another 60 million levs.