CURRENCY MATTERS

by Jonathan White*

Look out for the exchange rate when you buy a house in Bulgaria

With so many things to think about when buying property in Bulgaria, one area that is often overlooked is how to cut down on the cost of purchasing. After all, you can be quite overwhelmed initially at the prospect of paying all of these related expenses:

• Legal fees
• Notary fees
• Estate agent fees
• Viewing trip fees (if applicable)
• Bank commission for overseas money transfers
• Court fees (for example registering the notary deed) and municipal taxes
• Bank commission for receiving money into your Bulgarian bank account
• Translation fees (for documents and verbal translation during the contract signing)
• Transport fees to Bulgaria (air fares, taxi fares etc)
• Accommodation costs

The property purchase expenses typically equate to between seven and 10 percent of the purchase price. In the face of all these expenses, how can you possibly save any money when buying property in Bulgaria? One of the ways is to take advantage of the currency exchange rates.

As most properties in Bulgaria are sold in euros, the exchange rate between the pound and the euro varies by the second. There are often several weeks during the buying process, giving you some time to try and obtain the best exchange rate possible. This means you are not limited to using your high street bank. Now there are a number of currency exchange companies that specialise in assisting foreign buyers and provide services tailored to your needs. You are even able to use some services that are completely Internet based, giving you the convenience of both buying and transferring the funds to Bulgaria from the comfort of your armchair!

Just like the share market, where the price of stocks go up and down constantly, currency markets also fluctuate based on many economic factors. In the UK, for example, you often see the exchange rate between the pound and the euro change more significantly when the Bank of England announces a change in the interest rate.

What kind of savings can you expect? This very much depends on the rate you get, but let's take a look at an example. Assume you are buying an apartment that costs 100,000 euros. If, at the point you find your property, the exchange rate is 1.46 euros to the pound, this means the apartment will cost you £68,493. If you analyse the fluctuations in the exchange rates between the pound and euro from April 2006 to April 2007 you will see that the rate was on an upward trend for most of that year, between April 2006 and the latter part of January 2007.

Towards the end of January 2007 the rate with the euro peaked at just over 1.52 euros to the pound. If you were able to obtain that rate, you could have saved yourself just over £2,700.

In order to take advantage of such fluctuations, you have to keep an eye on the exchange rate. You can use websites like Yahoo Finance or the “market data” on the business section of the BBC's web site to do this. Once you observe an upward trend, by observing the graph of the exchange rate fluctuation, and a rate that provides you with a reasonable saving, you can consider either purchasing the currency instantly or making a forward purchase with a currency exchange specialist. The idea behind a forward purchase is that you look for the rate now, and pay for it either within 30 days (called a 30-day forward), or sometimes longer if you can find a company that provide a flexible forward service. With this service you would be expected to pay a deposit, typically 10 percent.

Using a currency exchange specialist provides a quick, convenient and cost effective way of transferring funds to Bulgaria. For example, websites like www.xetrade.com, who provide such services, charge far less for money transfers than your high street bank and they generally provide a better exchange rate. Where you might pay between £20 and £30 to transfer the funds from your high street bank, you may only pay between £8 and £15 to a currency exchange specialist, and with some, transfers are free if they exceed a certain amount. If you are purchasing an off-plan property with multiple payments over a period of months, you can save on transfer fees and where possible, play the currency exchange market to your advantage.

There are a number of companies that provide currency exchange services. Besides the online site xetrade.com, you can also look at Moneycorp, www.moneycorp.com, Onlinefx, www.onlinefx.com, HiFX, www.hifx.co.uk, and the Xchangebusiness, www.xchangebusiness.co.uk to name but a few.

Very often, many high street banks in Bulgaria charge you a fee for receiving money in your Bulgarian bank account which is a percentage of the amount received. If you look at some companies like Moneycorp, for example, they have a policy that states that clients will not pay any bank receipt charges when sending money overseas and on occasions where this does happen, they will refund the amount charged in full. So it pays to “shop around” the various currency service providers available to find the one most suitable for your needs.

Just how many of you reading this article are aware that you should declare funds that you have transferred to Bulgaria if the amount exceeds 5000 leva, about £1,750? Well, in fact, you are legally obliged to declare funds that exceed this amount and are subject to a penalty if you don't. Very often estate agents in Bulgaria do not inform their clients of this fact, and could potentially cause further expense for their clients by not being clear and open about such rules and regulations.

To declare the money you have transferred will require a visit to the Bulgarian National Bank and in fact, this declaration will also assist you in the future when you wish to transfer funds back to your home country. So once you have signed the declaration and taken your copy, ensure you keep it in a safe place for the future.

Taking advantage of currency exchange doesn't end here. You will, more than likely, wish to sell your Bulgarian property in the future. Assuming you wish to receive pounds back in England (for example), you will want the exchange rate to be lower than when you bought the property. So besides the obvious capital appreciation you expect, you can also make the transfer when the exchange rate is at a level that maximises your profit. So in the end, currency matters and it can help to reduce your initial purchase costs, and increase your capital appreciation provided you get the timing right and you plan ahead.

*Author of Buying a Property in Bulgaria (HowTo Books, Oxford, 2005) Co-author of Buying in Bulgaria (Apogee Publishing, London, 2006)

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