Bulgaria is becoming increasingly expensive, but is still the cheapest place in Europe
How much would you pay for a room with a view in Sofia? How much for a pint? If you thought it was impossible these days to get a decent fl at for under 1,500,000 pounds, or to get a round in and still have change from a tenner, think again. It may be time to give Bulgaria a try.
Over the past three years Bulgaria has become one of the most attractive places for real estate investments among EU citizens. Costs were low and expectations for profit high. However, it was not only the expectation of profit that drove these investment decisions. The low cost of living and the beautiful Bulgarian countryside influenced many people to seek retirement homes here, or simply a nice property in which to spend family winter or summer holidays. These developments have made the country a champion in attracting foreign investment.
The Bulgarian Government's recent decision to set corporation tax at 10 percent will also boost investment trends and, as a result, more professionals will be transferred to Bulgaria to join the growing expatriate community.
The general consensus is that Bulgaria is a "cheap" place to live. But in order to get a more accurate picture and to see what this means in day to day terms, we compare here the cost of living in Bulgaria with that elsewhere in Europe: in EU members France, Greece, Italy and the UK, and in Croatia, which closely resembles the average Bulgarian household's pattern of expenditure.
Distribution of household income and expenditure varies across countries, but assuming relatively stable consumption habits and the absence of drastic price increases, it is possible to make a rough estimate of the household expenditure you can expect to incur when moving to Bulgaria. Everybody can easily transform their household budget into its Bulgarian version by observing the local household spending volumes.
In its recent "Cost of Living Survey 2006" Mercer Human Resource Consulting measured the comparative cost of living in 144 cities across the world. Mercer's study ranks London in 3rd place, followed by Paris - 12th, and Rome -17th. Athens and Zagreb occupy respectively the more modest 41st and 48th positions, while Sofia comes behind in 81st place, towards the far end of the table. To put it in concrete terms, the average monthly rent for a luxury two bedroom unfurnished apartment in Sofia is 300 euros, which is eight times less than it would be in London. Coffee lovers will find coffee heaven in Sofia.
An espresso at a local cafe only costs 0.60 euro, which is almost four times cheaper than in its homeland the Italian. However, its quality will probably be nowhere near that in Italy. For a good cup of espresso you will probably have to pay more than in Italy, provided you can find someone to make it for you.
For those who like to keep up with the news from home, international daily newspapers are available in Bulgaria and cost almost the same as in the EU. Entertainment is readily available and easy to access. You can expect to pay six euros for two cinema tickets. Nightlife is cheap too, with entrance to a live music club costing less than five euros, and for the same amount inside you can get five beers.
It is important to understand how people allocate their household income to pay for necessities such as household utilities, food and transport, as well as life's little luxuries. We present how households across Europe distribute their expenditure. Our focus group of countries could be divided into EU members on one side and Bulgaria (set to join in 2007), together with Croatia, on the other. It is interesting to observe that certain types of expenditure such as health, education, alcohol and tobacco, communication, household equipment and maintenance, occupy equal amounts in household budgets across countries. However, the lower the GDP per capita, as in the case of Bulgaria, the higher the share of the household budget spent on food, while that allocated for "luxuries" like restaurants, recreation and culture decreases.
Bulgarians and Croatians spend a third of their household budget on food and non-alcoholic beverages compared to an EU average of just 13 percent. Clothing and footwear appear to be a cultural phenomenon, as spending on clothes in Greece, Croatia and Italy is considerably higher as a share of their household budgets - nine percent. Apparently Mediterranean countries have a more distinctly developed fashion sense than their neighbours. Bulgaria spends considerably less on clothes both in real and percentage terms. This suggests that clothes and footwear rest on the cusp of necessity and luxury for the average Bulgarian. Recreation, culture and restaurants regrettably represent a luxury for most Bulgarians, with levels considerably lower than European ones.
When in Bulgaria, Do as the Bulgarians Do
The percentage shares above, expressed in monetary terms, show that the cost of living in Bulgaria is considerably lower than the EU average. The allocation of household expenditure varies across countries due to differences in living standards and sometimes, as in the case with entertainment and clothes, depends on cultural phenomena. Of course, we would not make comparisons concerning the quality of life or services behind these figures. However, a household that intends to move to Bulgaria will inevitably adjust the percentage shares in its total expenditure to local conditions and prices. The real movements are hard to predict. Still, a UK household will spend more or less the same amount of money on food and utilities as their new Bulgarian neighbours, which comprises half of the Bulgarian household's budget, but only a fifth of the expenditure on the same items back in England.
Sample Budget for Moving In
Let's suppose that our UK household has decided to settle in the city of Gorna Oryahovica, which is close to the small regional centre city of Veliko Tarnovo. Renting a furnished three-room apartment in the district would cost 100-200 euros depending on the quality of the dwelling. Buying a three-room apartment (approximately 100 sq m) would cost 35,000 euros on average. A house would be less expensive - around 26,000 euros, as the living conditions and general state of repair of the buildings are usually poorer. In fact, house sales could be negotiated for half the price depending on location and state of repair.
Furnishing an apartment (kitchen appliances included) would cost approximately 4,000 euros to meet a family's needs. A second-hand car (about five years old) would cost another 4,000 euros. Utility bills for a three or four person household (parents and two adolescents) would be less than 100 euros per month. Expenditure on food would be about 100-150 euros per month, as prices in provincial towns tend to be about 30 percent lower than in the big cities.
The EU Perspective
With its entrance to the EU, the year 2007 will be a historic one for the Bulgarian economy, and there is currently much speculation as to what effect this will have on the cost of living here. The experiences of the countries that joined the EU in 2004 clearly demonstrate that food and beverage prices did not drastically increase, and that expectations of a 30 percent jump in prices were pure speculation. In fact, prices in the 10 new members quickly returned to their normal levels through the self-regulating mechanisms of the market. This is the most likely scenario for Bulgaria on its EU membership. There will be a definite increase in prices, but this will happen gradually over time.
Common taxes and excise on goods and services is the first main factor for a real increase in prices. The Common Agricultural Policy in the EU guarantees minimum prices for producers and stricter quality control regulations, which will result in the opening of the EU markets to Bulgarian producers, who will inevitably increase their prices. Another important factor is EU customs tariffs. Tariffs inside the union will considerably decrease or disappear, while those in relation to third countries will see a definite rise. Here the effect on prices will be mixed and harder to predict.
Food and beverage prices are expected to increase by about 10 percent on average. The price of Bulgarian alcohol and tobacco will remain the same, while the price of international brands will go down due to the disappearance of customs tariffs. At present, a pack of Bulgarian cigarettes costs an average of 1.10 euros, while you can expect to pay about 2.25 euros for Marlboro, for example. Housing utilities will register a definite increase of 10-15 percent after current state regulation is lifted. At the moment Bulgaria has the lowest priced electricity in Europe. Global increases in the price of fuels will alone contribute a five percent increase to the cost of utilities. However, the cost of transport in Bulgaria is not expected to change dramatically. In fact, it is even becoming cheaper and easier to travel within the EU, as more low-cost airline companies start flying to Bulgaria.
The boom in real estate investments since 2003 has already attracted a large number of private investors to Bulgaria and the market has reached its European equilibrium levels. All future price increases will reflect the economic growth of the country. This will result in gradually increasing prices in the large cities and declining levels in the smaller non-industrial ones. The average price per square metre of real estate is 500-600 euros for the big cities (Sofia, Varna, Burgas, Plovdiv) and just 250-350 euros in the smaller regional centres. Only the price of agricultural land is expected to increase considerably, as agriculture is among the few sectors that will benefit lavishly from EU funds after 2007.
There will be a marked decrease in the cost of telecommunication services due to the new regulations on the market and growing competition. This is probably the only service in Bulgaria which is currently more expensive than in the EU. The average price per minute for a mobile phone call is 0.15 euro. The same tendency will be seen in the second-hand car market, as VAT will be paid only once. At present VAT is charged twice for cars purchased in the EU, first in the country of origin and again in Bulgaria when imported. Unfortunately, this will not be the case with new cars. Car dealers expect prices to rise, catching up with those in Greece. A 10 percent increase is expected, so now is the time to buy a new car in Bulgaria.
There is no room for pessimistic pronouncements about prices. Even inside the EU there are clear differences in the prices among member states. Prices in Spain, Portugal, Greece and the 10 new members are still considerably lower than those in the UK, France and the Nordic countries. The experience of previous entrants to the EU shows that prices in general rise with the increase in income levels. Bulgaria has the lowest income per household in the EU, which will create a tendency for growth that will be reflected in increasing price levels. However, this increase will be gradual and will depend on the economic policy and conditions after joining, and the dire warnings of drastic increases in the cost of living should prove to be unfounded.
Bulgaria may not turn out to be a spending paradise on earth, but it offers the chance to live in a modern country on a low budget with great opportunities to travel and invest. Now is the time to stop building castles in the air, and buy your castle (or villa) in Bulgaria, it's likely to be a lot less costly than you thought.