While most individual foreign buyers look primarily for [tag]residential property[/tag] and [tag]buy-to-let [/tag]opportunities, investors, particularly those with larger amount of funds available, should not forget about other potentially highly profitable options. Apart from commercial property, land investment can offer excellent returns to the shrewd ones.
There are several strategies investors interested in [tag]Slovak land[/tag] deals can follow. Primarily they are: buying land for long term hold; buying large plot, connecting services, splitting into small parcels and selling off; buying to develop.
Buying for long term hold
As in most markets, land is increasing in value faster than any other type of property in [tag]Slovakia[/tag]. Naturally, it only applies to regions with good demand for land and property. Investors with large amount of cash at hand but unwilling to develop land may find a buy to hold option attractive.
If bought well (in high demand area, or area with growing future demand, and at a favourable m2 price), appreciation can represent 10-50% p.a., particularly in areas in and around Bratislava and other economic centres, as well as popular tourist centres.
A disadvantage of this strategy is the lack of any financing options – no Slovak bank will fund such purchase.
Buying to split and sell
A highly profitable (if done properly) short-term strategy pursued by local firms and increasingly several foreign investors is purchasing a significant land parcel (often 1 – 20+ ha), connecting services (water, sewage, electricity, etc), splitting into small plots and selling off to the end user, or possibly in a joint venture with a developer who will offer to build homes, whether catalogue-type or more exclusive individual designs.
The main condition here is to buy in an appropriate area and at a m2 price that allows for a safe margin on resale. Areas where such operations have frequently been done in recent years are almost exclusively in proximity of [tag]Bratislava[/tag]. Villages and satellite towns 5-15 km from the capital with demand for new family houses and land available for development present good opportunities. So do parts of Bratislava suitable and in demand for family house construction.
Once again the disadvantage is the difficulty in financing a land purchase in Slovakia. However, due to the short turnover period investors (who do not have all necessary cash) are usually able to arrange funds from another source.
Buying to develop
Naturally, development presents the most significant scope for profits. However, it also carries the highest risks, including in the planning process. While it varies depending on region and the respective local authority, planning in Slovakia is generally a very lenghty and bureaucratic process.
With over 70 institutions’ approval necessary before a building permit can be issued, it is of little surprise it often takes years for developers to obtain a permit. This is particularly true in Bratislava with the lack of a functioning master plan (the existing one being 30 years old) and many interests at stake.
Any possible newcomer will also need to expect tough competition from the many established local and few foreign developers (who have entered the market in recent years, often in partnership with an experienced local player).
The advantage of development is the ease of obtaining finance from local banks; Slovak banks offer the cheapest development financing in Central Europe. However, only developers with a track record and experience in the Slovak market will typically be able to benefit.
Main obstacles
No matter what is your plan for land investment in Slovakia, you will have to overcome two main obstacles that characterize the market.
Land in Slovakia is highly split (into a large number of small parcels) – a legacy of an inheritance system that had encouraged splitting each parcel among all heirs as well as allowing multiple owners of a parcel.
The resulting situation makes it extremely difficult to buy a larger land parcel; in most cases buying up several parcels is necessary, each of them typically having multiple owners. (In case of very large developments this often involves hundreds or even thousands of owners.) By law each of the owners have to agree on sale; the process is very time consuming, expensive, and frequently falls apart due to unwillingness to sell by some of the many owners, or because often some of them cannot be traced.
The second obstacle to successful land transactions is the high percentage of land with unidentified owners, again, an issue resulting from historic circumstances, confiscations, etc. Official statistics quote 238,000 hectares of such parcels in Slovakia today, the highest number being in Presov, Kosice and Banska Bystrica regions, lowest in the Bratislava region.
Prices
It is not possible to quote average land prices due to the many factors of influence, mainly location, size of parcel, possibility of use (type of construction), services, etc.
As a very general guide, building land prices range from 250-900 euro/m2 in sought-after areas of Bratislava (while smaller plots in top areas of BA I can top 1,300 euro/m2), with land in other parts of the capital, typically on the outskirts, coming at 120-180 euro/m2. Villages and satellite towns within 5-15 km of the capital see prices of typically 45-130 euro/m2.
Prices outside the Bratislava region vary hugely, with larger economic hubs in western Slovakia (Zilina, Trnava, Nitra, Trencin, etc) as well as parts of Kosice in the east boasting higher prices than the rest of the country.
Land in sought-after tourist resorts in particular in the proximity of ski resorts, aquaparks, etc, has seen high appreciation in recent years and ranges from 30-120 euro/m2.
Agricultural and forest land
Slovakia has 4.4 million hectares of agricultural and forest land. Slovaks’ interest in agricultural land is very low, in part due to low profitability of cultivation. Owners frequently let land unused or rent it to agricultural communes. However, rents are very low (10-30 euro/hectare) and often not paid at all.
Prices of agricultural land in Slovakia are at the very bottom of EU prices. As an example, average price in Slovakia was 880 euro/hectare, while in Czech republic 1,300/ha, Germany 9,400 euro/ha, in the UK and Ireland 11,600 and 12,700 euro/ha, in the Netherlands 34,450 euro/ha and in Luxembourg 53,300 euro/ha (Eurostat figures, 2003).
So what does this mean for an investor?
First of all, it is important to note agricultural land is not building land, construction is not possible, and in most cases never will be.
Second, foreign individuals and companies are not permitted to purchase agricultural and forest land in Slovakia until 2011. (The only exception being EU citizens resident in Slovakia who have been cultivating the land for at least 3 years prior to purchase.)
In spite of that, there has been some interest from mainly Austrian buyers who have (unofficially) beein purchasing land in the Bratislava region through local persons or by way of future purchase contracts and option agreements. Interest in other regions is significantly lower.
Forest and agricultural land around Bratislava is typically sold at 3,400-8,000 euro/hectare (forests) and up to 25,000-100,000 euro/hectare (land). At the higher end of the price range speculation on future exclusion from the agricultural fund often plays a role.
Once restrictions are lifted in 2011, foreign buyers are likely to be the main factor in reviving the sleeping agricultural land market in Slovakia. A land reform to offer solution for the problems of highly splitted parcels and in part intransparent ownership structure is also urgently needed to kickstart the market.
For more info: http://www.slovakiainvestmentproperty.com