We all know investors looking for overseas property – in particular in emerging markets – have primarily one goal in mind: capital gains.
So, how has Slovakia delivered so far and what potential does the market offer for the foreseeable future?
For the start, there are many regional housing markets so you need to look at them separately. The highest growth as well as best potential in the short-medium term has been seen in the economically well-off regions (such as Bratislava) as well as areas that have received significant foreign investments (eg. the car towns of Zilina and Trnava).
Bratislava as the main destination of foreign direct investment and the wealthiest part of Slovakia has been beating all other regions both in terms of the market’s buyoancy and growth.
Continuously high demand
Demand for good quality housing is very strong and still growing, as more and more buyers – mainly young people – are able to purchase a new home. This is due to the good economic situation in the capital, fast increasing incomes, as well as more and more widespread use of mortgage finance.
At present the demand outstrips supply of quality housing and any property put onto the market sells fast (in particular new developments; and of course classic city centre flats that have always been highly sought-after). Naturally as the market is developing and buyers have more options, location and standard (as well as payment terms, etc) are becoming more important and make some properties more desirable than others.
Bratislava, with its nearly 500,000 inhabitants by far the largest (and wealthiest) city, is also home to a large share of the country’s new residential and commercial construction. (In 2005 completed dwellings were located as follows: Bratislava region 31.5%, Trnava region 13.8%, Zilina region 13.4%, Presov region 11.8%, Trencin region 10.6%, Nitra region 7.3%, Kosice region 6.4% and Banska Bystrica region 5.2% of the total units.)
The dominance of the capital is not surprising. With wages and standard of living significantly above other areas of Slovakia (in particular the centre and east), Bratislava’s population can afford to purchase properties at prices out of reach of locals in most other regions. While the desire to buy a new, better quality home is not foreign to those living in Kosice, Presov, Banska Bystrica regions, the purchasing power is low. Developers therefore mostly don’t see new construction viable in such areas, and new residential projects can be counted on one hand.
Away from Bratislava the cities of Zilina and Trnava are worth mentioning as having an increasingly thriving market (though not allowing comparisons to the capital). The main cause for the new demand is fast growing local economy, employment and wages – in particular thanks to the huge car industry investments in both towns.
Prices on the up
So what has been happening to property prices in the last year or two?
Bratislava has seen a steady growth in recent years. An average rate is nearly impossible to establish, not only due to lack of official data but also large disparities between different property types.
The properties (apart from land) experiencing highest appreciation in Bratislava have been primarily city centre properties (mostly pre-war) and new build properties. Growth rates of city centre flats have been averaging 15- 20% p.a., while in case of new build homes 10-12% growth was more common last year. However, based on the desirability of location and quality, the span is wider at around 5- 20%. Communist built properties – in particular panel block constructions – have generally not seen much appreciation, although the price drops experienced in 2004-5 seem to have ceased and prices have stabilized last year.
Bratislava now features properties priced from just under 40,000 SKK/m2 (800 GBP/m2) up to 130,000 SKK/m2 (2,600 GBP/m2).
Comparable prices are unheard of outside the capital. Even in the thriving towns of Trnava and Zilina property prices reach up to a maximum of SKK 50,000/m2 (or 1,000 GBP/m2, Trnava) and 60,000 /m2 (1,200 GBP/m2, Zilina), with average prices coming to lower levels. Prices of communist built flats in the two towns are under SKK 30,000/m2 (600 GBP/m2).
Limited supply
Although Slovakia (compared to recent years) is experiencing somewhat of a mini-boom in construction, the country is still at the very bottom of the construction scale in Europe.
While Ireland and Spain top the European construction rates chart, Slovakia (along with Germany) holds the last position. To compare, only 2.8 units were build in Slovakia for each 1,000 inhabitants as opposed to Ireland’s 18.6 units per 1,000.
And so the country’s chronical shortage of housing will hardly be solved anytime soon. By government estimates nearly 50,000 new properties would need to be built annually to meet current demands and catch up with the EU’s average.
Slovakia with its 309 housing units per 1,000 inhabitants is well below the EU’s 450 hu per 1,000. However, the country only has 13-15,000 properties built each year (out of which nearly two thirds are family houses and the rest units in apartment blocks).
The massive domestic demand coupled with strong shortage of properties will continue to be the main factor pushing up prices in coming years.
Increasing affordability
Surveys in 2005 have shown that an average Bratislava inhabitant needs to save for significantly fewer years to buy an average property in the Slovak capital than those living for example in Prague, as well as any western European capitals.
Today, the situation hasn’t changed. While not all property will be affordable to the agerage buyer, fast growing real incomes as well as increasing use of mortgages are producing new waves of buyers. Statistics show a majority of buyers of new built flats in Bratislava are in their early to late 20’s.
Future potential
With Slovak economy accelerating beyond all expectations (8.3% GDP growth in 2006 and close to 9% predicted for 2007), unemployment in continuous sharp decline and fast growing prosperity and purchasing power, Slovakia presents some of Europe’s best fundamentals for property market’s growth.
Slovaks’ desire to own their home coupled with increasing ease of obtaining mortgage finance at favourable conditions will ensure an ongoing strength and buyoancy of the local market and further price appreciation.
So, investors should see healthy returns in the next 5 years, with prices of quality properties in popular locations on the way up. This is particularly true in economically strong regions, and will also increasingly be dependent on the micro-location and quality or standards of the property.
Importantly for the investor, the Slovak property market keeps being driven largely by domestic demand from local home buyers. This is in sharp contrast to many other new markets where prices have been inflated by large numbers of foreign investors or speculators. The numbers of foreign buyers in Slovakia are negligible compared to the domestic purchasers.
As in previous years, the best performers from the capital gains perspective are likely to be (construction) land, classic city centre properties and new builds (in particular in more sought-after locations).
Somewhat harder to predict is the development in other regions and towns. While the likes of Zilina and Trnava are already seeing a healthy growth (of around 8-12% p.a. on good quality properties), other towns such as Nitra and Trencin in western Slovakia, Banska Bystrica in central Slovakia and Kosice (and Presov) in the east, may need to wait for several more years yet to see their markets thrive. As happened in the west of the country, the road will typically need to be paved by significant foreign investments (and improvement of infrastructure necessary for such investments; in particular in the east).
While it is out of scope of this general overview to go into detail on specific locations, we welcome any questions you may have at http://www.slovakiainvestmentpropert y.com