Eastern Europe Property

With almost daily news about negative impacts of the credit crisis on world’s economies and the possibility of a US recession, what is the likely effect on property investment in the high growing emerging markets in the “new” Europe?

For Central Eastern Europe (CEE) 2007 has been a good year. That is even more true about Slovakia. Following very fast growth over the last several years, Slovak economy again broke all records in 2007.

Unemployment has been constantly slashed since the beginning of the decade, annual GDP growth has been approaching 10%, the wealth of the population is increasing at fast pace and the country keeps attracting significant foreign investments.

All this coupled with the Slovaks’ desire of home ownership and massive demand for better quality housing, plus a low supply of such homes, as well as more accessible finance. Here we have the explosive combination that has been fueling the local property boom in the last few years.

And indeed much of Slovakia has seen a strong growth in property prices – between 10 and 20% p.a. depending on region and type of property.

Yet Slovak property is still some of the cheapest in Europe, and conditions for further growth are very good indeed. Also, significantly for any investor, the Slovak property boom is based almost wholly on the local demand from keen home buyers (as compared to many other markets that have been inflated by foreign investors and became dependent on the continuity of such investment). With still affordable prices and growing incomes the Slovak housing market is unlikely to slow down any time soon.

And then there have been further good news for Slovakia and the CEE markets…

Late last year Slovakia (as well as Poland, Czech republic, Hungary, Estonia, Lithuania, Latvia, Slovenia, Malta) joined the passport-free Schengen zone. This move is expected to significantly boost business and tourism.

Now of course the most eagerly awaited event is the euro adoption. Slovakia is to join the single currency in January 2009, several years ahead of its Central European neighbours.

The country has been well on track to meeting the Maastricht criteria and few economists have doubts about the euro being indeed successfully introduced in Slovakia next year.

Does it mean the current global financial turmoil will have no negative impacts on Slovakia?

Well, of course, no country in today’s globalized world can be considered completely immune. However, as we know, the credit crunch and recession fears are really a problem of the developed world (primarily US, UK, etc) and not the emerging markets.

While the impact of the financial crisis may result in some cutting down on investments in CEE and other emerging markets, it’s important to remember that the fortunes of the “old” and “new” Europe depend on each other and the economic ties go both ways.

So in the worsening financial situation the developed euro zone economies and the new European markets will look to further deepen their already strong trade relations.

The CEE countries have relied on foreign investments (mainly from the eurozone) to accelerate their economic growth. And, in turn, they have been one of the main pillars of growth for the developed Europe.

In particular strong exporters will, amidst a possible US recession, increasingly rely on their emerging neighbours. The “new” Europe has in fact been as important as the US for eurozone’s exporters (such as Germany, France, etc) in this decade.

So… yes, the credit crunch could see some investors and banks pull back from these emerging markets. However, the eurozone also knows of the growing significance of its CEE neighbours for its own exports and growth.

Slovakia and other CEE economies are considered to hold up well and further strong growth is expected in the region for the coming few years – including continuing high growth in wages, falling unemployment and strong and steady investment activity.

A report by the global property consultancy King Sturge comments: “Despite some uncertainties in the financial markets, continental Europe is underpinned by positive long- term fundamentals: a strong macro-economic outlook, healthy businesses and improving occupier markets.”

King Sturge expects France and Germany to supersede the UK as Europe’s busiest investment hub in 2008 and also sees a momentum for growth building in emerging markets like Slovakia, Poland, Turkey and Bulgaria.

And although the Slovak financial markets are not immune to the developed world’s problems, local economists consider the positive impact of the planned 2009 euro adoption to be far more important than any negative consequences of the credit crunch.

The credit issues themselves are the developed world’s problem, and while several European banks have been hit, the US shock has not been repeated on the old continent.

As a result European consumers (with the exception of the UK perhaps) have not been largely affected by any US- style tightening of credit.

In fact the European Central Bank (ECB) has informed an increase of business loans granted in the eurozone last December by 14.4% (compared to November) – the highest monthly increase since 2000. The volume of personal loans and mortgages grew by 11.1% y/y last December.

So, how will all this affect the Slovak property market?

Not much is the likely answer. Slovak property is still attractive for growth and value oriented investors – in fact perhaps even more so today.

As explained at the beginning of this article, Slovakia is looking to continuing high economic growth and the increase in incomes and prosperity that goes hand in hand with it.

On the property side, low prices, strong and still growing local demand and insufficient supply of quality housing (with some of Europe’s lowest construction rates) will keep fueling capital growth. And, of course, the market doesn’t depend on investors or speculators but is driven by the strong desire of Slovaks to own a (better quality) home.

The main villains that have caused the US credit crisis are not present in the Slovak market, be it aggressive lending practices, unsustainable and inflated property prices or increased costs of borrowing.

Most of the western economies are highly leveraged (huge amount of consumer debt as well as business, bank and government debt) and hence vulnerable to any changes in lending criteria.

While Slovaks have become more acquainted with loans over the last few years, the mortgage market is still comparatively very new and many home buyers use savings instead of loans when buying a property. As opposed to Americans or Brits, most Slovaks are prudent savers and credit card debt is almost unheard of (although this might of course change in the years ahead). Consumer debt in Slovakia is one of the lowest in Europe.

And those who have used a mortgage to purchase their new home have little to worry about interest rates in the short-medium term. With the base rate at just 4.25% p.a. since mid 2007, and the expectation of further rate fall before the euro adoption, mortgages in Slovakia are both cheap and accessible. (Currently mortgage rates range from approx 5-7% p.a.)

So, in summary, the financial crisis may affect the Slovak finance market to some degree, however, the country is still in a very enviable position. And so is the local property market.

That of course is excellent news for you, the investor… whether you have already purchased a property in Slovakia or are still looking for the right opportunity. In which case we’d advise you to move fast.

Because while you may decide to wait to see what happens in the US and UK economy, the local property market – and prices – in Slovakia will most certainly not wait for you.

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The Slovak economy grew by 9.4% in QIII 2007, according to the Slovak Statistical Office. This means 0.4% higher growth than in the same quarter of 2006.

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The unemployment rate in Slovakia was 7.99% at the end of 2007, (according to the Central Office of Labour, Social Affairs and Family). That is a decrease by 1.4% compared to the end of 2006.

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The average nominal wage in Slovakia grew by 6.8% y/y to SKK 19,514 (588 euro) in QIII 2007. Real wages increased by 4.2% (Slovak Statistical Office).

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In 2007 foreign direct investment in Slovakia doubled (compared to 2006) to 1.28 billion euros, according to Sario (Slovak Investment and Trade Development Agency).

This came from 64 investments creating 14,738 new jobs. Sario is working on 146 new projects this year worth around 4 billion euros. Most of the investors come from Germany, US, UK, Belgium, South Korea, Austria and Italy.

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Slovakia’s 2007 budget deficit dropped below 2.5% of GDP (preliminary data from the Ministry of Finance of SR), which was considerably lower than the 2.9% predicted last year.

The Slovak economy ended 2007 with a deficit of SKK 23.53 billion (704.43 million euros), which was SKK 14.86 billion (444.85 million euros) less than budgeted. The economy improved by SKK 8 billion (239.52 million euros) y/y mainly thanks to higher tax revenues. (The 2006 deficit was SKK 31.68 billion.)

In 2008 the deficit is expected to be below 2.3% of GDP.

The country is therefore well on track to meet the conditions for adopting the euro in 2009, as planned.

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In 2008 Slovakia will be preparing for a new currency.

According to surveys 90% of Slovaks believe that the country will adopt the euro in January 2009 as planned. The predictions of economists and analysts support this. (According to INEKO foundation 75% of economists expect a successful 2009 euro adoption.)

The slovak crown (SKK) will remain in the European exchange rate mechanism ERM II until a final conversion rate is set (to be known in July). The exchange rate is expected to be SKK 32 to 33 for 1 euro. Some analysts predict an even better rate.

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A survey by GfK shows that Slovakia has the 4th highest internet penetration in CEE; 42% of Slovaks use the internet.

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The average price per square metre of housing real estate in Slovakia increased by Sk2,661 in the second quarter of the year to Sk36,382, thereby posting a y/y rise of 21.3 percent in the monitored period, the National Bank of Slovakia (NBS) stated.

The NBS monitors real estate prices together with the National Association of Real Estate Agencies (NARKS). The published data showed that by Q2 2007, the price per square metre had skyrocketed 104 percent since 2002.

The development of apartment and house prices in Slovakia has a clear growth trend. While in 2002 the average price per square metre of housing real estate was Sk17,832 in 2005, it grew to Sk26,088 and reached the aforementioned Sk36,382 per square meter in Q2 2007. From a regional viewpoint the highest average price per square metre of housing real estate is in the Bratislava Region – Sk47,808, up 6 percent q/q. The Trnava Region follows with Sk23,927, up 7 percent, and the Košice Region with Sk22,526 and 13.2 percent growth. SITA

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

At the end of April the National Bank of Slovakia (NBS) cut the base rate by 25 bp to 4.25% p.a. Low interest rates are excellent news for both investors and local home buyers and should ensure the continued buoyancy of the Slovak property market.

Slovakia’s GDP grew by 8.9% y/y in QI 2007. This year’s GDP growth is expected to come at a record high 8.7% p.a. (OECD), easily maintaining the country’s long term position as the Central European economic leader.

The registered unemployment rate fell to 8.50% in April, a new record low level, according to the Slovak labor office. That represents a 0.39% drop compared to March and a strong 2.54% fall y/y.

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Indeed, investors and buyers in Slovakia are fortunate to be facing some of the world’s lowest transaction costs at purchasing and selling real estate.

Buying

While much will depend on the individual situation, obligatory costs are extremely low. This has not always been so – there were times not long ago when buyers were liable for a transfer tax (stamp duty) of 3% (previously levied progressively up to 20%). However, since 2004 Slovakia is one of the few countries that have fully abolished transfer tax on property transactions, bringing the costs of purchase down dramatically.

Let’s now have a look at the typical costs associated with a property purchase in Slovakia.

The only expenses all buyers have to pay for are land registry (Kataster) fees and notary fees for certification of signatures:

- land registry (approximately 40 GBP for regular entry or 160 GBP for accelerated entry; the latter being recommended)
- certification by notary (very low nominal fees)

When it comes to other expenses – in particular agent fees and legal fees – the scenarios are varied.

A buyer may use an agent working on his behalf (as is often the case with foreign buyers, and in particular investors, using the help of a sourcing agency to find a suitable property and guide through the process) in which case a fee is generally payable by the buyer (2-5% typically, though it may be more if other services are offered, such as mortgage arrangement, legal services, fit-out, etc).

In other cases (in particular local buyers looking for own residence) buyers will search for their home directly from estate agents’ listings. This means the agents are working on behalf of the seller and while the purchaser wil not be charged a fee, the agent fee paid by the seller is usually calculated into the sales price.

A similar situation applies to legal fees. Slovak buyers and sellers rarely use a solicitor in the transaction. As in most of continental Europe, the Slovak notary oversees the contract signing but is not involved in drafting contracts or ensuring they are fair to either party.

It is therefore advisable for foreign buyers to instruct an independent solicitor to work on their behalf. The fees for such legal service depend on each law firm as well as complexity of the transaction. (For residential property conveyancing an experienced law firm in Bratislava will typically charge 800-2,000 euro.)

Buyers taking out a mortgage in Slovakia will incurr additional expenses:

- an additional land registry entry (40 resp. 160 GBP)
- bank arrangement fees (paid to the lender; commonly 0.20-1% of value of the loan)
- in case a broker is used also mortgage broker’s fee (from fixed fee of around 300 GBP up to 1% of value of the loan)
- in some cases lenders still require a notary deed (speeds up repossession proceedings if needed; costs depend on transaction value but generally around 300 GBP)
Note: All notarial fees are set by law

Selling

And what about selling a property?

Most sellers will use an estate agent to find a buyer for their property. The agent’s fee is borne by the seller and varies depending on agent and sales price. It is commonly between 3-6%. (Small notary fees for certification of signatures will also be payable.)

Letting

As most investors will typically hold a property for a number of years before disposing of it, it’s important to understand what costs are borne by the owner/landlord in case of letting a property.

While it depends on individual agreement between landlord and tenant, typically tenants are liable for the following expenses (apart from rent):

- utility payments (electricity, water, gas, phone, etc)

While landlords usually carry the costs of:

- service charges (administrator fees, utility payments related to communal areas)
- insurance (approx. 100 GBP p.a. for a 100k GBP flat)
- property tax (very low, 20-30 GBP p.a. for an average flat in Bratislava)
- any repair, renovation and maintenance costs
- property management and letting services (letting only is charged at one month rent; full property management is only provided by a few agencies and typically varies between 15-18% of the monthly rent)

Naturally there are also taxes payable on income, however, they are not considered transaction costs and hence not part of this overview. (19% income tax is payable on any net income including rental and capital gains.)

Provided by: http://www.slovakiainvestmentproperty.com

As those who have bought and sold a property in Slovakia will know, the Slovak tax system distinguishes between three scenarios when it comes to taxing proceeds from property sale. Income tax (19%) is payable on capital gains except in the following cases:

a) the property has been used as principal primary residence for at least 2 years prior to sale
b) the property has been owned for at least 5 years (not used as PPR)

The main obstacle for a property investor has however been a condition to point b) above, based on which the exemption after 5 years of ownership does not apply if the property has been used to generate income – including from letting. This has meant investors (who have been letting their property) were always liable for tax on profits from capital gains upon sale. The exemption could only be applied 5 years after the income generating activity had ceased.

Now for the news all investors will certainly appreciate: Effective 2007 the restriction on rental property has been abolished. What it means is after 5 years of ownership all sellers are exempt from tax on capital gains!

Note: the above applies to properties held in individual name; companies are always liable to pay (19%) corporation tax on profits from capital gains.

Provided by: http://www.slovakiainvestmentproperty.com

Slovak economy grew by a staggering 9.8% in the 3rd quarter of 2006 – faster than China! Last year Slovakia’s economy is expected to have grown by 8.2% and 8% growth is predicted for 2007 (according to the latest OECD report).

Figures from Eurostat (Nov 2006) show unemployment rate in Slovakia at just 12.3%, down by 3.9% y/o/y and at the lowest level since 1998.

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The Slovak crown has gained more than 5% since October 2006 and in last week of December reached a new all time high of 34.060 SKK/EUR, prompting the National Bank of Slovakia (the country’s central bank) to intervene to bring the rate down. (By July 2006 the rate was at 38.7.) Guesses for a probable Euro/SKK conversion rate for late 2008 are anywhere between 30 and 35.

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Last December the Korean car maker KIA announced plans to increase production at its new Zilina plant. KIA will now produce 300,000 cars as well as 300,000 car engines a year. To increase capacity KIA plans to start building a second plant in Zilina this year; production should start in late 2008. KIA’s existing plant went into full production in December 2006.

From this month on Slovakia is the world’s leader in car production per capita, with approx. 100 cars per 1,000 inhabitants.
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Out of the many fears regarding Slovakia’s new leftist government under PM Fico (in power since July 2006), very few have materialized. A proof that the pre-election propaganda was, luckily, more aggressive and far more populist than the post-election actions so far.

The 2007 budget was passed with a 2.9% deficit, well on target for 2009 euro adoption. The pre-election plans to revoke the celebrated flat tax resulted in merely introducing a lower VAT rate (10%) for medicine and lowering the non-taxable minimum for higher earners, while the flat 19% tax rate remains unchanged.

Some risks still remain due to Fico’s plans to undo resp. postpone reforms in the healthcare and pension systems, and introduce changes in the labour code to increase employee protection (resulting in a likely decrease of labour market flexibility).

In spite of stopping the remaining privatizations of strategic enterprises (incl. the BA airport and the rail cargo company) the new government is dedicated to keep attracting foreign direct investment to Slovakia, including using state aid.

2006 saw a number of significant investments, expected to create a total of 9,000 new jobs (direct & indirect). The IT sector, followed by automotive and electrical engineering industries have attracted the largest number of investors last year.

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Slovakia seems well on target for a January 2009 euro adoption. The inflation estimate for 2008 fell to 2.5% (from previously forecasted 2.8%) and public finance deficit is expected to stay below the necessary 3% in 2007 and 2008. These are two of the Maastricht criteria that have ruined the hopes of Slovakia’s CEE neighbours for a euro adoption this decade.

Indeed, the Czech republic and Poland are expected to have the earliest chance to join euro by 2012 (although even this date is still questionable) and Hungary is not forecast to meet the Maastricht criteria before 2014 at earliest. The Baltic countries, previously looking at a 2007-8 single currency adoption, will not be in the position to join before 2009-2010+.

2) Residential Market Update: Sales and Rental Values
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Let’s face it… most investors buying property abroad, and in particular in Central Eastern Europe, are after capital growth… the more and faster the better!

So, how does Slovakia deliver?

First, I can’t stop stressing it often enough – there is no such thing as getting rich fast! There is no growth overnight (or in a month, or even a year) with no work, totally hands-off. Property must be viewed as a long (or at least medium) term investment, and then, only then, it truly pays off. And by medium to long term I mean 5-10 years and more.

Sure, we can see property prices rising year by year, but, let’s think about it for a minute. Just because today new properties cost 10, 15, or 20% more than a year ago, does this mean you can sell your property at 10, 15 or 20% higher price than what you paid for it last year? No. It doesn’t work that way, no matter whether in Slovakia, Poland, France, UK… Developers have a far greater marketing reach and will always be able to get higher prices for their projects than an estate agent selling on your property.

That said, property prices have continued rising in most regions of Slovakia where there is demand from buyers. The construction rates are still lower than in other EU countries and the shortage of properties will take many years to be remedied. However, regions with high purchasing power – led by the capital Bratislava – are finally seeing a more active development market than a few years ago. The result of buyers having a more decent choice for the first time in years is that the type of property and exact location are more and more important these days.
BRATISLAVA

As in the past, the city centre (BA I, Old Town) is the most prestigious and sought-after district of the capital. Better off locals and foreign buyers both compete for the limited number of properties that come up for sale here. As there’s virtually no new(ish) residential construction in the centre, properties are mostly pre-war blocks of flats.

Due to high demand and very short supply Bratislava I has seen the highest price growth, in any given year. We’ve seen prices of city centre apartments going up by roughly 15% p.a., although it depends on each property and top-end flats have been increasing even more.

Note: prices in the following overview are quoted in SKK and per 1 m2. Due to fast changing exchange rates this is a more viable option. (Recently the rates have been 1 GBP = 52 to 54 SKK.) Current rates can be seen at www.xe.com/ucc

Today, prices of apartments in the first district range from SKK 50,000-130,000/m2. While at the lowest range are properties in usually poorly maintained blocks, good mid range apartments can still be bought from around SKK 60,000 a square metre. (At current rates that means decent 1 beds start from 60k GBP, good 2 beds from just under 100k. Of course a top end and large size 1 bed can also cost you 100k and over 200k GBP for 2 beds is also possible.)

Given the very solid rental demand for Old Town properties, and the fact the above prices are far lower than city centre properties in other Central European capitals, apartments in central Bratislava offer, in our view, the best investment potential in Slovakia.

What about other districts?

In BA II, III, IV and V the type of construction and exact area are decisive. While properties in BA I are almost exclusively classic/pre-war (built in the 1900’s to 1950’s), the other four districts of Bratislava offer a mix of communist style blocks (often built of concrete panels hence ‘panelaky’) and new builds.

Prices of new apartments have been rising, in more popular areas by estimated 10-12% over the last 12 months. Even in areas of less demand, for example on the outskirts of the city, have the prices gone up by a minimum of 5% or more. On the other hand, communist built apartments have seen no growth, although the decline in prices witnessed since late 2004 has ceased in most areas now.

Prices of new apartments in Bratislava II currently range between SKK 40,000-70,000 +(19%) VAT/m2. The more sought-after western parts (Nivy) and central parts (Ruzinov) of BA II command higher prices (generally SKK 50-60,000 + VAT/m2) while in the less popular areas in the east of BA II district new flats can be had at under SKK 40,000 + VAT/m2.

Bratislava III has pockets of new construction, including a larger number of new developments in the previously more secluded and exclusive Koliba area, and the vineyards, where more developments will be going up in the future, after rezoning. Prices of new build apartments in BA III are between SKK 40,000- 70,000 + VAT/m2. A planned exclusive new project by Orco group is expected to be released at over SKK 100,000 + VAT/m2.

Bratislava IV is again a very mixed district, with more popular areas closer to the centre (such as Karlova Ves) offering new properties at higher prices than the much less sought-after locations of Dubravka, Lamac or DNV. New apartments can be purchased at SKK 35,000-80,000 + VAT/m2 (only 1-2 projects command prices near the top level, while most come under 50,000 + VAT/m2).

And, finally, BA V, the fifth district and the only one south of the Danube. Traditionally the least popular place with Bratislavans, the area of Petrzalka suffers due to its communist housing estates. The high density panel blocks cover virtually all of Petrzalka, while social infrastructure is poor with limited retail, administrative or leisure facilities.

Development has until recently been very limited due to the low demand. However, thanks to having the lowest property prices of all Bratislava (and good access to the city centre), the area is seeing increasing demand from those buyers who can’t afford to purchase elsewhere. Developers follow, and the number of new projects in Petrzalka is slowly growing. They can be bought at SKK 30,000- 45,000 + VAT/m2.

RENTAL

Bratislava is still the ’safest’ market in terms of rental… apart from holiday lets in ski and tourist resorts. However, as anywhere in Central Eastern Europe, investors who want to have a chance of renting their property need to understand who the tenants are, what they want, and at what prices.

The two main groups of tenants are, traditionally: expats, executives, foreign professors at the one end; lower income workers (often migrants from eastern and central Slovakia) and students at the other.

Demand from foreigners and companies has been very strong – and growing – for the last 15 years. However, these tenants are almost exclusively looking for city centre (BA I) properties, and of good quality.

Rents (net of utilities) in the Old Town of Bratislava are as follows:

1 beds – 450-600 euro/month (more is usually only possible for exceptional top end and/or very large apartments in best buildings and areas)

2 beds – 600-850 euro/month (again, depending on size in m2, quality, exact location and standard of building; in some cases up to 1,000 euro is achievable for top quality)

Due to the high demand and security of rental, as well as reasonable yields (5-7% p.a.), city centre apartments can be considered the best option for buy-to-let.

On the other hand, the second group of (Slovak) tenants consisting of lower income younger workers and new migrants, as well as students, has different requirements. Location and standard is much less important, and budget is the main issue. Demand is for cheap apartments with rents up to 300-350 euro/ month. Tenants often keep their costs down by sharing such properties.

There is demand from this tenant group to rent a property in almost any area of Bratislava provided the rents match. Due to lowest rental values, Petrzalka is filled with students and new migrants, renting mostly cheap panel block apartments. So is the Dubravka area in BA IV. Lower cost apartments in Ruzinov are also popular.

Anything that does not target or appeal to the above two tenant groups can be very hard to rent. As in most of Central Europe, middle class local population does not rent property, they buy resp. live in owner occupied homes.

So, the advice is… do your research, buy well, hold for several years… and then you will enjoy the fruits of your investment!

Whatever your requirements, email us at: info@slovakiainvestmentproperty.com