26th of October 2007

iPropertyCLUB News

Slovak Republic. Price History.

House prices rising, Rapid economic growth

Slovak Republic: Price History

“There has been a 15% rise in prices, across the board, in the past year,” says Andras Patkai of CEInvest. “Some developments have seen a 30% rise in prices 2005-6.”

“This is a very interesting situation,” he adds. “There was a 10-year period after the fall of communism when nothing was built. The gap (in construction) is what is forcing the pace. There is tremendous local demand for new built units.” In 2005 around 15,000 construction permits were issued, up from the previous year’s 5,000.

The volume of loans for house purchases increased by 41% in IH 2006, and 34% in H2, similar to the previous year’s growth. The rate of growth accelerated in the first half of 2006. Though 100% mortgages are available, the country has the second-lowest volume of mortgages (as % of GDP) in the EU, and so has a long way to go to catch up.

Interest rates on floating or one-year mortgage loans, which dominate lending in Slovakia, were 5.1% at the beginning of 2007, and more or less stable. Interest rates on 5-year mortgage loans have also been stable, at around 6.4%.

Real GDP growth reached 8.2% in 2006, following 5% for 2005, 5.5% for 2004 and 4.4% for 2003. The Slovak Republic is now the fastest growing of the central European economies. Yet the dramatic growth – a record for Slovakia since its 1993 founding – seems not to be leading to economic overheating, and to be based on macroeconomic fundamentals. Headline consumer price inflation was at 2.2% in February 2007, according to the Central Bank (‘core’ inflation was a mere 1.8%), having dropped from a dire 26% in 1993. Unemployment is down to 9.4%, from 16.5% at the beginning of 2004.

The Koruna has strengthened strongly since mid-2006, moving from €1 = K38.5 to €1 = K34.25. The long-term currency trend has been continuously positive; the currency has risen from €1 = K46.80 in early 1999.

Slovakia experienced slow economic growth from 1994 to 1998, when reforms were initially stalled. However since then, the economy has consistently improved, facilitating the country’s membership of the Organization for Economic Cooperation and Development (OECD) in 2000.

One of the most successful transition countries
Slovakia is one of the successful transitional countries in Eastern Europe. Established after the nation seceded amiably from Czech Republic in 1993 (the two countries were formerly known as Czechoslovakia), its stable polity and liberal market economy belie its previous 41-year communist rule.

Slovakia benefited from eight years’ reform under the centre-right coalition led by Mikulas Dzurinda (1998-2004) whose reform package won praise from international organizations, and oversaw EU and Nato entry. Bratislava become a favourite destination for foreign investors.

One of the most famous characteristics of the Slovak economy is its ‘flat tax’ of 19% on income, consumption, and corporate profits, operative since 2004. “It just works!” explained former minister of finance Ivan Miklos to a Cato Seminar.

However in June 2006 a new coalition government was elected, reflecting a ‘protest’ vote by those left out of Slovakia’s economic growth. It includes a rather disreputable group of leaders headed by the left-wing smer party led by prime minister Robert Fico, plus the centre-left Movement for a Democratic Slovakia led by Vladimir Meciar, and the right-wing Slovak National Party.

The government’s gut instincts, though it makes free market noises, are to undo the reformist good work of the past eight years. However the reforms’ success is so obvious, the amount of business coming into Slovakia so large, that most believe the government will not act on its worst instincts.

Car manufacturing has been one of the main motors pushing Slovak economic growth up. Kia is the third major auto manufacturer in the country, following on from Volkswagen, which opened an assembly plant outside Bratislava in 1991, and French-based Peugeot Citroen, which arrived in 2003. The launch of South Korea's Kia Motors' first European plant in the north Slovak city of Zilina, 1.0 billion Euro investment, has brought enormous growth to the region has brought enormous growth to the region.

Beautiful Bratislava
Bratislava, the capital city, is small with a dazzlingly beautiful centre, which combines many medieval elements, some baroque, and some 19th century and early 20th century housing in an expansive arrangement of tree-lined squares and boulevards above the Danube.

Bratislava is divided into five districts. The smallest and most attractive is Bratislava I, centrally located in the Old Town (Stare Mesto). Bratislava II covers the east and southeast, and Bratislava III includes Nove Mesto, or New Town, on the easternmost part of Bratislava. Bratislava IV is in the western side of Stare Mesto, and Bratislava V is in the southern part.

Bratislava is today a boom town with an inrush of foreign manufacturers and consultants, and the construction of an enormous amount of new infrastructure is visible on all sides. Unemployment is falling at a significant rate. Bratislava is a hub for Europe’s low-cost airlines. A significant increase in tourism is taking place.

Foreign buying interest has been strong since the country allowed foreign purchases in 2004, and a substantial supply of new apartments will shortly be available within a 15 minute commute from central Bratislava.

Whether the new supply will exhaust the existing pent-up demand is, as yet, unclear. In Patkai’s view, the foreign demand is a relatively minor element except in the absolute centre of Bratislava, and it is the local demand which is the more interesting long-term play.

Local demand will strengthen
“We see increasing local demand for the West of Bratislava,” says Patkai. “In the Eastern parts there are many ugly Communist-era blocks, which will be the living place for the working class and for new arrivals from the rest of Slovakia.”

“We are still feeling the influence of the period when it was practically impossible to find high quality apartments for foreigners,” says Patkai. “But this market is becoming saturated. Location now plays an extremely important role – the view, whether it is new built, whether there are special features - such apartments can be marketed easily.
“But this will change. We will see ever more competition, and because of the new supply, ever more emphasis will be placed on quality, such as parking spaces, a tree-lined street, a good atmosphere.”

link to this article