Slovakia: Slovakia

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

Tell people you are interested in buying property in Slovakia and they will probably assume that you are looking to Bratislava, a city which is attracting buyers who see the Slovak capital as the next Prague. These buyers see rising prices and growing prosperity of the kind experienced in Prague ten years ago, and hope that the city will avoid some of the problems of rampant tourism which have hit the Czech capital.

Yet Slovakia is not a country where the capital is the only place to buy. The High Tatras, eleven of which are over 2,600m (8,500ft), is one of the most attractive high mountain ranges in Europe and offers the only truly alpine standard skiing in Eastern Europe. Slovakia has more natural beauty than most of the markets which provide direct competition and as advertising budgets become more generous, tourism figures are increasing. Tourism arrivals rose 6.4% to a healthy 15.2 million in 2005.

Is this a good place to buy?

The reasons to buy in the Slovak Republic can be grouped under two headings; rising prosperity and ideal location. Slovakia was one of the first investment markets, the poster child of the 2004 EU entrants, and is now in competition with the Baltics to be acknowledged as the most successful country of the group.

Slovakia has one of the fastest growing economies in Europe. In 2004 the country was nominated by the World Bank as having the most rapidly improving investment climate globally. A big part of this is the introduction of a flat tax system, which has since been adopted across Central Europe. The flat tax of 19% makes dues easy to calculate and has enabled the government to abandon other charges such as stamp duty.

Slovakia is now performing even better than the Baltics. Between June 2004 and June 2005 real wages rose more than 7% – making a very real difference. The latest assessments suggest that entry into the Euro zone will be delayed for Estonia and Latvia, but that Slovakia will enter the euro in 2008/9. If so, buying property or taking out a mortgage will become even easier, and the property market in Slovakia will be given a boost against regional competition.

Slovakia’s second advantage is its enviable location in Central Europe. The republic is bordered by Austria, the Czech Republic, Poland and Hungary, and therefore links the prosperous western countries with the new emerging markets and manufacturing wealth of Eastern Europe.

Bratislava is two hours from Budapest and three from Prague. Property fortunes have also been made out of the close links between Bratislava and Vienna. The capitals are separated by only 30 miles, but Slovakia’s communist past ensured that property values diverged hugely. Much of the post 2004 increase in house prices in Bratislava has been caused by Viennese workers buying up cheap property in Bratislava and commuting to work.

The city’s enviable transport links are another advantage. The city is served by two international airports in Slovakian territory as well as the airport in Vienna and a high speed rail network. This makes Bratislava a firm favourite for weekends away and for inter-railing tourists, a position also justified by the beauty of the Old Town. Cheap flights from the UK were introduced in 2005 and additional routes are expected in 2006.

Price history

Like many of the new European member states Slovakia has a real estate market sharply divided between an expensive capital and much lower prices throughout the rest of the country. In Bratislava prices are now comparable with any other European capital, with apartments selling for up to 200,000 euros (£135,000/$235,000). In the countryside it’s not uncommon to find a villa for as little as 30,000 euros. At the time of writing, a working pub and attractive holiday home was on sale in the High Tatras for 13,000 euros (£9,000/$15,500).

Property prices are believed to have increased by 50% in some areas in the eighteen months between the beginning of 2003 and mid 2004. They then stabilised, but it is clear that prices are increasing again now and will continue to do so. Within Bratislava attractive older properties are likely to sell at a premium, but may also be subject to more problems with property title and alterations which lack planning permission. There is a choice; just as developers have begun constructing good quality residential projects in Prague, Bratislava has some eye-catching projects on the shores of the Danube. These developments are comparatively expensive; one bedroom flats cost from around $100,000, but expected rental yields are 9%.

Local experts talk about a shortfall in the supply of apartments – although with up to 40,000 apartment units planned over the next 15 years, this balance between supply and demand may not last forever. Downtown Bratislava is tipped as the best place to buy, as the local government is committed to a beautification programme which will ensure that this is the place to be.

In the countryside an older home might have greater charm, but renovation might not be worth the effort. The winters are cold in Slovakia, with temperatures falling to –20 degrees Celsius and any older property will need a reliable heating system to be installed.

Buyers this market will appeal to

Slovakia is a good place for a second home, particularly for those who prefer skiing or mountain walking to over-crowded beaches or concreted resorts. Yet most buyers look to Slovakia as an investment buy. Many of the purchasers who come here already have a second home for personal use and are looking for an apartment for investment.

Within Bratislava, buyers who invest in one of the glossy new riverside developments have a potential opportunity to profit from renting to prosperous young Slovaks. Rental yields may be as high as 8 or 9%. The rental income on older properties, or apartments rented to the local market, may not cover much more than mortgage payments and costs. Yet investors believe that the greater chance of capital appreciation on these apartments makes up for lower initial returns.

Hotspots

Bratislava has seventeen housing districts, which can make matters complicated for new buyers. Within each district the standard of housing varies widely. As a general rule though, downtown is the place to look for apartments to rent to expat workers. Koliba, Slavin and Castle Hill are all quiet, pleasant, but by Slovak standards relatively expensive places to live. Up and coming areas include Ruzinov, Dubravka, Dlhe Diely, Raca and Senec.

Outside Bratislava the market is much slower. A secondary market has yet to develop in smaller towns in the way that has happened, for example, in the Czech Republic. Unless you are prepared to make some fairly serious alterations to a country property, the chances of capital appreciation may be marginal.

Buyers looking for a country home in Slovakia may turn to the Tatras, attracted by the combination of winter skiing and mountain summers. Slovakia has well-equipped ski resorts with better facilities than are available in other Eastern European countries. Be warned though, travel throughout the Tatras can be slow. Choose a property too deep in the countryside and you may have difficulty reaching it.

A good bet is Poprad, known as the gateway to the Tatras and Carpathians. Poprad has an international airport, is easily accessible from Bratislava, has the necessary amenities and is surrounded by stunning countryside. There is a rumour that Ryanair is going to start direct flights to Poprad, and the experiences of other resorts suggests that this may have an inflationary effect on property prices. Liptov is another area to consider. A resort between the High and Low Tatras, the area has a reputation for being both beautiful and affordable.

Purchase process

The purchase process in Slovakia is straightforward, as in most EU countries. After you have made your choice a deposit of 10% secures the property. At the time of the deposit a pre-purchase agreement is signed. If the buyer changes their mind after the deposit is paid, the seller’s expenses are deducted and the rest of the deposit returned. Should the seller back out, the deposit is returned in full.

After surveyors reports are completed, the buyer’s solicitor checks that the seller does indeed have the right to the property, and that there are no legal impediments. The solicitor than prepares the main contracts and should arrange for certified translations to be made. After contracts are signed it may take up to four weeks for the change of ownership to be registered at the ‘Kataster’ or land registry. After this the property is officially yours.

Buying property in Slovakia is also straightforward financially. Fees should be paid by the seller, but in reality are likely to be passed on to the buyer as part of the quoted buying price. There is no stamp duty or transfer tax in Slovakia and lawyer’s fees will be around 500 euros. Capital gains tax is calculated at the flat 19%, but is waived for apartments owned for more than two years or other properties for more than five years.

Key risks and opportunities

As with other markets in Central and Eastern Europe, it is worth taking certain precautions in Slovakia. Buyers should ask to see ownership papers, and to check that the property is registered under this name at the land registry. Your solicitor should also make a search to determine whether there are any unpaid taxes or other charges. Older properties may have problems with title and it is important to confirm that the house is correctly zoned and that any alterations have planning permission.

As Slovakia is getting richer there is some confusion about the ‘right price’ for property. Some sellers may quote prices widely divergent from those that a house or apartment would fetch on the local market. A good way to check whether you are being quoted an unreal price is to visit internet expat forums and ask people with local knowledge. There is a particularly good forum for Slovakia run by a local English language paper at www.slovakspectator.sk.

Mortgages

Mortgages for foreign nationals are widely available within Slovakia, both arranged through local banks and through international brokers. Slovak banks will often have English speaking staff. Borrowing 70% of the purchase price is usual, although banks now offer up to 100% mortgages with rates as low as 4%. The banks will however expect that borrowers will be able to prove full-time employment overseas, and that the mortgage will be paid before the borrower reaches sixty-five. Mortgages may also incur an arrangement fee of up to 1%.

Opportunity rating

The Slovakian economy is growing fast and development in the ski areas should continue to attract local and international investors and ski enthusiasts.

Rating: $ $ $

Risk rating

The main risks in Slovakia relate to title and a lack of transparency in local property prices. Buyers should employ a good lawyer and ensure that they research the area well to make sure that they are paying a fair price.

Rating: * * *

© Vacation Work 2005

“Where to buy a property abroad – An investors guide”, First edition 2006 David Cox, Ray Withers, Kate Godfrey.

Reproduced with the permission of Property Frontiers.

Further information on this topic can be found in Supplied by ...

“Where to buy a property abroad – An investors guide” 1st edition, by David Cox, Ray Withers and Kate Godfrey.

This book is available from all good bookshops nationwide at a recommended retail price of £12.95 or can be ordered directly from www.aninvestorsguide.com for £10.95 including postage and handling (to UK addresses only).

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