Slovakia: Jet to Let Guide to Slovakia

The story so far…

Having formed part of the Ottoman and then the Austro-Hungarian Empires, Czechoslovakia was founded in 1918. The threats perceived with the rise of Nazi Germany caused Slovakia to declare independence in 1939 and the new Slovak Republic became an ally of Germany during the Second World War. The Republic of Czechoslovakia was re-established in 1945 and the Communist party took over the government in 1948. The Soviet Union invaded Czechoslovakia in 1968 after calls and protests in favour of a more free society.

Communist rule came to an end in Czechoslovakia in 1989 during a peaceful revolution followed by a peaceful divorce in 1993, which gave birth to the two new nation states of Slovakia and the Czech Republic.

A successful policy of privatisation began to move state-owned companies into the private sector and encouraged foreign investment. The transition to a market economy initially created economic hardship, but after a recession in the 1990s, the Slovak economy has grown rapidly due to sound macro-economic management and reforms. Economic change and reform has given foreign investors confidence and the economy has continued to exceed expectations since 2000.

Where is it?

The Slovak Republic borders Poland in the north, Ukraine in the east, Hungary in the south, and Austria and the Czech Republic in the west. Its total area is 49,035km squared.

What is the weather like?

The weather in Slovakia is similar to that of the Czech Republic. Generally, the summers are relatively warm and the winters are cold and wet.

Language

Slovakia has an estimated population of 5.43 million, consisting of ethnic Slovaks (85.8 per cent) with Hungarians making up the largest ethnic minority (9.7 per cent). The official language is Slovak, spoken by 83.9 per cent of the population. Hungarian is widely spoken (by 10.7 per cent of the population) and German is the most common second language, with some English also spoken.

Currency

The Slovak currency is the Slovenska Koruna or Slovak Crown (SKK), divided into 100 Haliers. It’s predicted that Slovakia will adopt the euro on 1 January 2009. The Slovak Koruna is pegged to the euro at SKK 38.455: € 1.

Politics

Politics in independent Slovakia was greatly influenced by Vladimir Meciar, who was Prime Minister from 1992 to 1998, and who with Václav Klaus agreed to separate Czechoslovakia and create two independent states.

The Slovak Republic is a parliamentary democracy. The current government is a centre-right coalition made up of the Slovak Democratic and Christian Union, the Party of the Hungarian Coalition, the Christian Democratic Movement and the Alliance of the New Citizen. The key policies of the coalition are fighting corruption, attracting foreign investment and modernising social services while maintaining a worthwhile contribution to NATO and the European Union (EU).

The President of Slovakia is Ivan Gasparovic, elected in 2004. Mikulás Dzurinda is serving his second term as Prime Minister having been elected in 1998.

Economy

Slovakia’s transition into a market economy was a slow and difficult process. During the transitional period in the 1990s, the economy performed fairly well, but eventually went into recession. Growth stagnated while the budget deficit and unemployment climbed to high levels.

A new government changed this by overhauling the tax and social welfare systems and working hard to attract new FDI. The economy rebounded into growth, averaging over four per cent per annum, indicating that Slovakia’s economy has recovered and is developing swiftly.

Slovakia is now one of the most attractive FDI destinations with low flat-rate taxes and various incentives for investors. Inflation is moderate, but unemployment at 16.4 per cent still remains at a disappointingly high level.

Economic growth

Slovakia’s economy has steadily grown since 2000. The European Commission reports that the real gross domestic product (GDP) in Slovakia is expected to grow by 5.5 per cent in 2006 and further in 2007.

Slovakia’s GDP per capita is €12,700 according to the 2005 estimate.

Year Real growth of GDP (%)
2000 2.0
2001 3.8
2002 4.6
2003 4.5
2004 5.5
2005 6.0

Source: Eurostat, the Statistical Office of the European Communities

Inflation

Inflation fell from 12.0 per cent in 2000 to 3.3 per cent in 2002, rising again in 2003–2004 due to increases in taxes and regulated prices. The annual rate of inflation fell further to 2.8 per cent in 2005 – the lowest rate in Slovakia’s history.

Interest rates

After a continual decline since September 2002, the Slovak Central Bank raised its key interest rate by 0.5 per cent to 3.5 per cent in March 2006. More interest rate rises are expected this year.

Unemployment

Slovakia’s high rate of unemployment – the second highest in the EU – remains a problem. Like Poland, regional differences account for some of this, particularly where Communist-style working practices and industries have been replaced by the private sector. On the positive side, the labour market started showing signs of improvement in 2005 and unemployment was 15.8 per cent in February 2006, which is a small improvement.

Unemployment rate (percentage unemployed)
2000 18.7
2001 19.4
2002 18.7
2003 17.5
2004 18.2
2005 16.4

Source: Eurostat, the Statistical Office of the European Communities

Foreign direct investment (FDI)

Slovakia has considerably reformed its legal system in order to attract more FDI and now is one of the most appealing investment options in Europe. According to the World Bank, Slovakia had the fastest changing business environment in the world in 2004, and comparisons are being made with Ireland’s economic miracle in the 1990s.

With its flat-rate tax of 19 per cent, Slovakia now has one of the lowest tax burdens in the EU. Its solid industrial base attracts FDI into a diverse range of sectors, such as electro-technology, automotive, engineering, IT and services. It has recently attracted some top car makers, beating its larger northern neighbour, the Czech Republic, for major motor vehicle investment. Slovakia is now the world’s largest car manufacturer (per capita) and further plants are planned to be built in 2006–2007. Major companies manufacturing in Slovakia include Peugeot-Citroën, Kia Motors, Ford Motor, Hyundai and Volkswagen.

Foreign direct investment in Slovakia (€ million)

Year Real growth of GDP (%)
1999 474.2
2000 2,379.8
2001 2,049.1
2002 5,023.1
2003 743.3
2004 1,088.7
2005 1,595.4

Source: Bank of Slovakia

The property market

The property market in Slovakia is considered to be a few years behind the Czech Republic and Hungary. Prices are cheaper than many of the other new EU members, which are at a more advanced stage in the property market cycle.

Demand from the local Slovak population is strong and growing. The development of Slovakia’s property market follows the typical Eastern European trend of economic growth, followed by the liberalisation of financial services (including the mortgage market) and supply side issues leading to a price squeeze and rising prices.

The mortgage market in Slovakia is developing and as cheaper mortgages become more readily available, property prices will be pushed higher. Many Slovaks are now using mortgages to buy property and this trend is set to grow as Slovaks generally prefer to buy rather than rent.

There is a shortage of good quality property in Slovakia and in particular Bratislava. Construction levels are one of the lowest in Europe, although the government estimates that 50,000 new properties need to be built to meet current needs. Consequently, house prices will continue to rise as demand outstrips supply in the short to medium term.

Property prices are rising at 10–15 per cent annually (over 20 per cent in some of Bratislava’s districts) and rental returns are between eight and ten per cent. Property prices are forecast to continue rising at current levels.

Property hotspots

Bratislava, the capital city, is a popular jet-to-let choice for property investors as it’s possibly the most undervalued EU capital. Property prices have been rising 15–20 per cent and a similar level of growth is forecast to continue for a few years yet, fuelled by the huge demand from locals for quality properties. Demand is strongest for new-build or pre-war apartments in the city centre with price rises ranging from five to 20 per cent depending on the location.

Bratislava is also only an hour by car from Vienna, the capital of Austria, and property prices there are more than double those available in the Slovak capital. A new motorway connecting these two cities should be completed by 2007, which will reduce the journey to only 30 minutes. This major reduction in travelling time will have a positive substitution effect on the property market in Bratislava. Bratislava is also well served by low-cost airlines from many UK cities and is also only 40km from Vienna airport.

Other cities experiencing growing property prices are Trnava and Zilina, due to high levels of FDI and good rental returns. Also, do consider Trencin and Nitra for further research.

Transaction costs

The buying process is fairly simple. On signing the preliminary contract, the buyer pays a 10–20 per cent deposit. If you are purchasing an off-plan property, then a series of stage payments will follow as construction progresses. Once all fees and taxes have been paid, the property will be registered at the Land Registry and you become the legal owner.

The expenses are:

• Property Transfer Tax was abolished on 1 January 2005.
• Lawyers’ fees are usually around €500.
• Notary fees come to around €150.
• Estate agents’ fees are in the range of three to five per cent and are normally split between the seller and buyer.

Total costs come to three to five per cent of the purchase price.

Annual costs

Property Tax is paid by owners of buildings, flats and land. This depends on the size, location and the type of buildings, flats and land. For a large two-bedroom apartment the annual amount should not exceed €40.

Taxes

Income Tax
Income Tax is paid at a flat rate of 19 per cent.

Corporation Tax
The standard rate of Corporation Tax is 19 per cent.

Capital Gains Tax
Capital gains are taxed as income for both companies and individuals. Exemptions apply to the sale of a property used as an individual’s permanent address for the last two years and property that was owned for at least five years prior to sale.

Facts at a glance

Geography

Population (2005 estimate): 5,431,363
Language: Slovak
Ethnic groups: 85.8% of Slovaks. The largest ethnic minority group is Hungarians
Local currency: Slovenska Koruna or Slovak Crown divided into 100 Haliers

Political system

Political structure: Parliamentary democracy
President: Ivan Gasparovic
Prime Minister: Mikulás Dzurinda
Main parties: Slovak Democratic and Christian Union

Economy

Unemployment rate in 2005: 16.4%
Unemployment rate, February 2006: 15.8%
Inflation rate in 2005: 2.8%
Inflation rate, February 2006: 4.3%
Interest rate, March 2006: 3.5%
GDP growth in 2005: 6.0%
GDP growth forecast for 2006: 5.5%
GDP per capita: (income €12,700 per person) in 2005

Taxation

Income Tax: 19%
Corporation Tax: 19%
Capital Gains Tax: Taxed as income

Corruption statistics

Corruption rate: 4.3
Corruption rank: 47th

Industry and technology

Major industries: Metal and metal products, Transport vehicles, Electrical and optical apparatus

The Slovak property market

Hotspots: Bratislava, Trnava and Zilina

Property taxes (transactions)

Notary fees: €150
Estate agents’ fees: 3–5%
Legal fees: €500
Total fees: 3–5%

Property taxes (annual)

Property Tax: Negligible

Mortgage

LTV: 70%
Term: 4–30 years
Currency: Euros and Slovak Koruna
Current interest rate: 4–6%

Investor resources

Embassies

British Embassy in the Republic of Slovakia
Panská 16
811 01 Bratislava, Slovak Republic
Tel: +421 2 5998 2000
Fax: +421 2 5998 2269
Website: www.britemb.sk

Embassy of Slovakia in the UK
25 Kensington Palace Gardens
London W8 4QY
Tel: 020 7313 6470
Fax: 020 7313 6481
Website: www.slovakembassy.co.uk

Useful websites

Central Statistical Office of Poland
www.statistics.sk

Invest in Slovakia
www.sario.sk

National Bank of Slovakia
www.nbs.sk

Tourism in Slovakia
www.sacr.sk

© Lawpack Publishing 2006

“The Jet–to–Let Bible”, Dominic Farrell
Reproduced with the permission of Lawpack Publishing.

Further information on this topic can be found in “The Jet-to-Let Bible”, by Dominic Farrell, ISBN 1 905261 11 X

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