Slovakia Property Market Overview

Slovakia is often viewed as the poorer cousin to the Czech Republic. In some ways this is true, though Slovakia’s booming economy is establishing Slovakia as a dynamic player at the heart of Europe.

Slovakia transformed its economy dramatically in the lead up to EU membership in 2004. These reforms and a flat rate tax of 19% have helped attract significant amounts of FDI, to a point where FDI per capita is now the highest in Europe along with the Czech Republic.

GDP growth has been some of the highest in the world, averaging around of 7-10% per annum over the last few years. This growth had showed no sign of abating until the global economic crisis came upon us. Slovakia’s reliance on exports, particularly in the automotive and electronic industries, is hurting the economy, especially as its major customer – Germany – is now in a recession.

The economic success of the country has created jobs and put ever increasing amounts of money into people’s pockets.

In January 2009 Slovakia joined the Euro. Whilst this will have a short term costs the medium term benefits are only likely to have a positive impact on the Slovak property market in the medium term.

Since joining the EU the Slovak property market lagged the economic success of the country. Property price growth rates since 2004 have struggled to get above 10% per annum mainly due to the time it takes economic success to filter down through the economy in the country and an oversupply of property in the major cities.

Mortgage finance has improved a lot of the last few years, though still is not as good as the Czech Republic or Poland. Typically 70% LTV is obtainable (though 90% is possible), with a 25 year term and interest rates of around 5-6%.

Traditionally Slovakia has not had a strong rental market. Yields in the region of 3-5% are common. We see no sign of this changing in the short term.

Since 2007 capital growth has returned to the market though by the end of 2008 oversupply had already, again, become an issue and prices had started to soften. The economic fundamentals of Slovakia are strong and this should give investors confidence that the property market will continue to perform well in the medium term – but beware of Slovakia’s perennial oversupply problems.

We expect 2009 to be a year when price growth is negative and good deals will abound in the Slovakian property market.