The Slovak Spectator talked to Zeno Kezman, vice president of the National Association of Real Estate Offices of Slovakia, about the prospects of Slovakia's market.
The Slovak Spectator (TSS): What are the main factors that influence the Slovak real estate market?
Zeno Kezman (ZK): In Slovakia, there is a market environment. I can simply say that real estate prices are definitely influenced by supply and demand. We can see this, for example, in Žilina, where the Korean carmaker Kia plans to construct a new plant.
The owners of the land under the future plant now want to sell what is agricultural land that would normally cost Sk5 to 15 (€0.12 to 0.37) a square metre for almost Sk300 to 350 (€7.47 to 8.71). And it is only because someone wants to build a factory there and the demand has suddenly changed. Beyond the borders of the Kia factory and its suppliers, it might again cost as little as agricultural land.
This also concerns apartments and any other type of real estate. Again, it is a question of supply and demand.
TSS: Could you specify the most important impacts on supply and demand on the real estate market over the last decade?
ZK: In the early 1990s, the supply of apartments was wide and people did not feel the need to invest in real estate. There were more "lucrative" opportunities, for example non-banking investment firms that promised people 20 or 30 percent yields on their investments. After those firms bankrupted, the people started thinking of where to put their money safely - banks offered only small interest rates for deposits.
At that time, many people considered buying an apartment and renting it a good investment. That was the breaking point - the previous situation where apartment availability exceeded demand was replaced by a growing group of people buying out real estate. Suddenly, the demand surpassed the supply, which started price hikes.
Additionally, very favourable mortgage loan conditions with state subsidies in interest rates entered the market. It put great pressure on the supply of apartments. People were literally able to buy even "a mouse hole".
All this spurred an almost unbearable spiral of price hikes at the end of 2003. In my opinion, that does not correspond to the reality and economic status of the majority of people in Slovakia.
TSS: How many milestones in apartment price hikes have you seen since 1990?
ZK: Well, life alone brings such milestones. History is, in fact, repeating. I would mark several three-year stages. Since 1989-90 there have been about four or five points when prices jumped sharply. After each point they stagnated for a while and then fell again but they never returned to their original level [before the hike].
In advance, we can never say when the next price hike will come. It depends on, for example, banks introducing some new products or on the state, which can change its housing policy; all this can influence construction activity and the real estate market.
TSS: What is the average price, for example, of a three-room apartment in Slovakia?
ZK: First, I have to say that the price hikes that I mentioned concerned more or less bigger cities like Bratislava, Košice, and Banská Bystrica. If you want to move to the country, you might be able to purchase a three-room apartment that would cost Sk2 million (€50,000) in Bratislava for about Sk400,000 (€10,000).
Again it depends on the demand. There are places in Slovakia where people do not want to move because they have nothing to do there. There are worse social conditions, no job opportunities, no schools. You can get a cheap apartment there but it would be too time- and money-consuming commuting 100 kilometres every day.
Apart from Bratislava, the higher-than-average prices of apartments in Slovakia are in Košice and Banská Bystrica, and maybe also in Nitra and Trnava. We think that it could also happen in Žilina because of the recently announced investments. As I said, the pressure on real estate increases with bigger work opportunities. If there is nothing happening, there is no reason for prices to grow.
TSS: You mentioned that real estate prices do not correspond to the economic status of the majority of Slovaks. Do you expect a stabilisation or decrease in the prices of apartments?
ZK: Definitely. Today, barely anyone decides to purchase an apartment. If you notice current supply in magazines and newspapers, it is huge. But no one is buying; that is why there are so many.
Several years ago, people invested in apartments because they wanted to rent them and earn some money. Now there are plenty of apartments for rent and, again, not many people can afford them. An apartment can make Sk15,000 to 20,000 (€373 to 498) a month on rent.
Those apartments are thus just unused and no one lives there. Owners have to pay the rent and energy and suddenly they find that their costs may reach from Sk40,000 to 50,000 (€995 to 1,244) in a year. They are losing money rather than earning it.
They began thinking economically. Even people who originally wanted to rent apartments are now selling them because the prices are relatively high. Sellers try keeping prices high and only some are willing to reduce them. However, potential buyers are not willing to buy apartments for such prices anymore.
Now it is a war of nerves - who will hold on longest. If sellers keep their prices, their apartments are just not going to sell. Maybe, occasionally, there will be someone who is forced to purchase an apartment because of a family situation.
TSS: And what about newly constructed residential buildings? In Bratislava it very often happens that the construction has not even started and all the apartments are already sold. What development do you expect here?
ZK: That is going to change as well. The number of such buildings is growing in Bratislava.
If we have a look in the past, at the end of 2003 there was a paradoxical situation where apartments in old panel residential buildings were more expensive than in newly constructed ones.
The reason was that people bought an apartment in a new building for prices contracted before construction started, when apartments were generally cheaper, and the investors - the construction firms - did not have the right to change the price significantly. While people bought a new apartment for Sk29,000 to 30,000 (€722 to 747) a square metre, one square metre in an old building was about Sk35,000 (€871) in 2003.
That was the reason people were even more interested in buying a new apartment. Of course, there were some other advantages. In the construction process many banks are involved and arranging a mortgage loan is often a lot easier than when purchasing an apartment in an old building. The potential owner only signs documents and everything else progresses almost by itself.
The result was the same as with other apartments - the prices were not adequate to the current economic situation. A square metre in a new residential building might cost about Sk35,000 to 36,000 (€871 to 896).
However, the market is growing. Advertisements for unoccupied apartments in new buildings are growing. In my opinion it is possible, in favourable conditions, to construct a new building for Sk25,000 (€622) a square metre on average, althoug the price might be affected by land price, geological conditions, etc. I do not think that there is a reason for such high prices. Neither workers' salaries nor the price of construction materials get so expensive.
I think that a reasonable price would be somewhere around Sk32,000 to 33,000 (€796 to 821) a square metre. Of course, I am not talking about the city centre, where the price depends on land prices.
TSS: When Slovakia was just about to enter the EU, there were rumours that real estate prices would grow dramatically after the accession. Do you consider those concerns realistic?
ZK: Accession to the EU alone will definitely have no influence on prices. There is no reason for that. People who are used to a certain standard like Germans, Austrians, and the French will not be willing to come here and buy and live in panel blocks of apartments. What would be the point?
They do not even want to rent such apartments when they stay here temporarily. When a foreigner does not have a concrete business intention in Slovakia he will not come here to buy an apartment. We do not expect a massive movement of foreigners to Slovakia in forthcoming years.
Foreign clients may be interested in buying some lucrative real estate - maybe in the city centre - but that would be more of an exception and I am talking about Bratislava now.
Prices might grow, but as a gradual and natural process. It is clear that in the future, generally, the price level will equal that in the EU and it will go along with the increasing salaries and purchasing power of inhabitants in Slovakia.
Thus, it will be a long-term process depending on the economic situation of future investors - the owners of apartments. If their current average salary ranges from Sk15,000 to 16,000 (€373 to 398) you can try to count how long a man needs to save enough money to get an apartment. If the average salary is from Sk50,000 to 80,000 (€1,244 to 1,990), real estate prices might grow as well. Otherwise it is not possible. Who would buy such apartments?
