The number of foreigners purchasing apartments in Bratislava is rising.
photo: SME - Miroslava Cibulková
Although many of them have already revealed that the Slovak property market may bring lucrative returns, Slovakia's real estate market is still a secret for them. Conditions for obtaining a mortgage and procedures for purchasing property are different from those they know in their home countries.
The Slovak Spectator asked the real estate agency Lexxus and mortgage broker Hypocentrum about the main problems that foreigners face when buying property in Slovakia.
Concerning legal conditions, foreigners can buy property in Slovakia almost without limitations. For example, in contrast with the Czech Republic and Hungary, it is not necessary to establish a company for this purpose. The transfer of property is not taxed. If a company is established, it can take an advantage of double taxation prevention.
However, apart from the traditional language barrier in Slovak offices, sometimes there is a problem with proxies as various offices have different conditions for accepting proxies. Additionally, although Slovakia's mortgage market has made a significant progress, it still does not reach the level of developed, Western countries.
According to Jozef Šimek, Lexxus' project manager, foreign investors perceive Slovakia as an interesting country for buying, renting, and selling property after several years' time. "As concerns returns and capital appreciation, Slovakia belongs among the most interesting countries in the area of investments into real estate," he said.
The potential for returns is for foreigners the most important decision-making factor when purchasing property. "We regularly come across foreign investors who buy real estate with a calculator in their hands, and if the returns do not exceed five to seven percent, the property is not interesting for them," Šimek told The Slovak Spectator.
The development of the real estate market, especially the possible growth in property values and the tax system in Slovakia are also among the most requested pieces of information.
Foreign potential clients usually try to contact real estate companies with good brand names and market positions. They emphasize the quality of services, transparency, as well as the reliable solution of legal aspects.
"Foreigners usually address only one or two real estate agencies at a maximum. They are surprised that in Slovakia one property can be offered by several real estate agencies for a different price," Šimek added.
A real estate agency that wants to deal with foreign clients must be able to arrange the necessary meetings, showings of properties with foreign clients in one or two days maximum if a client does not live in Slovakia. During one day, a client might see six or seven apartments.
Because clients do not know the Slovak market or they have only basic information, the real-estate agency must be prepared to give a brief presentation on the property market with good information value and answer the most frequently asked questions. Additional demands are solved mainly through the phone or e-mail. Foreign clients also expect fluent English and the ability to submit offers in English.
In contrast with Slovak clients, foreigners are more demanding and they try to compensate for the risk of lower market knowledge by choosing a reliable partner. They also appreciate the added value of services, for example, if the agency continues to look after its client after a contract is signed.
Paying the property
According to Miroslava Mitková, mortgage broker from Hypocentrum, a complete mortgage advisory for foreigners includes similar procedures as in case of Slovak clients: describing various mortgage offers, getting expert appraisals, submitting an application for mortgage to a bank, communicating with a bank, signing a contract in a bank, registering in the real estate register, as well as insuring a property.
The main difference is communication.
"It is, of course, in English and it takes place mainly via e-mail and phone. Foreign clients can come to one or a maximum of two face-to-face meetings. There are even cases when we arrange a mortgage without meeting a client at all. Foreigners also demand various additional pieces of information concerning the process of purchasing property, the property register, banks, the real estate market, and other issues," Mitková said.
In Slovakia, a mortgage can be granted to foreign individuals. In contrast, in the Czech Republic and Hungary, a mortgage can be granted only to companies established by foreigners that want to buy a property. However, in Slovakia it is not possible for foreigners to get a mortgage covering 100 percent of the value of the purchased property.
"In Poland, it is possible to finance a property through a mortgage up to 90 percent of the property value. In Slovakia, banks keep the 70 percent limit. When comparing mortgage markets of England and Ireland, it is incomparable. Thus, some conditions set by our banks are incomprehensible for them [foreigners]," she said.
Mitková thinks that the mortgage market is still quite young in Slovakia and that philosophy of investing into real estate is still not well understood and widely accepted.
Mortgages in Slovakia are still considered as a loan for buying a place in which to live, and not for investments. For example, Hypocentrum communicates with foreign clients "that have their income only from property rental and sometimes they own more than 15 apartments throughout the world".
Foreign clients still represent a larger risk for banks than Slovak clients, and the conditions for them are thus stricter. That is why the offer of mortgage products from banks in Slovakia is not as large for foreigners as for Slovaks.
The language barrier is a problem as well. Bank employees sometimes do not have sufficient language skills to be able to accept and study documents attached to the mortgage application. Official translations of several pages of documents are sometimes demanded.
"As a result, in some cases we are able to give them [foreign clients] only one or two offers of mortgage products. While Slovak clients like comparing offers from all the banks, foreign clients, although they also want the best, are often satisfied with the fact that it is possible to arrange a mortgage in Slovakia at all," Mitková explained.
Apart from Ireland and Great Britain as the countries from which foreign clients come the most, Hypocentrum also has had clients from South Africa, the United States, and Australia.
12. Jun 2006 at 0:00 | Marta Ďurianová