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REAL ESTATE

Property investors still face many procedural hurdles

The purpose of this monthly column is to consider the issues faced by investors and businesses, both foreign and domestic, with regard to real property in the Slovak Republic. The format is intended to be interactive, and interesting questions concerning real estate development, investment, and acquisition that are submitted via e-mail at the address provided below will be answered to the fullest extent possible.
Initially, the Property Investor will outline several key problems with the present system that make the process uncertain or cumbersome, even to the point of discouraging investment in real property by foreign investors or domestic concerns. Subsequently, investment-related questions that are frequently asked will be answered with a view toward improving knowledge of the system and advocating vital changes for safe and transparent

The purpose of this monthly column is to consider the issues faced by investors and businesses, both foreign and domestic, with regard to real property in the Slovak Republic. The format is intended to be interactive, and interesting questions concerning real estate development, investment, and acquisition that are submitted via e-mail at the address provided below will be answered to the fullest extent possible.

Initially, the Property Investor will outline several key problems with the present system that make the process uncertain or cumbersome, even to the point of discouraging investment in real property by foreign investors or domestic concerns. Subsequently, investment-related questions that are frequently asked will be answered with a view toward improving knowledge of the system and advocating vital changes for safe and transparent investment in real estate, whether for development, construction, leasing, or other investment-related purpose.

Interests in real property in the Slovak Republic are registered in one of the country's 79 district offices. These interests include matters of ownership, mortgages, liens and encumbrances, and if filed, even future agreements to conclude contracts on transfer, conveyance, or encumbrance of real property. While established laws and practices do exist, a common complaint is that the actual procedures and procedural time frames for the activities of the various Cadastral Offices differ from region to region. Accordingly, the general standardization of Cadastral practices is an important first step in creating the level of certainty and comfort that is necessary for a stable and trustworthy registration system that fosters confidence in both foreign and domestic investors.

An issue with regard to purchases by foreign buyers is the fact that real estate appraisals, which must be approved by the Ministry of Finance, are calculated using real estate prices of similarly situated property in either Austria or Germany. This can raise the costs and tax burdens of foreign buyers and domestic sellers, as well as open the door to potential arbitrariness instead of permitting the free market to dictate the value of real property where foreign buyers are involved. And, as a practical matter, the requirement is an additional procedural hurdle to jump.

Finally, and as a general comment, the rules and practices concerning title interests need to be improved. It is not uncommon for what appears to be a routine real estate transaction at first blush to transform into a murky and convoluted process of court battles, nuisance payments, and lengthy negotiating processes. Long-lost relatives asserting inheritance rights, government organs claiming ownership interests due to generalized transfers from former communist bodies, and in the recent past claims to restitution, often cloud the picture. Predictably, these claims often tend to appear when a foreign buyer appears on the scene. Clean title, and clearly delineated mortgages and other security interests, are a necessity to encourage investment and development of real property in the Slovak Republic. Experience in the Slovak Republic clearly underscores the need for laws and practices to improve further.

Kevin Connor and Julian Juhasz are attorneys at Squire, Sanders & Dempsey L.L.P. Please send correspondence to: propertyinvestor@ssd.com

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