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Housing market banks on personal savings in '99

Martin Holec is the president of NARKS - the National Association of Slovak Real Estate Offices. Formed in March 1998, the association seeks to integrate the country's many real estate brokerages, to establish market standards and to advance the interests of the real estate industry. The Slovak Spectator sat down with Holec to discuss the work of his association, as well as the current state of the market.


"It's like Murphy's Law - you have to prove to thebank that you don't need the loan before you can get one."

"Anyone who is 18 years old and has no criminal record can be a broker. This is not a good situation. "


Martin Holec is the president of NARKS - the National Association of Slovak Real Estate Offices. Formed in March 1998, the association seeks to integrate the country's many real estate brokerages, to establish market standards and to advance the interests of the real estate industry. The Slovak Spectator sat down with Holec to discuss the work of his association, as well as the current state of the market.


The Slovak Spectator (TSS): What is the association most occupied with at the moment?

Martin Holec (MH): We are focused on getting legislation on the licensing of real estate brokerages through parliament. This kind of legisalation is more or less common to developed economies around the world. At the moment, the Ministry of Economy is preparing a law, and we expect that it will reach parliament in the first or second quarter of 1999.


TSS: Why is such regulation necessary?

MH: There is currently no regulation of real estate brokerages in Slovakia. There are no restirctions on the type of people working in this field - you don't have to pass any exams, you don't need any education to be a broker. Anyone who is 18 years old and has no criminal record can be a broker. This is not a good situation because we are dealing with great amounts of money for houses and apartments, the lifelong savings of our clients, and its very risky if they are giving all their savings to people who are irresponsible or untrained. This is the main issue we are working on.

We are also developing special education programmes for real estate brokers and for people who are indirectly involved in the market, such as bank officers and local authorities.


TSS: What does the real estate market need to give it a boost?

MH: There are a lot of big expectations surrounding the recent political changes in Slovakia, and there are signals that foreign investors are waiting to see what concrete steps the government takes to improve the economy. The presence of these investors is vital, because they bring much needed financial resources. There is not enough money on the domestic market for long-term loans, which are now practically unavailable in Slovakia. There are, of course, other sources like building savings funds and mortgages which have recently started, but they don't address the problem exactly. For example, mortages are the principal source of financing in other economies, but interest rates here are about 14%, which is very high and unsuitable for the financing of real estate. There is also the issue of the way in which these mortages have to be secured - you have to deposit a piece of real estate as collateral. It's like Murphy's Law - you have to prove to thebank that you don't need the loan before you can get one.


TSS: On November 17 last year, the government announced that the State Housing Development Fund had run out of money and could no longer help homebuyers make housing purchases. How is this going to affect the real estate market in 1999?

MH: According to our information, the government wants to stay with the state fund system for the moment. From our point of view, this is not an ideal system of financing because it's not a market source, it's a social source which is not enforcing market behaviour among construction firms and real estate buyers. And even if they want to continue with the fund, they will have to find the money somewhere - people who applied to the fund in 1997 are still waiting for their money, so I think the Fund will not play a large role in financing the real estate market.


TSS: Why are mortgage rates so high?

MH: Mortgage rates are directly related to interest rates on the money market. Mortgage banks sell 'mortgage bonds' to investors on the financial market, and use the money from these bonds to pay out on the mortages they issue. If the morgage bond rates are not competitive with money market rates, then investors will not buy them. And if the banks do not charge their mortage holders a rate that is equivalent to the bonds they have issued, they will lose money. I think the situation on financial markets must radically change before mortgage rates come down.


TSS: With mortgage rates out of the range of ordinary buyers and with the State Housing Fund bankrupt, what is your outlook for the real estate market in 1999?

MH: I think that there are some other sources of funds that can be tapped, most importantly personal savings. In the urban areas of Slovakia, savings and incomes are high enough to be a good source of financing for housing construction over the next five to seven years. The pressure to build new accomodation in Bratislava is so high that in some locations, old flats are almost as expensive as new ones. This creates an engine for the construction of new flats. Take the example of someone who wants to sell a 80 square meter flat and buy a 100 meter apartment - if he gets almost as much for his old flat as he pays for his new one, this creates momentum for new housing construction.

We also are getting signals that big international retail shopping firms are preparing to come to Slovakia. These are huge and risky investments, and the more stable political situation has helped to reassure these companies. It is also the inevitable next step in a long term process - a lot of these companies started off in Prague, which was close to western Europe and had good infrastructure. They then expanded into the Czech countryside, and when that became saturated, began to look at Slovakia. The economy and infrastructure of Slovakia is now so similar to those of its regional neighbours that this country cannot fall too far behind in development.

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