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Despite progress, Slovak housing market still hampered by ancient practices

Reaction to the VÚB mortgage announcement was markedly subdued. Real estate agents and brokers said they expected some increase in business as a result of the new mortgage plan, but added that the Slovak real estate market was being held back more by byzantine ownership regulations than low liquidity.
Igor Fedoroňko, executive director of Bratislavská Realitná Kancelária (Bratislava Real Estate Office, BRK), said that he did not think the VÚB plan would have any significant impact on construction of new housing units in Slovakia because it did not address the root causes of the country's housing crisis.
"In the last eight years, hardly any housing has been built in this country," he said (see chart this page). "Building flats is in the hands of private industry now, but since financing construction projects is still incredibly costly, and the government is still doing nothing to create the proper administrative conditions for investment, mortgages can have little effect."


Apartments like these near Lučenec are not easily afforded, even with a new mortgage.
Courtesy of Linia Magazine

Reaction to the VÚB mortgage announcement was markedly subdued. Real estate agents and brokers said they expected some increase in business as a result of the new mortgage plan, but added that the Slovak real estate market was being held back more by byzantine ownership regulations than low liquidity.

Igor Fedoroňko, executive director of Bratislavská Realitná Kancelária (Bratislava Real Estate Office, BRK), said that he did not think the VÚB plan would have any significant impact on construction of new housing units in Slovakia because it did not address the root causes of the country's housing crisis.

"In the last eight years, hardly any housing has been built in this country," he said (see chart this page). "Building flats is in the hands of private industry now, but since financing construction projects is still incredibly costly, and the government is still doing nothing to create the proper administrative conditions for investment, mortgages can have little effect."

Fedoroňko was equally pessimistic regarding the impact of mortgages on the market for existing real estate. "The reality is that these mortgages can only be used for about 20 percent of the flats that presently exist in Slovakia," he claimed.

The problem, Fedoroňko explained, lay in Slovakia's antiquated housing laws. "40 percent of existing flats are still owned by cooperatives, and buying legal title to your flat from a coop involves an enormously complicated administrative process," he said.

Ladislav Vaškovič, general director of VÚB's mortgage department, concurred. "Housing policy here is virtually unaltered from communist times," he said.

Slovakia's antiquated housing laws mean that people frequently have to resort to semi-legal means to secure accomodation. The state-set market price of coop flats, for example, is only about 30,000 Sk, but it can take years to acquire legal tenure, thanks to a bloated bureacracy bent on justifying its existence.

What people often do, explained Fedoroňko, "is to 'purchase' coop flats by paying a certain price, maybe 800,000 Sk, to the outgoing tenant for the Right of Occupancy." Given the unofficial nature of these arrangements, Fedoroňko said, "virtually 100 percent of these sales are of the black market variety."

Anxious to avoid taxes and bureaucracy, claimed Fedoroňko, vendor and purchaser complete their transaction without a formal contract, which of course means that the sale is ineligible for mortgage financing."Everybody who wants to earn some money is doing this - they feel that if they want to change their situation, maybe buy a house, they must find an extra-legal solution because privatizing a flat can take several years."

With another 40 percent of flats in Slovakia still belonging to the state, either at the national or municipal level, only 20 percent of flats are actually legally prepared for private sale and normal financing, said Fedoroňko. "So, as you can imagine, our office lives on rentals, especially to foreigners. Selling and buying housing is still very difficult, and this is a problem that must be resolved before we start talking about mortgages."

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