Residential real estate stabilises

Following the real estate boom of the mid 1990s and then the economic crisis and its significant decline in prices and construction output, the current situation in Slovakia in mid 2011 can be described as stable even though real estate brokers are reporting a higher level of interest among Slovaks in buying residential real estate and there are signs that developers are again cautiously preparing new projects.

Clients are now focusing even more on price. Clients are now focusing even more on price. (Source: SME)

Following the real estate boom of the mid 1990s and then the economic crisis and its significant decline in prices and construction output, the current situation in Slovakia in mid 2011 can be described as stable even though real estate brokers are reporting a higher level of interest among Slovaks in buying residential real estate and there are signs that developers are again cautiously preparing new projects.

“We have been recording gradual increases in new sales in the residential housing sector since the middle of 2010,” Michal Padych from King Sturge in Slovakia told The Slovak Spectator.

“Understandably, older properties win in the number of transactions. With regards to new apartments, we are gradually getting down to the lowest number of available new buildings since 2006. This is a reason why it has already become difficult to find popularly-sized apartments, especially two-room apartments. On the other hand, if a buyer searches for a four-room apartment, there is sufficient supply.”

During the first three months of 2011 as many as 535 apartments in new developments have found owners according to the Hospodárske Noviny economic daily. Better sales were recorded for old apartments as well as for new apartments, the daily stated.

“In the category of so-called second-hand apartments we recorded an increase of 10 percent,” said Daniel Bilý, the director general of Century 21 Slovakia, as quoted by Hospodárske Noviny, adding that in Bratislava the most popular apartments are especially the smaller ones while buyers in the rest of Slovakia are moving into bigger ones.

“The highest interest is in three and four-room apartments,” Peter Gordík from the Žilina-based Red real estate office said, as quoted by Hospodárske Noviny.

Daniela Danihel Rážová, the director of the Bond Reality agency and the head of Slovakia’s Association of Real Estate Brokers, reported that in Bratislava the highest interest is in one, two, or three-room apartments, adding that her agency is also seeing some interest in more expensive and luxurious residential properties.

“Nowadays, clients are price-oriented and in this setting only real estate with reasonable prices are being sold,” said Danihel Rážová. “Compared with the previous year the situation has not changed very much; maybe only the sellers have realised that the situation has not been changing significantly and many have brought their expectations closer to reality.”

Three-room apartments were the specific kind of residential property bought most often in Bratislava last year, according to Michal Zajíček, research and real estate consultant at Lexxus agency and they accounted for nearly 50 percent of all new apartments sold in the capital city.

“Those interested in living in a newly-constructed building have moved away from smaller units to the so-called universal category,” Zajíček told The Slovak Spectator, adding that he sees reduced prices for new residential housing, as well as lower mortgage rates, as the primary reasons behind the changing desires of buyers.

Zajíček said there are fewer and fewer available apartments matching the requirements of potential purchasers, particularly for already completed apartments.

When comparing Slovakia with neighbouring countries, Padych said that because the Slovak market is the smallest in central Europe, the number of new residential properties for sale is also relatively low. On the other hand, prices for new housing are comparable with other neighbouring countries, but higher than in Hungary.

“The problem of the Slovak residential market is the low selection of quality apartments, especially in the middle and higher segment and in many cases also huge new apartments which remain empty,” said Padych.

According to Danihel Rážová the supply of available apartments for sale is broad but not all prices are in line with the reality of what buyers are willing or able to pay for a desired apartment. She added that with regards to exclusive apartments, there is still a target group looking for such apartments but she added that the problem is that most such apartments do not match buyers’ desires in terms of locality, general arrangement, size of the balcony, and other factors.

“Buyers who are willing to invest, for example €500,000 in their housing know very precisely what they want, how their housing plan should be drawn up and they do not want any compromises,” said Danihel Rážová, adding that despite the excess supply of higher-level new properties it is still a problem to find luxury apartments that meet the demands of potential buyers.

Zajíček said that in general the ratio between the price and the quality of new housing – in the sense of its architecture and design – is the most important factor on which purchasers make their decision.

“We find a lower or minimal interest in ‘mesonet’ apartments, those apartments spreading on more than one floor or large apartments,” said Zajíček. “In contrast to this, there are certain apartments lacking in the market which could satisfy the interest of most of the general public from the viewpoint of financial affordability. Fortunately, this has been slowly but certainly changing.”

Zajíček added that developers have responded to the changing demand that developed during the economic crisis and have modified their pricing policies or altered certain aspects of their projects on their own.

“Actually, there is no project on the market, except projects started after 2009, which has not been altered in some way; at a minimum, the price was changed,” Zajíček said.

According to Padych, the ways in which developers responded to the market situation during the crisis were very individual.

“There are projects that are simply waiting that have not significantly changed their sales strategy,” Padych said, adding that this group also includes projects which can no longer afford to do so because of costs. “The second group of projects are those which are able and willing to adapt to new market conditions and they can do this in each aspect of their sales strategy. I’m not speaking only about prices but also about their products or marketing and sales. I believe only those from the second group will be successful.”

Danihel Rážová perceives the current responses from developers as unsuitable for this market.
“Because new projects have not been launched after the crisis to a large extent, only developments designed before the crisis are being constructed,” said Danihel Rážová, adding that developers have not fully responded to the new situation. “A lot of projects are not well-mixed in terms of sizes and layouts of apartments and current prices exceed what buyers are expecting to pay. Of course, there are some new successful projects, which are smaller, less-visible and selling excellently.”

Danihel Rážová believes that developers keep underrating the market expectations and are not basing their plans on objective information but rather on subjective feelings.

The reasons leading to purchase of residential real estate are changing as well. Before the crisis, when people saw continuously rising prices, apartments were being purchased as an investment but now satisfying actual housing needs has begun to prevail. Zajíček said that most purchasers are again people living in Slovakia.

“Ninety percent of clients buy housing for living, to satisfy their own needs,” Zajíček said, adding that “this means that the residential market is again a local business.”

Danihel Rážová agreed, adding that “the widest group of buyers are searching for apartments for their needs and that these are mostly Slovaks.”

With regards to price levels, Danihel Rážová perceives the situation as stable in spite of what she called an inner conviction that there is still space for a small decrease in prices.

“Until something unpredictable happens, for example in the economy or with the euro currency, the situation will remain similar to the current one,” Danihel Rážová said. “Prices can slightly increase or decrease depending on the season. This also depends on the need of the owner to sell or the need of the buyer to have a place to live quickly. Terms of banks to get a mortgage are also important.”

Zajíček believes future prices for new and older residential properties in Slovakia will start growing again due to the shrinking supply, with cheaper properties being gradually sold out, and more favourable mortgage loan conditions fuelling demand.

Luxury segment

The luxury real estate segment was among the first to fully feel the stings of the economic crisis.
Zajíček of Lexxus said that construction of new apartments in the luxury segment completely stopped in 2008 and that this fact is now fuelling some current interest.

“This has confirmed the trend that the luxury segment is sold most easily only after the apartments are built and completed,” said Zajíček. “The supply is now actually 100 percent finished in the sense of construction, and potential buyers can now assess whether developers have stuck to their promises.”

Statistics show FALLing prices

Prices of residential real estate in Slovakia continued to decline during the first quarter of 2011. When compared with the same period of 2010 they went down by 2.5 percent on average across the country while the comparison with the last quarter of 2010 showed they also decreased by 0.47 percent. The average price for a square metre of residential real estate was €1,264 based on data released by the National Bank of Slovakia, which monitors residential real estate prices in cooperation with the National Association of Real Estate Offices (NARKS). In 2010 average housing prices had decreased by 3.9 percent compared with 2009.

In the first quarter of 2011 prices of residential real estate in Nitra Region increased the most from the previous quarter, namely by 4.5 percent, to an average of €602 per square metre, which remained the lowest average price within Slovakia, the SITA newswire wrote, citing data from the central bank. Trnava Region posted the steepest decline in average prices by 2.1 percent to €846 per square metre. Bratislava Region maintained the highest average price per square metre of real estate even though prices dropped by 1.1 percent to €1,694 in the first quarter. Banská Bystrica Region posted 3.1-percent growth in the average price to €760. In Žilina Region the average price increased by 1.5 percent to €759 per square metre. The average price per square metre also grew in Trenčín Region, up 0.8 percent to €712, in Prešov Region, up 0.7 percent to €837 and in Košice Region, up 0.3 percent to €996.

According to Dávid Dereník, an analyst with UniCredit Bank Slovakia, prices of residential real estate were essentially stable during the first quarter of 2011.

“The year-on-year comparison indeed shows a small decline of 2.5 percent, but this is information about the development for the whole year,” Dereník wrote in a bank memo. “Comparison between quarters gives a much better picture about the latest developments. In some regions the prices changed minimally, which were corrections from previous quarters, but in general the market did not move in terms of prices. In Bratislava Region we registered a quarter-to-quarter drop in prices, which is especially a consequence of the drop in prices of new housing built in bad localities or those with a bad layout that are now difficult to sell.”

In the case of older apartments, Dereník said this market is also stabilised and even with a remaining large supply of properties, the number of good offers has been slowly shrinking. He added that wait-and-see households are now using the opportunity of low interest rates and lower housing prices and this is the reason behind the 18.3 percent year-on-year growth in mortgages.

Dereník also does not see any significant changes in the demand for the size of apartments because during the crisis prices per square metre narrowed between smaller and larger units.

“If you buy a cheaper one-room apartment because of lack of money, compared with a two-room apartment you will pay only 3.9 percent more when translated into the price per square metre,” said Dereník. “In the middle of 2008 this difference was as high as 9.9 percent.”

Before the crisis the savings on a square metre was even as high as 21.2 percent in the comparison between one and three-room apartments, Dereník added. Currently the difference has shrunk to only 11.1 percent. The difference per square metre between two and three-room apartments is currently 7.5 percent.

Dereník expects that stable prices with moderate swings will continue in the upcoming period.
“In Bratislava Region prices of new residential properties that are difficult to sell might further decrease but we do not expect a drop in prices for older properties,” Dereník said, adding that low interest rates and strong competition between banks, in combination with stable prices put cards in the hands of buyers for an ideal purchase. “However, mortgage interest rates will grow moderately in the upcoming period as a consequence of the higher key interest rate set by the European Central Bank. This increase should be bumped down somewhat by the strong competition between [Slovak] banks.”

More information about Slovak real estate market you can find in our Real Estate and Construction Guide.

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