Buying real estate in Slovakia has suddenly become a more realistic proposition for some Slovak citizens. At a press conference in Bratislava on October 27, the state bank Všeobecná Úverová Banka (VÚB) unveiled a new mortgage loan program, the first of its kind in the country. Not only firms but also members of the general public, the bank announced, will now be eligible for long-term loans at a rate of interest below 20 percent.
The new mortgage loan program initiates, at long last, the difficult process of transforming Slovakia's real estate market. But while the ultimate aim of the mortgage program is to make home ownership viable for the country's citizens, only a small percentage of Slovak homeowners will be able to benefit from the current VÚB scheme.
"Officially we have to say that this mortgage loan program is for everyone," said Ladislav Vaškovič, general director of VÚB's mortgage banking department. "But of course in practice it is not." Vaškovič estimated that in order to secure a mortgage to buy a flat in Bratislava at current prices, a client would have to be earning at least 30,000 Sk monthly. "We expect that at the outset only 10 percent of applicants will qualify for a loan," he said.
Rastislav Križan, a Žilina resident looking for a flat in Bratislava, said that he welcomed the loan program, but added that he saw it as only a first step in a longer process. "Maybe in several years, when interest rates come down, people might be able to afford a loan," he said. Križan pointed out that Bratislava real estate prices were exceptionally high, "maybe twice what they are in Žilina, and if I want to buy a flat here I have two choices - either have a million crowns in my pocket or get a job that pays me enough to support a loan. So, like most Slovak people, I really don't have a chance."
Vaškovič conceded that the terms of VÚB's mortgages could deter many would-be homeowners. Interest rates, for example, were pegged at 14.6 percent for individuals and 17.2 percent for companies; customers had to put down a minimum of 40 percent of the purchase price, and pay off the loan over a period of between five and 30 years.
Nevertheless, Vaškovič said, consumer interest was still expected to be very high. "Look at the Czech market, where mortgage loans have been available for two years," hae said. "Four or five banks are now in the game, with about 9,000 clients and 13 billion crowns in mortgage loans. We expect the Slovak market to perform in the same way, which means that in two years we should see 5 or 6 billion Sk injected into real estate."
Bad laws, bad regulations
Restrictive banking laws, archaic housing regulations (see story on page 8) and general bureaucratic quicksand could hamper VÚB's efforts. "Whether or not our mortgage program will be a success depends very heavily on changes to the legal environment in Slovakia, and I'm talking here about the civil code, the commercial code, the banking act as well as housing regulations," said Vaškovič.
Vaškovič singled out one civil code regulation as particularly obnoxious to banks. "If a client defaults on his loan payments, we can take him to court, but we cannot get him out of his flat and recover our money unless we prepare alternative housing for him." For years, he said, this stricture had deterred banks from getting into the Slovak mortgage market, "but we can't just keep sitting around and waiting for the law to change. Somebody has to take some risks."
And if base interest rates on mortgages are to come down, as VÚB expects they will "within three years," the banking act will have to be changed to lower the cost of money. "We have to find another source for financing than mortgage bonds," said Vaškovič. "The required yield on these is far too high, usually between 20 and 25 percent. Ideally, we would like to be allowed to use our internal reserves."
But Ivan Mikloš, Vice-Chairman of Slovakia's Democratic Party (DU) and director of the economic think-tank MESA 10, said that the legal environment was of far less importance for the Slovak real estate market than macroeconomic conditions. "It's much more an economic question," he said. "It concerns not only the fact that ordinary people don't have money, but the lack of liquidity on money markets, the high rates of interest, and the reasons behind these things."
Mikloš said that "a mortgage system is important," but added that VÚB's proposed interest rates "are huge, at 15 percent, compared to inflation, which is around 5 or 6 percent. I don't think these mortgages will really help in recovery." Instead, Mikloš proposed, rent deregulation would do wonders for the real estate market. "Without normal prices, you just can't have a market - there will always be a shortage of flats and houses." "We can't just keep sitting around waiting for the law to change. Somebody has to take some risks."
Ladislav Vaškovič, general director of VÚB's mortgage banking department
