Slovakia Investment Property

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Slovakia Investment Property Newsletter
January 2005 - Issue # 16
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A warm welcome to a new year...and to our first 2006
Newsletter issue.

Today we continue our focus on Slovakia's property markets
- a series introduced in our November issue with a price and
price development (2005) overview. Next month we will conclude
the residential section with details of each of Bratislava's
districts from home buyer's and investor's perspective.

In March the focus will be on commercial property in the
Slovak capital, while April will bring you an overview of
the country's secondary markets. Land investment will be
the main feature of our May issue.

In the meantime, if you missed any of the past issues,
make sure you check them out here:

www.slovakiainvestmentproperty.com/newsletters.php

Enjoy reading...

In this issue you will find:

1. New Housing Concept
2. Rental Market in Slovakia - Overview
3. Exciting Property Opportunities - Current & Upcoming
4. Did you know? (Slovakia on UN SC)
5. Your Questions Answered
6. Tell Us What You Think!

===================== FEATURE EDITORIAL =================

1) New Housing Concept

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The popularity of mortgage finance continues growing at a
fast pace. The 10 banks holding a mortgage licence in Slovakia
have, by the end of December 2005, provided mortgages in a
total value of SKK 57,716 billion (approx. GBP 1,05 billion).

Yet, Slovakia is a new market in terms of bank finance, and
as such it has still a lot to catch up. While in Europe at
least 50% of the population have, at some point in life,
taken out a loan (of any kind, including mortgages, personal
loans, etc), in Slovakia it is less than 20%.

* * *

At the end of 2005 the Slovak government approved its updated
housing policy concept. It defines the current housing problem
and outlines possible future solutions.

Slovakia suffers from a shortage of properties - there are
359 properties for every 1,000 inhabitants; which, after
exclusion of cottages, vacation houses (ie properties not
suitable for year round residency) and uninhabitable properties
translates to just 317 housing units for 1,000 inhabitants.

Average number of properties in Europe is 400 per 1,000
inhabitants. Slovakia's long term plan is to achieve the
European average.

However, with current new housing construction of 12-13,000
new properties a year, it would take more than 20 years to
achieve this objective. At present there is a shortage of
over 220,000 units, and a number of existing properties
will become uninhabitable in the medium to long term.

The government hopes the country's economic boom will result
in higher construction rates, and predicts, in optimal
conditions, an output of 15-17,000 new units per annum in
coming years. In order to faster close the gap behind Europe,
at least 25,000 new properties should be built each year.
That, however, is more than double of the current rate and
not realistic for the short to medium term.

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2) Rental Market in Slovakia - Overview

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Over the last two years Slovakia has been attracting growing
numbers of mostly British and Irish property investors
looking for buy-to-let opportunities. Although the numbers
of foreigners owning residential property in Slovakia are
still very low (in the low hundreds by estimate), they will
increasingly make a disproportionately significant impact
on the country's rental market.

To start, there aren't many rental markets in Slovakia in
the first place. Slovaks are owner occupiers; owning a home
is the #1 goal for anyone passing the age of 20.

The country has a 95% owner occupancy rate. Only 3% of
property is privately rented (further 2% are municipal
flats rented to socially weak families).

In the years following the fall of comunism (1989), families
- until then living in state owned properties - were offered
the option to buy their apartments from the state, at low
rates. A chance the vast majority of the population took
advantage of, resulting in virtually every family owning
their home.

This artificial market is naturally a thing of the past, as
is state ownership, and since early 90's all property has
been bought and sold at market prices. That didn't stop the
people's striving for own homes, and many Slovak families
have been putting cash together to allow their 20+ year
old children to buy a flat of their own.

Although a significant part of home buyers is still paying
cash (particularly the wealthier segment), the rapidly
increasing popularity of mortgages over the last 2-3 years
has been helping even those who, a few years ago, would
need to wait until higher age to purchase a property.

This means that today very few Slovaks consider renting a
property - mortgage payments for any given property are
(mostly significantly) lower than the rents (for such home).

So, are there any potential tenants, and who are they?

Well, to answer this question, we need to be more area-
specific. There are very few rental markets in Slovakia
(larger cities having either a large expat community or/and
student population), while most smaller to medium towns
(and of course villages and countryside) have no rental
demand at all. Generally speaking we see two types of tenant.

The first group - students, low income workers, new migrants
- rents cheap apartments at rents of 200-300 euro per month,
mostly shared by several people. Typical properties are
communist built "panelak" flats in areas such as Petrzalka
(Bratislava V), and parts of the districts II and IV.

Although rental yields of such properties can be reasonably
high (rented on a shared basis), they are unlikely to be
a target of property investors. The reason: communist flats
are no longer experiencing any capital growth and are, in
fact, going down in price in many areas.

The second tenant group consists of foreign expat tenants
and companies. The largest and longest established market
catering to expats is Bratislava, with one or two secondary
cities currently seeing a surge in demand due to significant
foreign investments and new concentration of international
companies (the new car centres of Trnava and Zilina).

Foreign tenants are, however, very particular in terms of
property and location, especially in Bratislava, that is
not only geographically larger but also offers a wider
supply of quality property.

The area of choice for most expat tenants is the city centre
(BA I). Good quality flats in well maintained blocks can
be rented out at 500-800 euro/month for 1 beds, and 700-
1,200 euro for 2 beds. Larger apartments can achieve up
to 2,000 euro/month, however, most foreign tenants look
to spend a maximum of 1,000 euro for a 2 bedroom apartment.

Newly built properties with parking can be let (in BA I)
at 20% higher rates as they are extremely rare in this area
(virtually all property in the city centre consists of
classic pre- and post-war blocks; as the name of the 1st
district implies, it is the 'Old Town').

Investors with preferences for new built properties will
usually have to look outside the historic city centre,
yet should opt for the shortest possible distance to
the centre itself. The further outside of Bratislava I,
the lesser demand there is from foreign tenants and
companies.

So, while new built properties are popular in Slovakia
(with Slovak buyers = owner occupiers), they are not
necessarily a sure let. What matters most is a central
location, and high quality property; Whether new or classic
(pre-war that is, not communist built) is less important.

Plus, given the extremely high demand for property in the
first district, and no new supply, the city centre has
also been the area of highest price growth over the last
few years.

Stare mesto (Old Town, BA I) has always been the location
of choice for many wealthier Slovaks to buy a flat - or,
at the very top end, a villa on the Castle Hill - and this
demand will certainly continue for the foreseeable future.

A new factor over the recent year or so are the increasing
numbers of foreign buyers purchasing in Bratislava. Although
the overall numbers are very low, and as such have no
impact on property prices, they will be noticed in the
rental market.

While 99% of property is sold to Slovaks who are mostly
owner occupiers, most foreign buyers are purchasing flats
with the objective of letting. In a limited rental market,
even a couple hundred new rental properties can make an
impact. Therefore, as more properties are purchased by
investors, increasing the supply of good quality rental
property in Bratislava, the tenants, until recently having
few options of high standard property, will have more choice.

This may create downward pressure on rents (to a lesser
extent) and, more likely, increase the void period between
tenancies. Increasingly, estate/letting agents with good
links to foreign companies with offices in Bratislava will
be of advantage. Companies tend to transfer a larger number
of staff to Slovakia at once, which often creates cycles
of very high to low rental demand.

While the Slovak property market continues to offer some
of Europe's best opportunities, with low prices and healthy
and solid growth (for the right type of property in the
right area), it is important for an investor to understand
the dynamics of this market.

The correct choice of a (central) location with solid
present rental demand, and good quality property (high
standard fittings are increasingly making a difference)
are pre-requisites for successful letting in Bratislava.

And, of one thing you can be sure: as virtually all property
sales go to locals, 95% of whom, as we have seen, are owner
occupiers in their (family) apartment or house, you will
always be able to sell your property on to a Slovak buyer,
ensuring a safe exit strategy.

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3) Exciting Property Opportunities - Current & Upcoming

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Whether you are looking for a beautiful holiday home - or
holiday investment - in one of Slovakia's most popular ski
regions, or prefer exciting new apartments a short walk
from Bratislava's historic Old Town, February and March
are bringing you exciting new property opportunities...
for all tastes and budgets.

We have recently released magnificient new ski chalets
next to two of Slovakia's best ski resorts, starting at
just over GBP 50k for a 2 bedroom home over two floors,
incl. land and VAT! Only 30 homes are available at early-
bird prices, so if you are interested, don't wait any
longer, or you'll miss out!

And, in late February/March a very exciting new development
of just 35 top quality apartments will be offered to both
Slovak buyers and Slovakia Investment Property clients.
The amazing location (a short 5 minute WALK to the historic
Old Town) and very high specification will ensure excellent
investment potential.

The popular location, high quality, and reasonable prices
will, of course, also mean these few apartments will be
gone in no time. Therefore, if interested in this upcoming
Bratislava deal, make sure to register your interest now,
by emailing to contact@slovakiainvestmentproperty.com.

Further details and a full information pack will be
available in late February, as soon as initial planning
permit has been issued.

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4) Did you know? (Slovakia on UN Security Council)

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Slovakia was elected a non-permanent member of the United
Nations Security Council in October 2005, receiving 185
from 191 votes. Slovakia will serve its 2 year term in
2006 - 2007.

UN Security Council has 5 permanent (US, UK, China, Russia,
France) and 5 non-permanent members; Slovakia is currently
Europe's only representative in the non-permanent member
ranks.)

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5) Your Questions Answered

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"The information provided in your newsletters is mostly
Bratislava specific. Will you be covering other regions
of Slovakia?"

While it is true we have mostly been focusing on the
Bratislava property market, this reflects the fact a large
majority of enquiries we receive is from investors wishing
to learn about the Bratislava market conditions.

We have, however, covered several of Slovakia's best tourist
areas in a number of 2005 Newsletter issues. All past issues
can be read in the Newsletter Archives.

If you have a particular interest in a specific area that
hasn't been covered, we will be pleased to help you with
information, upon request.

If you have any question you want to see answered here,
please send it to us: contact@slovakiainvestmentproperty.com

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6) Tell Us What You Think!

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We would love to hear what you think of this issue of our
newsletter. We hope you find the information useful and
wish you best success in your investment activities.
And of course, if you have any suggestions for upcoming
issues that you'd like to share with us, please send them!

Just e-mail us at: contact@slovakiainvestmentproperty.com

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We are looking forward to seeing you next month. In the
meantime, if you have any questions or would like to
request further information, please contact us at
info@slovakiainvestmentproperty.com or at
+44 (0)207 152 4014.

Best of success,

Petra Gajdosikova
Managing Director
Slovakia Investment Property
www.slovakiainvestmentproperty.com

Slovakia Investment Property is a trading name of
Alpha Real Estate Investments Limited