Slovakia Investment Property

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Slovakia Investment Property Newsletter
July 2006 - Issue # 22
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Welcome to the July issue of our Slovakia Newsletter. You'd
be forgiven if you decided to spend your free time enjoying
the warm sunny days rather than at the computer. But, if you
do get a glimpse at this month's issue, you will find a
special feature focusing on recent national elections and
the impact the new government may have on Slovak economy
for the next few years.

In the next month's newsletter we return to our ongoing
property market series.

As usual, in case you've missed any of the previous
newsletters, they are available for you here:

www.slovakiainvestmentproperty.com/newsletters.php

In this issue you will find:

1. EU-Funded Revitalization Without Bratislava
2. New Government, New Direction?
3. Exciting Opportunities in Bratislava & Liptov
4. Tell Us What You Think!

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

1) EU-Funded Revitalization Without Bratislava

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Slovakia will receive 110 million euro in 2007-13 from EU's
Regional Development Fund, for revitalization of its communist
era housing estates. The government estimates the funds to
allow rehabilitation of 50,000 panel block flats.

At present an estimated 650,000 units need revitalization.
Rehabilitation of communist housing blocks will require some
11 billion euro over the next 30 years. Currently Slovakia
manages to repair just 8,000 units a year.

The rehabilitation funds will be provided to municipalities
and are allocated for structural and insulation problems,
repairs of communal parts of buildings, technical and
electrical installations, as well as, in some cases, creation
of community centres, playgrounds, etc, in order to prevent
social degeneration of settlements.

The largest share of the funds will go to the most needy
communities with low purchasing power and high unemployment.
Bratislava is excluded from any EU funding due to high GDP,
which in this particular case is unfortunate as the capital
is home to most of Slovakia's communist-era panel blocks.

* * *

Slovakia's GDP grew by 6.3% y/y in the first quarter of 2006.
The foreign trade deficit has been further decreased and the
foreign trade balance has, according to NBS (National Bank of
Slovakia) analysts, a positive outlook.

* * *

After two rate hikes in February and May, National Bank of
Slovakia (NBS) increased the base rate by another 50bp in
late July. The hike has been expected by analysts and is
a measure to curb inflation and prop up the slovak koruna
that has been weakening since March under influence of the
volatile Central European currencies (particularly the polish
zloty) as well as immediately before and after Slovak elections.

Slovakia has to stay within ERM II (EU's tight exchange rate
mechanism) for two years before being allowed to join the
euro, therefore NBS is expected to keep stepping in to defend
the koruna when necessary (to strenghten/weaken it).

The base rate currently stands at 4.5% p.a.

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2) New Government, New Direction?

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June's general elections, with lowest turnout ever in Slovakia
(50%), resulted in the expected victory of the populist Smer
(party). Smer, with 29.14% of votes, defeated the ruling
coalition of PM Mikulas Dzurinda (longest serving prime
minister in Central Europe) that has transformed Slovakia
in its eight years in power.

Smer capitalized on some of the negative short-term impacts the
reforms had on parts of the population and gained significant
votes in poorer regions, small towns and villages, among
elderly, unemployed, lower income and less educated Slovaks.

PM Dzurinda's SDKU (Slovak Democratic and Christian Union)
received 18.35% of votes, up from the 15.09% it recorded
in the 2002 elections, a sign that many Slovaks recognize
the benefits of the reformist and pro-business policies.
However, it wasn't enough to stay for a third term.

Not having received enough votes to govern alone, Smer had
to form a coalition (as was the case in previous governments).
While many observers expected some of the current ruling
coalition's right-wing parties to join in, Smer and it's
leader Robert Fico have chosen the nationalist SNS (Slovak
National Party) and the centrist Movement for Democratic
Slovakia (HZDS) as coalition partners.

While a majority of Slovak voters decided that after eight
years of Mikulas Dzurinda's centre-right government and its
aggressive reforms it was time for a change, recent polls
suggest that most Slovaks are not happy with the coalition
partners Smer has selected. It was also the least preferable
choice in view of western observers, particularly due to
the far-right nationalist SNS.

Foreign analysts were further concerned that the outcome
of elections could lead to a policy reversal and postponement
of Slovakia's planned 2009 accession to the Eurozone. Smer's
pre-election agenda planned on reversing the course in favour
of a left-wing solidarity policy, including abolishing the
much praised flat tax, restoring welfare benefits, modifying
the country's flexible labour laws, etc.

Some of the worries were justified; particularly now, with
membership in ERM II (since November 2005), it's imperative
Slovakia keeps prudent fiscal policy in order to be able
to adopt euro in 2009.

while the program on which Smer ran lead to concerns of
possible damage to some of the economic and social reforms
(that set the country onto a path of high economic growth
in recent years), it is increasingly becoming clear that
the post-election agenda will be a much lighter version
with only minor policy changes that would not impact on the
long term prospects of Slovakia.

Although the new government may not go on to fine-tune the
recent reforms, it is also unlikely to do much harm. Overall,
continuity in main policy aspects is likely.

In fact, the new ruling coalition now confirmed 2009 euro
adoption to be the government's priority, a much welcomed
news by analysts as well as the business lobby.

In a similar manner, Smer's radical pre-election plans seem
to have become strongly watered down on aspects of tax and
social reforms. The tax policy changes should be limited
to introducing a second (lower) VAT rate, mainly on medical
goods and drugs. A special "millionaire tax" is also under
consideration.

As many suspected, Smer's populist running agenda may have
been simply a mean to a safe election victory, while the
government's true program may be far more sensible and
implementable and, in the end, better for Slovakia.

Some domestic observers also see a possibility of the current
coalition being a short-lived one, due to the weak alliance
between Smer, SNS and HZDS.

Is the new government likely to have any impact on foreign
investment?

Slovakia has a booming economy, good business environment,
and benefits from the EU and NATO membership, a fact foreign
investors clearly took into consideration as there has been
no panic or decision changes following the elections.

One of the new government's priorities is attracting foreign
investment, as well as exports. Development of a "knowledge
economy" is also viewed as a top goal; so is the tourism.

In fact, major new investments are planned and both the
country's FDI influx and economy are expected to continue
to grow strongly.

Today most analysts do not foresee any significant economic
or social changes, and there certainly seems to be no reason
to be concerned about the future and stability of Slovakia.

So, what is the impact on property investors in Slovakia?

None. No matter what the outcome, the elections were highly
unlikely to make any difference for the property investor.
The property market has been thriving for many years (much
before the first positive effects of the recent reforms)
and is based on local demand and supply of homes rather than
macroeconomic factors.

With regards to euro adoption (which however doesn't have
immediate effects on property markets) Slovakia remains
to be the first country in Central Europe to join the
single currency, while Czech republic would need to fast
implement major fiscal and social reforms in order to meet
its 2010 target, Hungary is unlikely to meet the Maastricht
criteria anytime before 2012, and the Polish government
does not want the country to join before 2012-15.

Overall, Slovakia's high attractiveness as an investment
destination remains unchanged.

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3) Exciting Opportunities in Bratislava & Liptov

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As informed in our June newsletter, we will shortly be
releasing two excellent investment opportunities.

BRATISLAVA

19 new apartments in a small development in a fantastic
location bordering on the city centre of Bratislava -
just 5 minutes walk to the Old Town!

Not only does this central location offer highest demand
from both tenants and buyers, it will also see further
appreciation due to the redevelopment of the main bus
terminal into a superb hotel/shopping/terminal complex,
and the construction (underway) of the massive new City
Business Centre... just 300 yards from our apartments!

With unbeatable prices of approx. 1,200 GBP/m2 (incl. VAT)
these 1 and 2 bedroom apartments will sell extremely fast.

* * *

LIPTOV

Our second deal will appeal to both investors and those
looking for a beautiful and exclusive holiday home in
Slovakia's most visited tourism hotspot.

You will have a rare opportunity to snap up one of just
9 amazing new chalets, in a breathtaking location near the
popular Liptovska Mara lake, within walking distance of
Aquapark Tatralandia (Slovakia's # 1 tourist attraction),
a mere 2 km from the centre of the historic Liptovsky Mikulas
town and just 10 minutes drive from Jasna - Central Europe's
largest and best ski resort!

Beautifully designed and built of brick, stone and wood,
these spacious chalets start at just 80,000 GBP (2 bed,
2 bath house over 2 floors) - including a large land plot
and VAT! Rental facilities are in place (holiday lets).

In case you haven't done so yet, you can register your
interest for either opportunity by sending an email to:
info@slovakiainvestmentproperty.com

Information packs will be sent out 7 days prior to release.

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4) 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