Slovakia Investment Property

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Slovakia Investment Property Newsletter
September 2006 - Issue # 24
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Welcome to the September issue of our newsletter. After
detailed overviews of Slovakia's residential and commercial
property markets, today we will look into land deals and
possible strategies to profit from land investment in Slovakia.
And, an update of the ever booming Bratislava airport and
its privatization U-turn.

As usual, in case you've missed any of our previous newsletter
issues, they are available for you here:

www.slovakiainvestmentproperty.com/newsletters.php

In this issue you will find:

1. Bratislava Airport - The Boom Goes On
2. Land Investment: Strategies for Profit
3. Opportunities for Everyone
4. Tell Us What You Think!

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

1) Bratislava Airport - The Boom Goes On

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Slovakia's economy grew by a record 6.7% in QII 2006.
Domestic consumption also continues to grow fast on the
back of higher disposable incomes. Retail sales increased
by 8.8% y/y in July, compared to just 2.5% y/y in the
euro-zone.

* * *

The credit register, established in October 2004 by Slovak
Banking Credit Bureau (a joint operation of three of the
country's largest banks Slovenska Sporitelna, Tatra banka,
VUB) will soon conclude its second year. And it has proven
itself; initially only registering data from its three
founder banks, in 2005 and 2006 virtually all of Slovakia's
banking institutions have joined to exchange information
on clients. Borrowers who have been late on payments are
consequently starting to have problems in obtaining further
loans.

A similar register will be starting in 2007, this time
covering information on clients of non-banking institutions
(incl. leasing companies, loan companies, utility suppliers,
telecoms).

* * *

Bratislava's M.R.Stefanik Airport will remain in state hands;
in spite of winning the privatization, TwoOne consortium will
not be taking over afterall. TwoOne, made up of Vienna Airport,
Raiffeisen Bank and Slovak investment group Penta, has, in
February 2006, signed an agreement on buying a 66% stake,
pending approval of Slovakia's Anti-monopoly Office. The
Office's decision came in negative in view of potential
disadvantages of Bratislava airport being sold to its main
competitor (Vienna airport).

The new Slovak government, in line with its policy of not
privatizing remaining state assets, has consequently cancelled
the privatization rather than inviting the tender's second
bidder. Although significant investments into extension of
the fast growing M.R.Stefanik Airport are planned, it is
expected funds will be available in spite of the U-turn on
privatization and without an outside investor.

Bratislava airport has seen unprecedented growth in the last
3 years, with passenger numbers nearly doubling y/y. In the
first 7 months of this year 1.5 million passengers have used
the airport. The annual figure is expected to be over 2 million
- five times more than experts predicted five years ago.

The terminal, projected accordingly for a capacity of 300,000
passengers a year, is no longer suitable for the fast expanding
airport. A new departure terminal is awaiting planning approval,
construction could start in early/mid 2007. However, it is
already known that the new terminal (cost of 100 mil euro) will
only provide a solution until 2010, when its capacity once
again falls short of the forecasted 4.5-5 million passengers.
Future plans count with a new terminal for 10 million passengers.

This summer a new arrival hall was opened, doubling arrivals
capacity and setting up passenger processing facilities in
line with the Schengen Agreement. Late this year construction
will start on a new parking house (capacity of 1,200 cars).

With Bratislava's ever increasing popularity among foreign
visitors, even current excellent forecasts for the airport
may, in a few years time, prove to have been too cautious.
(This year Bratislava has again seen an 11% growth in visitor
numbers - far above most European cities, including Vienna
with its 2% growth y/y.)

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2) Land Investment: Strategies for Profit

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While most individual foreign buyers look primarily for
residential property and buy-to-let opportunities, investors,
particularly those with larger amount of funds available,
should not forget about other potentially highly profitable
options. Apart from commercial property, land investment can
offer excellent returns to the shrewd ones.

There are several strategies investors interested in Slovak
land deals can follow. Primarily they are: buying land for
long term hold; buying large plot, connecting services,
splitting into small parcels and selling off; buying to develop.

Buying for long term hold
-------------------------

As in most markets, land is increasing in value faster than
any other type of property in Slovakia. Naturally, it only
applies to regions with good demand for land and property.
Investors with large amount of cash at hand but unwilling
to develop land may find a buy to hold option attractive.

If bought well (in high demand area, or area with growing
future demand, and at a favourable m2 price), appreciation
can represent 10-50% p.a., particularly in areas in and
around Bratislava and other economic centres, as well as
popular tourist centres.

A disadvantage of this strategy is the lack of any financing
options - no Slovak bank will fund such purchase.

Buying to split and sell
------------------------

A highly profitable (if done properly) short-term strategy
pursued by local firms and increasingly several foreign
investors is purchasing a significant land parcel (often
1 - 20+ ha), connecting services (water, sewage, electricity,
etc), splitting into small plots and selling off to the
end user, or possibly in a joint venture with a developer
who will offer to build homes, whether catalogue-type
or more exclusive individual designs.

The main condition here is to buy in an appropriate area
and at a m2 price that allows for a safe margin on resale.
Areas where such operations have frequently been done in
recent years are almost exclusively in proximity of Bratislava.
Villages and satellite towns 5-15 km from the capital with
demand for new family houses and land available for development
present good opportunities. So do parts of Bratislava suitable
and in demand for family house construction.

Once again the disadvantage is the difficulty in financing
a land purchase in Slovakia. However, due to the short
turnover period investors (who do not have all necessary
cash) are usually able to arrange funds from another source.

Buy to develop
--------------

Naturally, development presents the most significant scope
for profits. However, it also carries the highest risks,
including in the planning process. While it varies depending
on region and the respective local authority, planning in
Slovakia is generally a very lenghty and bureaucratic process.

With over 70 institutions' approval necessary before a
building permit can be issued, it is of little surprise
it often takes years for developers to obtain a permit.
This is particularly true in Bratislava with the lack
of a functioning master plan (the existing one being 30
years old) and many interests at stake.

Any possible newcomer will also need to expect tough
competition from the many established local and few foreign
developers (who have entered the market in recent years,
often in partnership with an experienced local player).

The advantage of development is the ease of obtaining
finance from local banks; Slovak banks offer the cheapest
development financing in Central Europe. However, only
developers with a track record and experience in the Slovak
market will typically be able to benefit.

Main obstacles
--------------

No matter what is your plan for land investment in Slovakia,
you will have to overcome two main obstacles that characterize
the market.

Land in Slovakia is highly split (into a large number of
small parcels) - a legacy of an inheritance system that
had encouraged splitting each parcel among all heirs
as well as allowing multiple owners of a parcel.

The resulting situation makes it extremely difficult to
buy a larger land parcel; in most cases buying up several
parcels is necessary, each of them typically having multiple
owners. (In case of very large developments this often involves
hundreds or even thousands of owners.) By law each of the
owners have to agree on sale; the process is very time
consuming, expensive, and frequently falls apart due to
unwillingness to sell by some of the many owners, or because
often some of them cannot be traced.

The second obstacle to successful land transactions is the
high percentage of land with unidentified owners, again, an
issue resulting from historic circumstances, confiscations,
etc. Official statistics quote 238,000 hectares of such
parcels in Slovakia today, the highest number being in
Presov, Kosice and Banska Bystrica regions, lowest in the
Bratislava region.

Prices
------

It is not possible to quote average land prices due to the
many factors of influence, mainly location, size of parcel,
possibility of use (type of construction), services, etc.

As a very general guide, building land prices range from
250-900 euro/m2 in sought-after areas of Bratislava (while
smaller plots in top areas of BA I can top 1,300 euro/m2),
with land in other parts of the capital, typically on the
outskirts, coming at 120-180 euro/m2.

Villages and satellite towns within 5-15 km of the capital
see prices of typically 45-130 euro/m2.

Prices outside the Bratislava region vary hugely, with
larger economic hubs in western Slovakia (Zilina, Trnava,
Nitra, Trencin, etc) as well as parts of Kosice in the
east boasting higher prices than the rest of the country.

Land in sought-after tourist resorts in particular in the
proximity of ski resorts, aquaparks, etc, has seen high
appreciation in recent years and ranges from 30-120 euro/m2.

Agricultural and forest land
----------------------------

Slovakia has 4.4 million hectares of agricultural and forest
land. Slovaks' interest in agricultural land is very low,
in part due to low profitability of cultivation. Owners
frequently let land lie unused or rent it to agricultural
communes. However, rents are very low (10-30 euro/hectare)
and often not paid at all.

Prices of agricultural land in Slovakia are at the very bottom
of EU prices. As an example, average price in Slovakia was
880 euro/hectare, while in Czech republic 1,300/ha, Germany
9,400 euro/ha, in the UK and Ireland 11,600 and 12,700 euro/ha,
in the Netherlands 34,450 euro/ha and in Luxembourg 53,300
euro/ha (Eurostat figures, 2003).

So what does this mean for an investor?

First of all, it is important to note agricultural land is
not building land, construction is not possible, and in most
cases never will be.

Second, foreign individuals and companies are not permitted
to purchase agricultural and forest land in Slovakia until
2011. (The only exception being EU citizens resident in
Slovakia who have been cultivating the land for at least
3 years prior to purchase.)

In spite of that, there has been some interest from mainly
Austrian buyers who have (unofficially) beein purchasing
land in the Bratislava region through local persons or by
way of future purchase contracts and option agreements.
Interest in other regions is significantly lower.

Forest and agricultural land around Bratislava is typically
sold at 3,400-8,000 euro/hectare (forests) and up to
25,000-100,000 euro/hectare (land). At the higher end
of the price range speculation on future exclusion from
the agricultural fund often plays a role.

Once restrictions are lifted in 2011, foreign buyers are
likely to be the main factor in reviving the sleeping
agricultural land market in Slovakia. A land reform to
offer solution for the problems of highly splitted parcels
and in part intransparent ownership structure is also
urgently needed to kickstart the market.

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3) Opportunities for Everyone

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After a successful September release of our fantastic chalet
development in Slovakia's most visited Liptov region only
the last homes are now available.

At a mere 80k GBP including a large land plot and VAT, these
spacious 3 bedroom, 2 bathroom detached homes are laid over
two floors and 150 m2, and include covered parking.

The chalet complex benefits from its fantastic location in
Slovakia's most gorgeous and sought-after tourist area,
walking distance from Liptovska Mara lake and Aquapark
Tatralandia and just 10 minutes away from Jasna, Central
Europe's largest and best ski resort.

A central house with restaurant, bar, conference rooms
and reception provides a range of services to owners and
visitors, all year-round.

Holiday-letting and management facilities are in place,
with proven rental success by travel agencies. Excellent
yields are achievable thanks to the dual season (summer &
winter) and high popularity among Slovak and foreign holiday
makers alike.

At just SKK 27,000 + VAT/m2 (net living area) the homes
offer fantastic value - considering most new properties
in Slovakia's main holiday areas are currently offered at
SKK 38,000 - 65,000 + VAT/m2. (1 GBP = approx. 55.5 SKK).

* * *

And, if you prefer a holiday apartment rather than a chalet,
we have got one 3-bedroom apartment in the historic and
tourist town of Liptovsky Mikulas back onto the market.

Situated in a high quality new development in the very
heart of the city centre and boasting amazing views onto
the Low and High Tatras, the flat comes at just 56k GBP
(incl. VAT). The development is completely sold out (to
mostly local buyers), so this is the only chance to get
a unit. If you are buying for investment, rental and
management structure is in place, allowing you to enjoy
rental income as soon as this winter.

* * *

Looking for city opportunities? We have a limited number
of excellent value new apartments in Zilina, metropolis
of north-western Slovakia and one of the country's wealthiest
cities. Zilina has seen an unprecedented boom after receiving
a € 1 billion euro automotive investment by Kia Hyundai.
Quality apartments start from just 55k GBP (incl. VAT) for
spacious 2 bedroom units.

* * *

And, don't forget... a large number of resale and period
properties is available in Bratislava and other regions
of Slovakia. For larger investors, we have commercial
properties from 1 - 100 million GBP, as well as several
deals and joint-ventures for foreign developers.

Whatever your requirements, email us at:
info@slovakiainvestmentproperty.com

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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