Slovakia Investment Property

If you find this useful, please forward it to a friend...

=========================================================
Slovakia Investment Property Newsletter
January 2007 - Issue # 27
=========================================================

Welcome to our first 2007 newsletter edition.

After an untypically warm November and December, winter has
finally come to Slovakia (and most of Europe). While this
will be a welcome news for those planning a ski holiday,
it's other 'hot' news that will please all who have invested
or are considering investing in Slovakia.

Read on to learn about all the positive developments in
recent months.

As we've always aimed at providing a balanced view, and
no things are only positive, in this issue we look at the
chronical problems of Slovakia's (and in particular Bratislava's)
planning regulations and construction laws. And, if the
Slovak capital is of special interest to you, don't miss
our February issue, with coverage of the real "Vienna
factor" (beyond what you may have heard from some property
agents) as well as the exciting new developments to continue
changing the face of Bratislava in the next 3 years.

And, 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. Surpassing All Expectations
2. Planning & Construction Law, a Sad Tale
3. 2007 - New Deals...and a Whole New Market!
4. Tell Us What You Think!

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

1) Surpassing All Expectations

=========================================================

Slovak economy grew by a staggering 9.8% in the 3rd quarter
of 2006 - faster than China! Last year Slovakia’s economy
is expected to have grown by 8.2% and 8% growth is predicted
for 2007 (according to the latest OECD report).

Figures from Eurostat (Nov 2006) show unemployment rate in
Slovakia at just 12.3%, down by 3.9% y/o/y and at the lowest
level since 1998.

* * *

The Slovak crown has gained more than 5% since October 2006
and in last week of December reached a new all time high of
34.060 SKK/EUR, prompting the National Bank of Slovakia (the
country's central bank) to intervene to bring the rate down.
(By July 2006 the rate was at 38.7.) Guesses for a probable
Euro/SKK conversion rate for late 2008 are anywhere between
30 and 35.

* * *

Last December the Korean car maker KIA announced plans to
increase production at its new Zilina plant. KIA will now
produce 300,000 cars as well as 300,000 car engines a year.
To increase capacity KIA plans to start building a second
plant in Zilina this year; production should start in late
2008. KIA's existing plant went into full production in
December 2006.

From this month on Slovakia is the world's leader in car
production per capita, with approx. 100 cars per 1,000
inhabitants.

* * *

Out of the many fears regarding Slovakia's new leftist
government under PM Fico (in power since July 2006), very
few have materialized. A proof that the pre-election
propaganda was, luckily, more aggressive and far more
populist than the post-election actions so far.

The 2007 budget was passed with a 2.9% deficit, well on
target for 2009 euro adoption, and the pre-election plans
to revoke the celebrated flat tax resulted in merely
introducing a lower VAT rate (10%) for medicine and
lowering the non-taxable minimum for higher earners,
while the flat 19% tax rate remains unchanged.

Some risks still remain due to Fico's plans to undo resp.
postpone reforms in the healthcare and pension systems,
and introduce changes in the labour code to increase
employee protection (resulting in a likely decrease of
labour market flexibility).

In spite of stopping the remaining privatizations of strategic
enterprises (incl. the BA airport and the rail cargo company),
the new government is dedicated to keep attracting foreign
direct investment to Slovakia, including using state aid.

2006 saw a number of significant investments, expected to
create a total of 9,000 new jobs (direct & indirect). The
IT sector, followed by automotive and electrical engineering
industries have attracted the largest number of investors
last year.

* * *

Slovakia seems well on target for a January 2009 euro adoption.
The inflation estimate for 2008 fell to 2.5% (from previously
forecasted 2.8%) and public finance deficit is expected to
stay below the necessary 3% in 2007 and 2008. These are two
of the Maastricht criteria that have ruined the hopes
of Slovakia's CEE neighbours for a euro adoption this decade.

Indeed, the Czech republic and Poland are expected to have
the earliest chance to join euro by 2012 (although even
this date is still questionable) and Hungary is not forecast
to meet the Maastricht criteria before 2014 at earliest.
The Baltic countries, previously looking at a 2007-8
single currency adoption, will not be in the position to
join before 2009-2010+.

=========================================================

2) Planning & Construction Law, a Sad Tale

=========================================================

Problem 1 - Masterplan
----------------------

Bratislava is seeing a construction boom these days, yet
still doesn't have a new master plan, relying on the last
- over 30 years old - one. The most recent attempt to approve
a new masterplan (having been prepared for the last 8 years!)
failed before December's municipal elections. With too many
different interests at stake, pessimistic voices don't believe
in an approval in the next 5 years.

Since the existing 30+ years old masterplan has no longer been
adequate, many new projects have been getting approval on
the basis of exceptions to the plan. Naturally, such exceptions
are only available to investors able to convince the relevant
parties at the city council and the individual city district.
Thus leaving space for intransparency and dubious tactics
to say the least.

Bratislava does not even have set height regulations for
buildings, and with no masterplan showing where tall buildings
can be erected, disputes and less than favourable outcomes
are pre-programmed. The result is that residential and office
towers are scattered all over the city at random and often
clash badly with the surroundings.

Several large scale developments, either underway or planned
for the next few years, are set to have a significant impact
on the future look of Bratislava. It's therefore time to
introduce clear rules for developers to know what can be
built where.

While after many years Bratislava once again has a Main
Architect, he was not granted any real powers and has only
an 'advisory' role.

Until there is a clear set of rules that are transparent
and apply to every developer and every project, with no
exception, there will be no end to chaotic building in
the Slovak capital.

Problem 2 - Construction laws
-----------------------------

Slovakia's current Construction Act dates back to 1976 and
has since be amended nearly 20 times. It is one of the
most complicated and complex laws in the Slovak legal system.
The law is deeply flawed and is the main obstacle to -
ironically - those developers and investors looking to
obey the law. On the other hand it encourages those
planning on breaching the law from the start.

At the moment much depend on the subjective decision of
an individual bureaucrat, meaning that on one hand projects
that should never be given a go-ahead are approved, while
on the other good projects are halted by an individual
decision (after developers have incurred high costs in the
pre-construction phase). All this is an invitation to
corruption.

Slovakia has a two stage planning process - a zoning
resolution (outline planning permit) needs to be secured
first - it determines whether such project fits in the
regional zoning plan. This is relatively straightforward
in locations that have a masterplan (ie. most towns except
Bratislava). The second stage is the building permit that
deals with details of the proposed development.

The entire process can take well over a year (in some
cases several years, in particular in the capital), costing
investors time and money, while results are uncertain.
To get a final permit, developers must secure approvals
from numerous government bodies each of whom has a certain
time scale to give an OK or refusal, before the case can
go to the next institution for its OK, and so on.

Even worse, the developers can never be sure from which
institutions they need to obtain an approval - it is decided
case by case with no exact guidelines from the authorities,
often causing significant delays.

Not to forget are the owners of neighbouring properties
as well as any interest groups, who are entitled to object
against the planned construction. Each such objection has
to be dealt with before a permit can be issued.

Only after positive standpoints from all the required state
bodies have been obtained can the developer submit the case
to the relevant Construction Office. Nobody effectively
controls the activities of the Construction Offices, which
again leaves room for corruption.

One of the most needed changes in Construction Act would
be moving the burden of obtaining approvals of each of
the bureaucratic bodies from developers to the Construction
Offices.

The recent transfer of powers of issuing planning and
building permits to local municipalities was a rather
unfortunate move. The lack of staff (and staff with
poor knowledge and understanding of the construction
processes) is proving an additional headache for investors.

Problem 3 - Encouraging illegal construction
---------------------------------------------

Bratislava has recently seen a massive surge in illegal
constructions. After a wild period in the 1990's with a
large number of buildings raised without a proper permit,
in the last few years it was more a domain of individual
home builders who built their house in breach with the
actual permit.

However, recently several larger developers have spotted
the advantages of building without a planning permit, and
today there are various high-profile cases in the capital.
Since the legislation allows issuing retroactive permits,
developers commonly reach a 'deal' with the bureaucrats to
obtain a retroactive permit for their illegal construction.

While Slovak Construction Act allows for an illegal building
to be pulled down, it does not define who should pay for
such demolition. In practice there has not been one single
case of such demolition (in spite of hundreds of illegal
houses in the past 15 years).

The authorities sometimes result to fines, which are
laughably low (the law sets approx. 90k GBP as a max.
fine, though in reality fines imposed are many times lower
and in most cases not paid at all). Developers therefore
start building (without permits) already calculating the
fine into the project costs. And knowing they will likely
secure a retroactive permit from a 'willing' official.

In similar cases developers apply for a permit to build a
low rise building while planning to erect a high rise from
the start on, negotiating the permit later.

There are several well known cases in Bratislava at the
moment, involving Slovak and Austrian developers.

The involvement of several offices at various levels of
local government presents an additional problem regarding
illegal constructions. There are cases when the Town Hall
approved a construction but the local Construction Office
has not, and vice versa.

While a new Construction Act is badly needed (and unlikely
to come before 2008 in the most optimistic scenario) to
simplify the proceedings for honest investors, the current
laws do offer ways to punish those acting in total disrespect.
The problem is, the laws are not being enforced, for lack
of courage and/or individual gains.

=========================================================

3) 2007 - New Deals...and a Whole New Market!

=========================================================

If you haven't had a look at our German site and deals,
please visit www.alphare.net. We've had a very good start
with our German operations and have several outstanding
investment opportunities for you.

Germany and in particular Berlin offer some of the lowest
prices in Europe (lower even than most Central Eastern
European cities) and extraordinary affordability. After
a 13 year decline in property values prices in many areas
are up to 60% lower than in early 90's. OECD names Germany
the world's most undervalued property market.

Coupled with a very strong rental market and high yields,
as well as the strong recovery of German economy, we -
along with large global investors and consultancies -
believe Germany now presents one of the world's best markets
for property investors. To learn more visit www.alphare.net.

* * *

Meanwhile, in Slovakia...

We're now just a few weeks away from the long expected
release of our new Bratislava development bordering the
city centre (Old Town). The exceptional location 5 minutes
walk to the heart of the city along with highly competitive
prices from just 52k GBP (incl. VAT) for studios and 62k
GBP for 1 beds has resulted in huge interest. The 22 units
(studios to 2 beds) are going to go very fast once released.

All those who registered interest in this project will
receive a full information pack prior to the release
(most likely in mid-late February).

* * *

And, don't forget... a large number of resale and period
properties are 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

=========================================================

4) Tell Us What You Think!

=========================================================

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

=========================================================

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