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Slovakia Investment Property Newsletter
January 2008 - Issue # 38
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Welcome to the first 2008 issue of your Slovakia Newsletter.

With widespread fears about the global finance markets,
slowing economic growth and property prices in the US and
UK, is this the right time for investors to put their hard
earned cash into the Central European property markets?
In this edition we look at the pros and cons for investment
in the (still) fast growing emerging markets, in particularly
Slovakia.

And of course if 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. Another Record Year for Slovak Economy
2. Slovak Property - a Safe Haven for Investors?
3. Tell Us What You Think!

===================== MUST READ NEWS ====================

1) Another Record Year for Slovak Economy

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The Slovak economy grew by 9.4% in QIII 2007, according to
the Slovak Statistical Office. This means 0.4% higher growth
than in the same quarter of 2006.

* * *

The unemployment rate in Slovakia was 7.99% at the end of 2007,
(according to the Central Office of Labour, Social Affairs and
Family). That is a decrease by 1.4% compared to the end of 2006.

* * *

The average nominal wage in Slovakia grew by 6.8% y/y to
SKK 19,514 (588 euro) in QIII 2007. Real wages increased
by 4.2% (Slovak Statistical Office).

* * *

In 2007 foreign direct investment in Slovakia doubled (compared
to 2006) to 1.28 billion euros, according to Sario (Slovak
Investment and Trade Development Agency).

This came from 64 investments creating 14,738 new jobs. Sario
is working on 146 new projects this year worth around 4 billion
euros. Most of the investors come from Germany, US, UK, Belgium,
South Korea, Austria and Italy.

* * *

Slovakia's 2007 budget deficit dropped below 2.5% of GDP
(preliminary data from the Ministry of Finance of SR), which
was considerably lower than the 2.9% predicted last year.

The Slovak economy ended 2007 with a deficit of SKK 23.53
billion (704.43 million euros), which was SKK 14.86 billion
(444.85 million euros) less than budgeted. The economy improved
by SKK 8 billion (239.52 million euros) y/y mainly thanks to
higher tax revenues. (The 2006 deficit was SKK 31.68 billion.)

In 2008 the deficit is expected to be below 2.3% of GDP.

The country is therefore well on track to meet the conditions
for adopting the euro in 2009, as planned.

* * *

In 2008 Slovakia will be preparing for a new currency.

According to surveys 90% of Slovaks believe that the country
will adopt the euro in January 2009 as planned. The predictions
of economists and analysts support this. (According to INEKO
foundation 75% of economists expect a successful 2009 euro
adoption.)

The slovak crown (SKK) will remain in the European exchange
rate mechanism ERM II until a final conversion rate is set
(to be known in July). The exchange rate is expected to be
SKK 32 to 33 for 1 euro. Some analysts predict an even better
rate.

* * *

A survey by GfK shows that Slovakia has the 4th highest
internet penetration in CEE; 42% of Slovaks use the internet.

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2) Slovak Property - a Safe Haven for Investors?

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With almost daily news about negative impacts of the credit
crisis on world's economies and the possibility of a US
recession, what is the likely effect on property investment
in the high growing emerging markets in the "new" Europe?

For Central Eastern Europe (CEE) 2007 has been a good year.
That is even more true about Slovakia. Following very fast
growth over the last several years, Slovak economy again
broke all records in 2007.

Unemployment has been constantly slashed since the beginning
of the decade, annual GDP growth has been approaching 10%,
the wealth of the population is increasing at fast pace
and the country keeps attracting significant foreign
investments.

All this coupled with the Slovaks' desire of home ownership
and massive demand for better quality housing, plus a low
supply of such homes, as well as more accessible finance.
Here we have the explosive combination that has been fueling
the local property boom in the last few years.

And indeed much of Slovakia has seen a strong growth in
property prices - between 10 and 20% p.a. depending on region
and type of property.

Yet Slovak property is still some of the cheapest in Europe,
and conditions for further growth are very good indeed.
Also, significantly for any investor, the Slovak property
boom is based almost wholly on the local demand from keen
home buyers (as compared to many other markets that have been
inflated by foreign investors and became dependent on the
continuity of such investment). With still affordable prices
and growing incomes the Slovak housing market is unlikely
to slow down any time soon.

And then there have been further good news for Slovakia and
the CEE markets...

Late last year Slovakia (as well as Poland, Czech republic,
Hungary, Estonia, Lithuania, Latvia, Slovenia, Malta) joined
the passport-free Schengen zone. This move is expected to
significantly boost business and tourism.

Now of course the most eagerly awaited event is the euro
adoption. Slovakia is to join the single currency in January
2009, several years ahead of its Central European neighbours.

The country has been well on track to meeting the Maastricht
criteria and few economists have doubts about the euro being
indeed successfully introduced in Slovakia next year.

So does it mean the current global financial turmoil will
have no negative impacts on Slovakia?

Well, of course, no country in today's globalized world
can be considered completely immune. However, as we know,
the credit crunch and recession fears are really a problem
of the developed world (primarily US, UK, etc) and not the
emerging markets.

While the impact of the financial crisis may result in some
cutting down on investments in CEE and other emerging markets,
it's important to remember that the fortunes of the "old"
and "new" Europe depend on each other and the economic ties
go both ways.

So in the worsening financial situation the developed euro
zone economies and the new European markets will look to
further deepen their already strong trade relations.

The CEE countries have relied on foreign investments (mainly
from the eurozone) to accelerate their economic growth. And,
in turn, they have been one of the main pillars of growth
for the developed Europe.

In particular strong exporters will, amidst a possible US
recession, increasingly rely on their emerging neighbours.
The "new" Europe has in fact been as important as the US
for eurozone's exporters (such as Germany, France, etc) in
this decade.

So... yes, the credit crunch could see some investors and
banks pull back from these emerging markets. However, the
eurozone also knows of the growing significance of its CEE
neighbours for its own exports and growth.

Slovakia and other CEE economies are considered to hold up
well and further strong growth is expected in the region
for the coming few years - including continuing high growth
in wages, falling unemployment and strong and steady investment
activity.

A report by the global property consultancy King Sturge
comments: "Despite some uncertainties in the financial markets,
continental Europe is underpinned by positive long-term
fundamentals: a strong macro-economic outlook, healthy
businesses and improving occupier markets."

King Sturge expects France and Germany to supersede the
UK as Europe's busiest investment hub in 2008 and also sees
a momentum for growth building in emerging markets like
Slovakia, Poland, Turkey and Bulgaria.

And although the Slovak financial markets are not immune to
the developed world's problems, local economists consider
the positive impact of the planned 2009 euro adoption to be
far more important than any negative consequences of the
credit crunch.

The credit issues themselves are the developed world's
problem, and while several European banks have been hit,
the US shock has not been repeated on the old continent.

As a result European consumers (with the exception of the
UK perhaps) have not been largely affected by any US-style
tightening of credit.

In fact the European Central Bank (ECB) has informed an
increase of business loans granted in the eurozone last
December by 14.4% (compared to November) - the highest
monthly increase since 2000. The volume of personal loans
and mortgages grew by 11.1% y/y last December.

So, how will all this affect the Slovak property market?

Not much is the likely answer. Slovak property is still
attractive for growth and value oriented investors -
in fact perhaps even more so today.

As explained at the beginning of this article, Slovakia
is looking to continuing high economic growth and the
increase in incomes and prosperity that goes hand in hand
with it.

On the property side, low prices, strong and still growing
local demand and insufficient supply of quality housing
(with some of Europe's lowest construction rates) will
keep fueling capital growth. And, of course, the market
doesn't depend on investors or speculators but is driven
by the strong desire of Slovaks to own a (better quality)
home.

The main villains that have caused the US credit crisis
are not present in the Slovak market, be it aggressive
lending practices, unsustainable and inflated property
prices or increased costs of borrowing.

Most of the western economies are highly leveraged (huge
amount of consumer debt as well as business, bank and
government debt) and hence vulnerable to any changes in
lending criteria.

While Slovaks have become more acquainted with loans over
the last few years, the mortgage market is still comparatively
very new and many home buyers use savings instead of loans
when buying a property. As opposed to Americans or Brits,
most Slovaks are prudent savers and credit card debt is
almost unheard of (although this might of course change
in the years ahead). Consumer debt in Slovakia is one of
the lowest in Europe.

And those who have used a mortgage to purchase their new
home have little to worry about interest rates in the
short-medium term. With the base rate at just 4.25% p.a.
since mid 2007, and the expectation of further rate fall
before the euro adoption, mortgages in Slovakia are both
cheap and accessible. (Currently mortgage rates range
from approx 5-7% p.a.)

So, in summary, the financial crisis may affect the Slovak
finance market to some degree, however, the country is
still in a very enviable position. And so is the local
property market.

That of course is excellent news for you, the investor...
whether you have already purchased a property in Slovakia
or are still looking for the right opportunity. In which
case we'd advise you to move fast.

Because while you may decide to wait to see what happens
in the US and UK economy, the local property market -
and prices - in Slovakia will most certainly not wait for you.

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3) 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