Slovakia Investment Property

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Slovakia Investment Property Newsletter
February 2008 - Issue # 39
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Welcome to the new issue of your Slovakia Newsletter.

While the US and UK markets are crippled by fears of a
recession, credit crunch and dropping or (at best) stagnating
property prices, Slovakia and much of CEE continue to post
record economic growth. And, as you'd expect, fast property
price appreciation is one of the consequences of this new
prosperity.

In this issue we will take a closer look at the growth in
Slovak property prices in 2007, as well as cover some of the
newest super luxury developments that have single-handedly
pushed the top end prices in Bratislava up by a staggering
90-100%.

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. Excellent Economic Outlook & Euro Adoption
2. Credit Crunch & CEE
3. Slovak Property Price Growth Accelerating
4. Tell Us What You Think!

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

1) Excellent Economic Outlook & Euro Adoption

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After a high 9.4% growth in QIII Slovakia’s economic growth
in the last quarter reached a staggering 14.1%. The Ministry
of Finance estimates the GDP growth in 2007 at 8.9-9%.

Slovakia’s economic outlook for the next few years is positive
according to a report by the World Bank on new EU members.

A survey by Ineko shows that economic analysts believe the
record breaking economic growth in recent years results from
the aggressive reforms implemented in Slovakia in 2002-2006.

* * *

Recent IMF and OECD reports praise the Slovak economy and
rate it third best in business climate within the EU, just
behind Ireland and the UK.

* * *

The government expects to decrease the fiscal deficit below
2% of GDP in 2008 (as compared to the original target of 2.3%).
“It is likely that the deficit in 2008 will be around 2% or
below. Our ambition is to decrease the deficit below 2% of
GDP,” said Slovak PM Fico.

The 2007 deficit is expected to have been 2.4% and hence
well below the 2.9% limit required for euro adoption.

* * *

The Slovak crown reached another historical high against
the euro with the SKK/EUR exchange rate at 32.44 (Feb 29).

In 2008 Slovakia will be preparing for a new currency. The
country plans to adopt the euro in January 2009. The final
conversion exchange rate should be announced by June or July.

* * *

The Minister of Economy plans to invest around 20 billion
euros into energy projects aimed at boasting the country's
energy security. The projects include reconstruction of
existing energy sources as well as building of new ones.

* * *

Bratislava has the third lowest property prices of European
capitals (according to the Global Property Guide) after
Skopje (Macedonia) and Chisinau (Moldova).

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2) Credit Crunch & CEE

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Although we have covered the credit crunch and its consequences
in quite some detail over the last two months, let's have
a brief look at the effects that may become noticeable in
the otherwise very strongly positioned CEE region (Central
Eastern Europe).

Slovakia and much of CEE are expected to weather the current
(US) mortgage and financial crisis very well.

Slovak banks according to their own reports are not planning
to tighten loan conditions or make loans more expensive.
That is of course thanks to the already conservative nature
of the banks (which are mainly owned by large German,
Austrian and Italian banking groups).

If there is any expectation of a negative impact on the
region it may come in the form of more difficult access to
loans by small developers looking for funding of their first
projects, in particular if they have little own capital.
Here banks may become stricter than in the last few years.

Even larger and established developers may notice certain
changes. Banks can be reasonably expected to for example want
to see higher pre-sales (for residential) or higher percentage
of preliminary rental contracts (for commercial developments).
Speculative projects may become much harder to finance as
compared to the recent years. It's also possible that developers
will be asked to put more capital into their new projects,
though this will depend on the strength of the relationship
between the bank and the developer.

On the other hand, mortgage loans are still growing in
popularity in Slovakia and this boom is not expected to
slow down any time soon. The volume of funding as well as
number of new mortgage contracts have increased strongly in
the last 3 months.

Overall, due to healthy economic fundamentals and very strong
GDP growth, Slovakia is unlikely to see any medium or long
term consequences of the developed world's financial problems.

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3) Slovak Property Price Growth Accelerating

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After several years of a booming property market Bratislava
is still seeing an ever increasing demand for new good quality
flats. By the end of 2007 demand from Slovak home buyers has
continued to significantly outstrip the supply. As a result,
a majority of new flats is (still) sold before completion.

Although there are now more new builds in the capital than
a few years ago, the market is far from being saturated and
according to government figures there continues to be a
severe undersupply of properties.

The high local demand, supported by fast increasing wages and
prosperity, is also causing a continuous growth in prices.

Although the slovak capital (as well as other regions of the
country) keep suffering from low construction rates (the
lowest in Europe along with Germany), we are seeing some
increase in the number of completed properties. Expectations
for 2008 are for 3,800 completed units, compared to the
3,100 completed in Bratislava in 2007. In 2009 the number
is predicted to go slightly down again. (According to report
from analysts at Symsite Research)

Average prices (per square meter) of new build flats in the
capital are currently at SKK 73,100/m2 (2,230 euro or 1,710
GBP/m2), while the lowest prices of such flats come to SKK
45,000/m2 (1,370 euro) and the highest reach SKK 200,000/m2
(6,100 euro or 4,675 GBP/m2).

Symsite Research (similarly to other analysts) expect the price
growth in Bratislava to average 10-15% p.a. in coming years.

The reasons for continuing growth are the extremely fast
economic growth in Slovakia (at 9% p.a.), fast rising wages,
increasing popularity and accessibility of mortgages, and
property prices that are still lower than in other main CEE
cities.

Bratislava's growing population and Slovakia's home ownership
culture are also factors in future appreciation and ever
stronger home buyers' demand. And of course there are also the
Slovaks working overseas for a number of years and looking
to invest the earned money in a property purchase back home.

Price growth accelerating
-------------------------

The already solidly growing property prices in Slovakia have
further accelerated in the last quarter of 2007. The QIV saw
an increase of 32.5% compared to the same period of 2006.
The average increase over 2007 was 24%.

Average prices across the country in QIV 2007 reached SKK
41,893/m2 (1,280 euro or 980 GBP/m2). Bratislava continues
the most expensive region of Slovakia with average price of
SKK 56,019/m2 (1,710 euro or 1310 GBP/m2).

Average prices in the other 7 regions are as follows (QIV):

Trnava - SKK 25,857/m2 (790 euro/m2)
Trencin - SKK 20,778/m2 (635 euro/m2)
Nitra - SKK 18,297/m2 (560 euro/m2)
Zilina - SKK 24,655/m2 (752 euro/m2)
Banska Bystrica - SKK 24,717/m2 (755 euro/m2)
Kosice - SKK 29,477/m2 (900 euro/m2)
Presov - SKK 25,095/m2 (765 euro/m2)

Average prices are naturally also influenced by the number
of new builds (which are more expensive than old communist
stock) on the market, the proportion of which is higher in
some cities than in others.

According to National Bank of Slovakia (NBS, the central bank)
property prices in Slovakia are now approximately at 50% of
the EU average.

* * *

New price records in Bratislava
-------------------------------

The Irish developer Ballymore has launched sales of its high-end
apartments in the new Eurovea project (to be completed by 2009).
Prices, that depend not only on exact size but also on position
in the building, are even higher than expected, at close to
SKK 200k/m2 (6,100 euro or 4,675 GBP/m2). The smallest studio
flats start at over SKK 6.5 mil (198,300 euro), smallest 1 beds
from over 9.5 mil (290k euro), 2 beds start at nearly SKK 13 mil
(396,600 euro), 3 beds at 22 mil (671,140 euro) and penthouses
cost from SKK 39 mil (1.19 mil euro) upwards.

The prices are therefore slightly higher than the until now
most expensive project in Slovakia and Bratislava, the River
Park development. River Park, with similar completion schedule
as Eurovea, has prices starting from approx SKK 160k/m2 (4,880
euro or 3,740 GBP/m2) and upwards.

Both River Park and Eurovea are large multipurpose developments
with several hundred flats, a top hotel, shops and offices. They
are both located on the Danube river and on the edge of the city
centre (Eurovea close to the border to BA II district and River
Park near the border to BA IV).

As expected both developments are marketed to Bratislava's upper
class homebuyer. While there are plenty of wealthy Bratislavans,
one needs to wait to see how fast (or perhaps slow) will these
super luxury projects sell.

Investors may be better advised to look elsewhere. At prices
about 100% higher than other luxury flats in and around central
Bratislava, and about 300-350% higher than standard mid range
flats in the capital (in districts other than BAI/centre),
a possible capital appreciation of such massively expensive
properties is less than certain.

While Central London can afford prime properties to be several
times more expensive than the city's average, Bratislava is
unlikely to ever reach London's status and attract wealthy
foreigners who'd chose the city as their new or temporary
home. And wealthy locals? Well, well-off Bratislavans can
still buy a large villa in an exclusive neighbourhood for
such millions (of euros) budgets.

As far as rental possibilities, while investors may well be
able to find a tenant for their new luxury flat, they won't
reach anywhere near the rental values they'd need given the
very high purchase price. The rental market (which in Bratislava
is mainly for expats and companies, if we don't count the
low end rentals to students and migrants) is only willing
to pay so much for even the most high-end flat.

With currently top rental levels for highest standard city
centre flats around 900 euro for large (and top quality)
1 beds and up to perhaps 1,300 euro/month for spacious
2 beds, it's easy to see that rental returns on the new
super projects would be rather minuscule. (Please note that
most 1 beds in the top areas/city centre rent at around 600-700
euro and 2 beds at approx 700-900 euro/month, depending on
m2 size, quality, parking facilities, etc.)

Investors are therefore likely to achieve better capital
growth and higher rental returns by purchasing a good
quality 1-2 bed flat in the city centre (which is the most
popular area with expat/company tenants) while spending in
the region of SKK 4-6.5 mil (120-200k euro or 90-150k GBP).

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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