Slovak Republic: Overview

RENTAL YIELDS

Yields are high at 10.1% in Bratislava

Central Bratislava yields are high. By Global Property Guide estimates, gross rental yields on 100 sq. m. and 120 sq. m. apartments are at around 10.1% Lower yields are available for brand new houses in the suburbs, at around 8%-9.2%.

“We are still feeling the influence of the period when it was practically impossible to find high quality apartments for foreigners,” says Patkai. “But this market is becoming saturated. Location now plays an extremely important role – the view, whether it is new built, whether there are special features - such apartments can be marketed easily.

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TAXES AND COSTS

Rental income tax is moderate in Slovak Republic

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	9.3%	13.0%	13.6%
Click here to see a worked example
Source: Disclaimer

Rental Income: Although rental income is subject to a flat 19% tax rate, this is levied upon net and not gross income. Effectively this means that a married couple declaring receipts separately would pay around 9.3% in tax on gross income of €1,500 per month.

Capital Gains: Real estate held for more than five years is exempt from capital gains tax.

Inheritance: Inheritance taxes were abolished as of 01 January 2004.

Residents: Personal allowances and certain tax bonuses are available to residents.

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BUYING GUIDE

Roundtrip buying costs are very low in Slovakia

Total roundtrip buy-sell costs are very low, between 2% and 5.5% of property value. A positive factor was the January 2005 abolition of transfer tax. Remaining cost for the buyer are the agent’s commission (2% - 5%) and miniscule registration fees (0.01% - 0.5%)

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LANDLORD AND TENANT

Slovak law is neutral between landlord & tenant

Rent: Rent control was abolished in Slovakia from 2007, and previously did not apply to individually-owned apartments.

Tenant Security: The tenant can break the contract at any time by giving three months’ notice without needing to give a reason, while the landlord needs substantial reasons to break an ongoing contract.

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ECONOMIC GROWTH

Slovakia's economic success after transition and separation

Slovakia is one of the successful transitional countries in Eastern Europe. Established after the nation seceded amiably from Czech Republic in 1993 (the two countries were formerly known as Czechoslovakia), its stable polity and liberal market economy belie its previous 41-year communist rule.

Slovakia benefited from eight years’ reform under the centre-right coalition led by Mikulas Dzurinda (1998-2004) whose reform package won praise from international organizations, and oversaw EU and Nato entry. Bratislava become a favourite destination for foreign investors.

Real GDP growth reached 8.2% in 2006, following 5% for 2005, 5.5% for 2004 and 4.4% for 2003. The Slovak Republic is now the fastest growing of the central European economies.

Yet the dramatic growth – a record for Slovakia since its 1993 founding – seems not to be leading to economic overheating, and to be based on macroeconomic fundamentals. Headline consumer price inflation was 2.2% in February 2007, according to the Central Bank (‘core’ inflation was a mere 1.8%), having dropped from a dire 26% in 1993. Unemployment is down to 9.4% from 16.5% at the beginning of 2004.

The volume of loans for house purchases increased by 41% in IH 2006, and 34% in H2, similar to the previous year’s growth. The rate of growth accelerated in the first half of 2006. Though 100% mortgages are available, the country has the second-lowest volume of mortgages (as % of GDP) in the EU, and so has a long way to go to catch up.

Slovakia benefited from eight years’ reform under the centre-right coalition led by Mikulas Dzurinda (1998-2004). One of the most famous characteristics of the Slovak economy is its ‘flat tax’ of 19% on income, consumption, and corporate profits, operative since 2004.

However in June 2006 a new coalition government was elected, reflecting a ‘protest’ vote by those left out of Slovakia’s economic growth. Despite being an alliance of unimpressive personalities, most believe the new government will leave the previous reforms in place.

Like any other transition country Slovakia does have problems. The judicial system is slow, limiting the courts’ usefulness in dispute-resolution. The privatization program was hounded by rumors of corruption.

A worrying issue is minorities. The Gypsies (Slovak Roma) are thoroughly marginalized, as in other European countries. In Eastern Slovakia, where the Gypsies live, unemployment is three times the national average of 20%.

But these problems pale beside the vibrancy of the economic revolution now taking place in Bratislava.