During the year to end-Q4 2012, the nationwide house price index plunged by 8.83% (-11.12% inflation-adjusted), the deepest year-on-year decline since Q3 2009, based on figures from the Statistical Office of the Republic of Slovenia. During the latest quarter, house prices dropped 3.54% (-4.42% inflation-adjusted).
The average price of newly built dwellings fell by 13.5% (-15.67% inflation-adjusted) in 2012 from a year earlier while the average price of existing dwellings fell by 6.07% (-8.43% inflation-adjusted) over the same period.
- In Ljubljana, Slovenia’s capital, the average price of existing flats dropped 6.35% (-8.7% inflation-adjusted) in 2012 from the previous year.
- In the rest of Slovenia, the average price of existing flats fell by 8.34% (-10.64% inflation-adjusted) y-o-y in 2012.
Slovenia’s property market is expected to remain depressed in 2013, as economic conditions worsen. GDP declined by 2.3% in 2012, amidst weakening investment, rising unemployment and faltering domestic consumption. The economy is projected to contract by another 2% in 2013, according to the European Commission.
After booming in early-2000s, Slovenia’s property market weakened in 2008 due to the global economic crisis. The following years were difficult, with house prices falling by 0.17% in 2008 (-3.4% inflation-adjusted), by 8.12% in 2009 (-9.15% inflation-adjusted) and by another 0.15% in 2010 (-1.85% inflation-adjusted). In 2011, house prices increased by 1.37% (-1.07% inflation-adjusted).
Property demand is stagnating. Dwelling transactions dropped 7.9% to 6,336 units in 2012. Dwelling permits issued fell 13.4%. Likewise, the floor space of dwellings authorized dropped 12.9% to 435,719 square metres (sq. m.).
In December 2012, outstanding loans for house purchase increased by just 1.8% to €5.26 billion from the same period last year, according to the Bank of Slovenia.
Analysis of Slovenia Residential Property Market »
The gross monthly rental income per sq. m. ranges from around EUR 8 to EUR 10. For property owners, this means that a 45-sq. m. apartment can earn around EUR 400 per month, while a 120- sq. m. apartment can earn around EUR 1,200 per month.
The gross rental yield for apartments in Ljubljana, i.e., the gross return on investment in an apartment if fully rented out, ranges from 4.37% to 4.95%.
Capital Gains: Capital gains tax is levied at a flat rate of 25%.
Inheritance: Inheritance of spouses and direct descendants are not taxed in Slovenia. Other heirs are liable to inheritance tax and the applicable progressive rates vary depending on the relationship between the donor and the recipient, and the value of the property.
Residents: Residents are taxed on their worldwide income at progressive rates, from 16% to 41%.
Transaction costs for newly constructed or renovated residential apartment or building is substantially higher because of 8.5% VAT levied in lieu of transfer tax. New apartments intended for rental are considered commercial properties and are subject to 20% VAT.
Tenant Security: If the contract is for a definite period of time, the landlord has no obligation to renew the contract. If there has been no renewal 30 days before contract expiration, the tenant has to vacate the apartment at the day of expiration.
The Slovenian economy is projected to decline by another 2% in 2013, as domestic consumption and exports continue to decline, according to the European Commission.
Slovenia’s banking sector continues to struggle. The banking system has around €7 billion of bad loans. The country’s two largest state-owned banks, Nova Ljubljanska Banka and Nova Kreditna Banka Maribor had a combined 2012 loss of about €480 million. In addition, Abanka Vipa, the third largest bank, is also struggling to raise capital after two failed attempts.
The budget deficit is expected to be 5.1% in 2013, above the EU’s limit of 3%. Public debt is expected to rise to 63.4% in 2014, from 53.7% in 2012, according to the European Commission.
Wages are falling, and unemployment reached 9.6% in Q4 2012. Inflation was 2.7% in February 2013, down from 2.9% during the same period last year.
Slovenia’s economic situation has been aggravated by political uncertainty. Prime Minister Janez Jansa was ousted by a no-confidence vote on February 28, 2013, amidst economic gloom and banking crisis compounded by allegations of corruption. He was replaced by centre-left opposition leader Alenka Bratusek, the first female premier of Slovenia.
The new government’s priorities will be to “kick-start growth, balance public finances without hampering growth, protecting and developing the public sector and restoring people’s trust in the institutions of the state,” said Bratusek.