House price rises continue to accelerate in Slovak Republic
Lalaine C. Delmendo | September 30, 2020
During the latest quarter, property prices increased 4.6% (3.4% in real terms).
Slovakia's house prices are now almost 8% above their Q2 2008 peak. But when adjusted for inflation, prices are still 11% below their pre-crisis levels.
In Bratislava region, which has the country's most expensive housing, residential property prices rose by 8.7% y-o-y to €2,231 (US$2,508) per sq. m. in Q1 2020, after rising by 5.6% a year earlier.
All other regions also saw robust house price increases during the year to Q1 2020.
- Zilina experienced the biggest rise of about 16.5% y-o-y to €1,254 (US$1,410) per sq. m. but still a slowdown from the previous year's 21.9% growth.
- In Trencin, house prices climbed 14.5% y-o-y to €1,025 (US$1,152) per sq. m., following a 19.5% increase in Q1 2019.
- In BanskaBystrica, house prices increased 14.1% y-o-y to €923 (US$1,038) per sq. m. in Q1 2020, almost three times the growth in the previous year.
- In Presov, house prices rose by 6.3% y-o-y to €1,050 (US$1,180) per sq. m., a sharp slowdown from the 19% growth seen in Q1 2019.
- In Kosice, house prices rose by 5.5% y-o-y to €1,092 (US$ 1,227) per sq. m., in contrast to a 3.5% decline in Q1 2019.
- In Trnava, house prices rose by 5.3% y-o-y to €1,183 (US$1,330) per sq. m., a slowdown from a rise of 12.4% a year earlier.
- In Nitra, house prices rose by a modest 1.9% y-o-y to €900 (US$1,012) per sq. m., a sharp slowdown from a 27.8% growth in a year earlier
The previous housing boom in Slovakia lasted from 2006 to Q2 2008. The surge stopped in late 2008, and in following years prices either fell or only increased a little. House price growth started to strengthen again in 2016 and have been rising strongly since.
Slovakia's housing market is expected to slow in the short-term due to the economic fallout from the coronavirus pandemic, but is expectedto bounce back quickly starting the end of 2020, as property demand, both from local and from foreign investors, remains fundamentally strong.
The economy grew by 2.3% in 2019 from a year earlier, following annual expansions of 4% in 2018, 3% in 2017, 2.1% in 2016 and 4.8% in 2015. The Slovakian economy will contract by around 6.7% this year but is expected to recover quickly in 2021 with 6.6% growth, according to the European Commission.
There are no legal restrictions on foreigners buying buildings in Slovakia.
Rental returns are moderate in Bratislava, Slovakia
How much will you earn? Gross rental yields on apartments are moderate in Bratislava, at around 4.5% to 5.4%. To define terms, the gross rental yield is the rent the landlord will earn - before taxation, vacancy costs, and other costs - compared to the purchase price of the property.
The gross rental yield in the Old Town is about 4.5 to 4.5 %, with smaller apartments earning more. Returns are not much different in Ruzinov and in the New Town. The Airbnb market is thriving, but expect damage to your property.
How much do apartments cost? Apartments in the Old Town of Bratislava cost around EUR 2,600 to EUR 3,400 per square metre (sq.m.). In the nearby areas of Nove Mesto, apartments tend to be cheaper, selling for around EUR 2,400 per sq. m. You can ´get into the market´ for EUR 120,000 to EUR 350,000.
How easily will you rent your property? Anecdotally, properties can be quite hard to let. Bratislava is a small place. Few people absolutely need to live in the centre of Bratislava (unlike in other larger cities). The number of expatriates, embassies, and international companies in Bratislava is small, which again restricts the supply of tenants.
Round trip transaction costs are very low on residential property in Slovakia. See our Slovak Republic property transaction costs analysis and our Slovakia transaction costs compared to other locations.
Rental income tax is moderate in Slovak Republic
Rental Income: Rental incomeis taxed at a flat rate of 19% for income up to €36,256.38, and at a flat rate of 25% on income exceeding €36,256.38.
Capital Gains: Capital gains realized from the sale of real estate are taxed at 19% to 25%.
Capital gains realized from selling properties held for more than five years may be exempted from capital gains tax, subject to certain conditions.
Inheritance: Inheritance taxes were abolished as of 01 January 2004.
Residents: Income and capital gains are taxed at a flat rate of 19% for income up to €36,256.38, and at a flat rate of 25% on income exceeding €36,256.38.
Roundtrip buying costs are very low in Slovakia
Total roundtrip buy-sell costs are very low, between 4% and 7.60% of property value. The buyer pays for the notary and registration fees, and legal fees. The seller pays for the real estate agent’s fees.
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.
Economy to bounce back quickly in 2020Slovakia is one of Eastern Europe’s most successful transition countries. Born in 1993 after seceding amicably from the Czech Republic (the two countries were formerly known as Czechoslovakia), it has a stable polity and liberal market economy. Slovakia benefited from eight years’ reform under the centre-right coalition led by MikulasDzurinda (1998-2004) whose reforms won praise from international organizations, and who oversaw EU and Nato entry.
The economy’s rapid growth facilitated the country’s membership of the Organization for Economic Cooperation and Development (OECD) and the European Union (EU) in 2004. In December 2007 Slovakia became a full member of the Schengen Zone, allowing passport-free travel in the 24-member European nations.
Real GDP growth reached an impressive 10.8% in 2007, following 8.5% growth in 2006. Kia, Volkswagen, and Peugeot Citroen all have built large car plants in Slovakia. In 2008 there was 5.6% growth.
With the crisis there was a 5.4% GDP contraction in 2009. Slovakia’s economy recovered quickly with GDP growth of 5% in 2010, but this was followed by 4 weak years, with 2.8% GDP growth in 2011, 1.7% in 2012, 1.5% in 2013 and 2.8% in 2014.
In the past five years, the economy bounced back, recording a 4.8% expansion in 2015, 2.1% in 2016, 3% in 2017, 4% in 2018 and 2.3% in 2019. The Slovakian economy will contract by around 6.7% this year due to the COVID-19 pandemic but is expected to recover quickly in 2021 with a 6.6% growth, according to the European Commission.
In early-June 2020, the government lifted most of its anti-coronavirus restrictions and reopened its borders for 16 countries, including Liechtenstein, Germany, Switzerland, Croatia, Slovenia, Bulgaria, Cyprus, Greece, Malta, Estonia, Lithuania, Finland, Latvia, Denmark, Norway and Iceland. Slovakia has one of the world’s lowest death rates from the pandemic.
Slovakia’s budget deficit was equivalent to 1.3% of GDP in 2019, slightly up from 1% of GDP in the prior year. However, the shortfall is expected to rise sharply this year to around 8.5% of GDP, based on projections by the European Commission.
Slovakia’s gross public debt has fallen to 48% of GDP in 2019, down from 49.4% in 2018, 51.3% in 2017 and 54.7% in 2013, but is projected to rise to a record of around 60% of GDP this year, as the coronavirus outbreak forces a surge state spending to surge to help workers and companies.
In May 2020, nationwide inflation stood at 2%, down from 2.7% a year earlier and the lowest level since December 2018, as fuel prices and transport costs continue to plunge, based on figures from the Statistical Office of the Slovak Republic. Inflation is expected to slow to 1.1% this year, from 2.8% in 2019, and 2.5% in 2017, according to the IMF.
Unemployment fell to a record low of 5.8% in 2019, from 6.6% in 2018, 8.1% in 2017, 9.7% in 2016 and from an annual average of 13.3% from 2009 to 2015, according to the IMF. However in 2020, the jobless rate is expected to rise to 8%, before falling slightly to 7.4% in 2021, mainly due to the impact of the COVID-19 pandemic.