Slovak Republic’s house price boom continues unabated, amidst strong demand and construction activity. The nationwide average residential property price rose by a whopping 25.5% to €2,671 (US$2,662) per square metre (sq. m.) during the year to Q2 2022, based on figures from the National Bank of Slovakia (NBS). It was the biggest y-o-y increase since Q2 2008. When adjusted for inflation, property prices rose by 11.6%.

During the latest quarter, property prices increased 6.4% (1.9% in real terms).

Source: National Bank of Slovakia

Slovakia’s house prices are now more than 72% above their Q2 2008 peak, mainly due to the surprising surge in house prices during the past two years despite the Covid-19 pandemic. When adjusted for inflation, prices are finally up by almost 24% from their pre-global crisis levels.

In Bratislava region, which has the country’s most expensive housing, residential property prices rose by 22.7% y-o-y to €3,403 (US$3,391) per sq. m. in Q2 2022, after rising by 22% in Q2 2021 and 9.7% in Q2 2020.

All other regions also saw robust house price increases during the year to Q2 2022.

• Presov experienced the biggest rise of about 38.8% y-o-y to €2,038 (US$2,031) per sq. m., following a 27.3% increase in Q2 2021.
• In Trnava, house prices rose by 32% y-o-y to €1,865 (US$1,859) per sq. m., an acceleration from a rise of 17% a year earlier.
• In Nitra, house prices rose by 23.9% y-o-y to €1,409 (US$1,404) per sq. m., following a 20.3% growth in the previous year.
• In Trencin, house prices increased 26.1% y-o-y to €1,619 (US$1,613) per sq. m., following a 23.7% increase in Q2 2021.
• In Zilina, house prices rose by 26.7% y-o-y to €2,063 (US$2,056) per sq. m., after rising by 22.4% in Q2 2021.
• In Banska Bystrica, house prices increased 35.2% y-o-y to €1,806 (US$1,800) per sq. m. in Q2 2022, following a 46.7% surge in the previous year.
• In Kosice, house prices rose strongly by 33.7% y-o-y to €2,348 (US$2,340) per sq. m., following a 30% growth in Q2 2021.

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 house prices are expected to continue rising during the remainder of the year, as property demand, both from local and from foreign investors, remains fundamentally strong. There are no legal restrictions on foreigners buying buildings in Slovakia.

After contracting by 4.4% in 2020 due to the Covid-19 pandemic, the economy recovered quickly with a 3% growth in 2021. However, the economy is projected to slow again this year, amidst the resurgence of Covid-19 infections and supply chain disruptions, and aggravated further by Russia’s invasion of Ukraine. The International Monetary Fund (IMF) expects Slovakia’s 2022 real GDP growth to slow to 2.2%. The European Commission is more pessimistic, projecting a growth of 1.9% this year.

Apartment prices are surging

Apartments registered the biggest house price gains nationally, rising by a whopping 28.2% y-o-y in Q2 2022 to an average price of €2,947 (US$2,936) per sq. m, more than double the 13.6% increase seen in Q2 2021, according to the NBS.

• 1-room: prices rose by 26.5% to €3,310 (US$3,298) per sq. m during the year to Q2 2022
• 2-room: prices soared by 29.2% to €3,095 (US$3,084) per sq. m during the year to Q2 2022
• 3-room: prices rose by 27.4% to €2,746 (US$2,736) per sq. m over the same period
• 4-room: prices increased 26.9% y-o-y to €2,735 (US$2,725) per sq. m in Q2 2022
• 5+-room: prices surged by 26.8% y-o-y to €2,960 (US$2,949) per sq. m in Q2 2022

Houses increased in value by 19.1% to €1,987 (US$1,980) per sq. m. during the year to Q2 2022.

Residential construction remains fundamentally strong

In 2021, the number of housing permits rose by 20.3% y-o-y to 22,915 units and housing starts increased 24.1% to 24,497 units over the same period, according to the Statistical Office of the Slovak Republic. Both were the highest level ever recorded since 2008.

In contrast, housing completions were down by 3.9% to 20,649 units in 2021 from a year earlier. Yet it remains the second highest level seen in the past three decades.

The trend continued in Q1 2022:

• Dwelling permits increased slightly by 0.7% y-o-y to 4,093 units
• Dwelling starts rose by 6.1% y-o-y to 4,351 units
• Completions fell by 9.1% y-o-y to 4,078 units
• Dwellings under construction increased 5.9% y-o-y to 80,174 units

Mortgage interest rates gradually rising

The average interest rate on new housing loans are now gradually rising.

For new business, in June 2022:

• Average floating rate loan interest rate (or loans with interest rate fixation (IRF) of up to 1 year): 1.52% in June 2022, up from 1.01% a year ago, according to the NBS.
• IRF over 1 to 5 years: 1.76%, up from 0.97% a year ago
• IRF over 5 to 10 years: 2.07%, up from 1.1% in the previous year
• IRF of over 10 years: 2.32%, up from 1.23% a year earlier

For outstanding loans, the average interest rate remains more or less steady.

• Maturity of up to 1 year: 4.05%, slightly down from 4.12% a year ago
• Maturity of 1-5 years: 2.69%, slightly up from 2.66% a year ago
• Maturity of over 5 years: 1.28%, down from 1.39% a year earlier

The low interest rate environment in recent years is due to the European Central Bank (ECB) cutting its key rate to a historic low of 0.00% in March 2016, where it has remained unchanged before it decided to raise it by 50 basis points to 0.5% in July 2022 to rein in inflationary pressures.

Mortgage market growing strongly

Despite gradually rising interest rates, the total outstanding amount of housing loans to households rose by about 12.3% to €40.36 billion (US$40.22 billion) from the same period last year, according to the NBS.

The size of the mortgage market grew rapidly to about 38.8% of GDP in 2021, up from 33% of GDP in 2019, 15.9% of GDP in 2010, and just 6.3% of GDP in 20o4.

Rental market is very limited

Bratislava appears to be an attractive location to own properties but anecdotally, properties can be quite hard to let. Bratislava is a small place, and few people absolutely need to live in the centre of town unlike the larger capitals of other countries where commuting times can be inconveniently high. Because Slovakia itself is small, the number of expatriates, embassies, and international companies in Bratislava is small, which again restricts the supply of tenants.

Owner-occupancy in Slovakia has risen sharply from about 50% during the 1980s to currently above 92%, making Slovakia one of the countries with the highest homeownership rate in the EU, way past the EU average of around 70% in 2021, based on figures from the Eurostat. Tenants were only around 9.7% of Slovakia’s population.

But only 0.1% of Slovakia’s housing stock is let out by private landlords, mainly in Bratislava.

The growth of owner-occupation is partly due to contractual savings system (Bauspar) that makes it easy for Slovaks to obtain housing loans. This Bauspar system allows borrowers to take loans at lower interest rates, with the government paying an interest premium on the amount saved.

In 2005, the government decreed the abolition of rent control, effective July 1, 2007. However, the decree was never implemented. Rent deregulation has been postponed repeatedly, as Parliament refuses to deal with this highly sensitive issue.

Yields are moderately good; rents are still low

According to a research conducted by the Global Property Guide, in Stare Mesto, Bratislava’s city centre:

• Gross rental yields on 40 sq. m. apartments were around 5.01%.
• Larger units of around 120 sq. m. had slightly lower yields of 4.53%.
• The average yield in Stare Mesto fell slightly to around 4.5%, from 5.5% four years ago.

In the Bratislava’s less upscale districts of Ruzinov and Nove Mesto (Bratislava II and III), gross rental yields were not much different, between 4.6% to 5.7%. The Airbnb market is thriving, but expect damage to your property.

Rents range from around €11 (US$11) to €14 (US$14) per sq. m. per month in the Old Town of Bratislava, whereas in the nearby areas of Ruzinov and in the New Town, rents range from €9 (US$9) to €12.5 (US$12) per sq. m. per month.

Round trip transaction costs are very low on residential property in Slovakia.

Economic growth slowing, inflation surging

Slovakia 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 Mikulas Dzurinda (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 Global Financial 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 following five years, the economy bounced back, recording a 4.8% expansion in 2015, 2.1% in 2016, 3% in 2017, 3.8% in 2018 and 2.6% in 2019. After contracting by 4.4% in 2020 due to the Covid-19 pandemic, the economy recovered quickly with a 3% growth in 2021.

Economic growth is projected to slow again this year, amidst the resurgence of Covid-19 infections and supply chain disruptions, which were aggravated further by Russia’s invasion of Ukraine. The International Monetary Fund (IMF) expects Slovakia’s 2022 real GDP growth to slow to 2.2%. The European Commission is more pessimistic, projecting a growth of 1.9% this year.

“Growth rebounded to 3.0 percent in 2021, but a stronger recovery was impeded by resurgent infection waves and supply chain disruptions,” said the IMF in its June 2022 Article IV consultation with Slovak Republic. “The war in Ukraine will dampen the recovery given Slovakia’s geographical proximity, heavy reliance on energy imports from Russia, and high integration into global value chains,” IMF added.

Consumer prices are rising sharply. In July 2022, nationwide inflation surged to 13.6%, sharply up from just 3.3% in the same period last year, amidst surging energy and commodity prices, according to the National Bank of Slovakia. It was the highest level since June 2000. Overall inflation is expected to rise sharply to 10.5% this year, from an annual average of only 1.8% from 2011 to 2021, based on IMF figures.

Slovakia’s budget deficit was equivalent to 6.2% of GDP in 2021, up from shortfalls of 5.5% in 2020, 1.3% in 2019 and 1% in 2018. It was the biggest deficit since 2010. As a result, Slovakia’s gross public debt has risen to 63.1% of GDP in 2021, up from 59.7% in 2020 and 48.1% in 2019. It is projected to fall slightly to 61.5% of GDP this year, based on the projections released by the IMF.

Public finance is projected to improve in the coming years with the recent reforms to the country’s fiscal framework and the pension system.

The labour market remains fundamentally strong. In Q1 2022, overall unemployment dropped to 6.4%, from 6.6% in the previous quarter and 7.1% a year earlier.

Resolving Slovak Republic’s political crisis

In 2006 Roberto Fico became Prime Minister (prime minister 2006-2010, and 2012 to March 2018), swept in on a victory for the populist Smer-SD party after loudly criticizing the previous right-wing government’s economic, tax, social, pension and legislative reforms. These had been seen as very positive and successful by such international bodies as the IMF, the World Bank and OECD. However they negatively affected large segments of the population, particularly low wage earners, the unemployed, and welfare and other social assistance recipients.

While in opposition and during the election campaign, Fico vowed to reverse the majority of these reforms, but on taking office he adopted a more cautious approach, and Slovakia successfully fulfilled the Maastricht criteria required for Euro currency adoption on 1 January 2009.

Fico’s populism found expression in virulent campaigns insulting opponents and press critics, denouncing them as anti-Slovaks. They in turn produced many revelations of his corruption, including the unexplained wealth of his secretary, and apparent mistress, Halászová. Fico’s stewardship was marked by tension with Hungary, and by populist aggression towards Slovakia’s Roman population and Muslim refugees.

Following the murder of investigative journalist Ján Kuciak, who wrote stories about tax frauds and the connections of the Italian mafia ´Ndrangheta to Fico’s assistant Mária Trošková, Fico resigned the premiership in March 2018. But though Smer-SD replaced Fico as PM with former Deputy Prime Minister Peter Pellegrini, Fico remained the power behind the throne.

During the March 2019 presidential election, socially-liberal and pro-EU opposition candidate Zuzana Caputova beat the government’s Maros Sevcovic, with 58% of the vote. Caputova officially assumed office in June 2019.

Then during the February 2020 parliamentary elections, Smer-SD’s Peter Pellegrini lost to the anti-corruption Ordinary People (OLaNO) party led by Igor Matovic, who formed a centre-right coalition the following month. It was the first time Smer-SD had not finished as the largest party since the 2006 elections, mainly due to the continuing public anger over the killing of Kuciak.

However after just more than a year in office, Matovic resigned in April 2021 following heavy criticism of his decision to purchase Russia’s Sputnik V vaccine and of his handling of the Covid-19 pandemic in general.

Finance Minister Eduard Heger took over as head of government, in an attempt to save the four-party coalition government. Some observers commended Heger for his clear foreign policy stance and his attempts to restore trust in the government after years of scandal and misrule.

Sources:

• Residential property prices (National Bank of Slovakia): https://nbs.sk/en/statistics/selected-macroeconomics-indicators/residential-property-prices/
• Banking interest rates statistics – loans (National Bank of Slovakia): https://nbs.sk/en/statistics/financial-institutions/banks/statistical-and-analytical-overview/interest-rate-statistics/banking-interest-rates-statistics-loans/
• Lending for house purchase, Slovakia (European Central Bank): https://sdw.ecb.europa.eu/browseTable.do?org.apache.struts.taglib.html.
• Key ECB interest rates (European Central Bank): https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html
• Housing statistics (Eurostat): https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Housing_statistics#Tenure_status
• European Union Home Ownership Rate (Trading Economics): https://tradingeconomics.com/european-union/home-ownership-rate
• Slovakia Home Ownership Rate (Trading Economics): https://tradingeconomics.com/slovakia/home-ownership-rate
• Rental returns are moderate in Bratislava, Slovakia (Global Property Guide): https://www.globalpropertyguide.com/Europe/Slovak-Republic/Rental-Yields
• Economic forecast for Slovakia (European Commission): https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/slovakia/economic-forecast-slovakia_en
• IMF Executive Board Concludes 2022 Article IV Consultation with Slovak Republic (International Monetary Fund): https://www.imf.org/en/News/Articles/2022/06/30/pr22242-imf-concludes-2022-article-iv-consultation-with-slovak-republic
• The Rise and Fall of Igor Matovic (Foreign Policy): https://foreignpolicy.com/2021/05/04/slovakia-igor-matovic-resignation-coronavirus-pandemic-corruption/
• Slovak PM Igor Matovic resigns over handling of Covid-19 pandemic (Deccan Herald): https://www.deccanherald.com/international/slovak-pm-igor-matovic-resigns-over-handling-of-covid-19-pandemic-968384.html
• Slovakia country profile (BBC News): https://www.bbc.com/news/world-europe-17847682