Slovenia residential property strong so far, as Covid-19 looms
Maria de Guzman | March 31, 2020
- In Ljubljana, Slovenia´s capital, the price index for existing flats rose by 4.1% y-o-y (2.1% inflation-adjusted) in Q3 2019. On a quarterly basis, house prices were up by 2.3% (2.4% inflation-adjusted) in Q3 2019.
- In the rest of Slovenia, the prices of existing flats surged by 10.8% (8.6% inflation-adjusted) during the year to Q3 2019. On a quarterly basis, the price index rose by 1.2% (1.2% inflation-adjusted) in Q3 2019.
In annual terms, Slovenia ranked 7th in the EU for house price rises, at 8.5%, double than that of the EU's 4.1% y-o-y price increase in Q3 2019.
Slovenia's economy recorded its weakest growth in more than six years, expanding by 1.7% during the year to Q4 2019, down from 2.4% the previous quarter, according to the Statistical Office of the Republic of Slovenia. For the whole year, the economy expanded by 2.4% in 2019.
This was the country's slowest expansion since Q3 2013, as domestic demand almost stagnated with a 0.4% y-o-y increase, caused by weaker household consumption (up 1.2% y-o-y) and contractions in both government consumption (down 2% y-o-y) and gross fixed capital formation (down 4.5% y-o-y). Export growth was at a seven-year low at 0.9% y-o-y.
Nevertheless, housing sales are rising. In the third quarter of 2019, the number of dwelling transactions increased by 11.7% to 3,369 units from the same quarter last year, based on the figures from the Statistical Office of the Republic of Slovenia.
Lending for house purchases increased by 5.6% to €6.59 billion (US$ 7.11 billion) during the year to December 2019, as interest rates remain low and are still declining.
The value of construction work was up by 3.3% in 2019, according to the Statistical Office of the Republic of Slovenia. However, this growth might reverse soon as the total number of dwelling permits issued for residential buildings fell by 6.2% to 2,657 units, according to the Statistical Office of the Republic of Slovenia.
Foreigners have been able to buy property since February 2003, on a reciprocal basis. Reciprocity is a principle verified by the Ministry of Justice (MoJ) based on the Law on Reciprocity (Official Gazette No 9/99). Then following accession to the EU in 2004, EU citizens may now buy properties in Slovenia without restrictions.
Slovenia Rental returns are moderate in Ljubljana, Slovenia
How much will you earn? Gross rental yields on apartments are moderate in Ljubljana, at around 4.7% to 5.1% in the city centre, and higher outside. 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 4.7%-5.1%. For these areas we used the Global Property Guide´s own research.
How much do apartments cost? Apartments in the Old Town of Ljubljana cost on average, EUR 3,600 per square metre (sq.m.). In the nearby areas apartments tend to be cheaper, we found in previous years, selling for around EUR 2,300 per sq. m. In the city´s surroundings, EUR 1,450 per sq. m. is more usual for an apartment, EUR 1,000 for a house.
House prices in Slovenia have been rising, according to the Statistical Office of Slovenia.
How easily will you rent your property? Anecdotally, properties can be quite hard to let. Ljubljana is a small place. The number of expatriates, embassies, and international companies is small, which again restricts the supply of tenants.
Round trip transaction costs are low in Slovenia. See our Property transaction costs analysis in Slovenia and Round-trip property transaction costs in Slovenia, compared to the rest of Europe.
Taxes are moderate
Rental Income: Nonresident foreigners earning rental income are generally taxed at 27.50%. A standard deduction of 10% of gross income is available for all taxpayers earning rental income to account for maintenance costs.
Capital Gains: Capital gains realized from the sale of properties are taxed varying rates, depending on how long the owner held the property prior to the sale.
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 50%.
Buying costs are moderate in Slovenia
Roundtrip transaction costs are around 4.434% to 8.26% of the property value. The 2% Transfer Tax is paid by the seller while the real estate agent’s fee at 4% (plus 20% VAT) is typically split between buyer and seller.
Rental market practice is pro-landlord
Rent: Rent and rent increases can be freely negotiated but must be based on the market rate. In theory, rents must not be 50% higher than average rents in the same local municipality. In practice, this is not followed; landlords can draw contracts and change it as they wish.
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.
Covid-19 serves as major headwind for Slovenia’s economic growth in 2020In 2020, the central bank expected the economy to grow by 2.5% - this was before the Cornavirus outbreak - after 2.4% growth in 2019. In the previous five years, Slovenia’s economy expanded by 4.1% in 2018, 4.8% in 2017, 3.1% in 2016, 2.2% in 2015, and 2.8% in 2014.
However, taking into consideration the expected limited economic activity brought by the coronavirus pandemic, Covid-19, in the first quarter of 2020, Slovenia’s Institute of Macroeconomic Analysis and Development (UMAR) slashed its earlier economic growth prediction by half to 1.5% in 2020.
Adding to the uncertainty was the unexpected resignation of Slovenia’s former Prime Minister MarjanŠarec on January 27, 2020. Šarec also called for an election, noting that his minority government lacked support to push through important legislation.
On February 26, President BorutPahornominated right-wing Slovenian Democratic Party (SDS) leader JanezJanša for prime minister. Janša was sworn in on March 13, 2020. Janša’s priority after his appointment is to deal with Covid-19. As part of the government’s precautions against the pandemic, the government banned incoming flights from severely affected countries such as China, Italy, South Korea, and Iran on March 10, 2020. The government also implemented other measures such as early closings of educational institutions, suspensions of public transport and all unnecessary services, price freeze to certain items, and closings of restaurants and bars. As of March 27, the number of Covid-19 confirmed cases in Slovenia was at around 632.<
Annual inflation stood at 2% in February 2020, an increase from 1.2% during the same period last year, according to the Statistical Office of the Republic of Slovenia. Unemployment stood at 4.8% in Q3 2019, a 0.2 percentage point decline from the same quarter last year.