Slovenia residential property strong so far, as Covid-19 looms

Maria de Guzman | March 31, 2020

House price growth was robust in Slovenia in Q3 2019.  The nationwide house price index was up by 8.5% during the year to Q3 2019 (6.4% inflation-adjusted), according to the Statistical Office of the Republic of Slovenia.

slovenia house prices
  • 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.

Stronger price hikes on old properties

Existing dwellings are currently rising in value faster than newly-built dwellings:

  • The existing dwellings price index rose by almost 9% (6.8% inflation-adjusted) during the year to Q3 2019 and was also up by 3.1% (3.1% inflation-adjusted) during the latest quarter. Transactions of existing dwellings rose by 18.5% y-o-y in Q3 2019.
  • The existing flats price index increased by 8.2% y-o-y (6.1% inflation-adjusted) and was up by 1.6% (1.6% inflation-adjusted) during the latest quarter.
  • The existing family houses price index was up by 10.1% y-o-y (8% inflation-adjusted) and rose by almost 6% (6% inflation-adjusted) during the latest quarter.

The values of newly-built dwellings are rising at a slower pace, increasing by 4.7% (2.6% inflation-adjusted). In Q3 2019, newly built dwellings rose by 2% (2% inflation-adjusted) from the previous quarter, as family houses got a stronger price hike offsetting the q-o-q price drop on flats.

  • The newly-built flats price index rose by 4.7% (2.6% inflation-adjusted) during the year to Q3 2019. However, the index dropped by 3.3% (3.3% inflation-adjusted) from the previous quarter.
  • The newly-built family houses price index was also up by 4.9% y-o-y (2.9% inflation-adjusted) in Q3 2019 and sharply increased by 12.7% (12.7% inflation-adjusted) from the previous quarter.

History

After booming in early-2000s, Slovenia´s property market weakened in 2008 due to the global economic crisis. The following years were difficult. House prices fell every year till 2014, at least in inflation-adjusted terms.

Nominal and Inflation-adjusted House Price Change in Slovenia

Nominal Inflation-adjusted
2008 -0.16 -3.40
2009 -8.12 -9.14
2010 -0.15 -1.80
2011 1.37 -1.07
2012 -8.83 -11.12
2013 -4.38 -5.42
2014 -4.39 -4.30
2015 0.05 0.64
2016 6.89 6.27
2017 9.98 8.54
2018 9.14 7.13
Source: Statistical Office of the Republic of Slovenia

House prices started to recover in 2015 and had been on a rising trend since then.

More dwelling transactions

The total number of dwelling transactions rose by 11.7% to 3,369 units during the year to Q3 2019, according to the Statistical Office of the Republic of Slovenia.

Slovenia transaction nwely built dwellings
  • Newly-built dwelling transactions fell by 5.4% during the year to Q3 2019. Transactions of newly built family houses plunged by 60% y-o-y, however, the decline in overall dwelling transactions was cushioned by a 31.8% y-o-y increase in newly-built flats transactions.
  • Existing dwelling transaction, on the other hand, increased by 12.2% y-o-y in Q3 2019. Transactions of existing flats, which accounts for more than 60% of the total dwelling transactions, was up by 18.5% y-o-y. Existing family house transactions also increased by 2.9%.
Slovenia transaction existing dwellings

Housing loan rates still falling

Since the ECB started to trim the repo rate in 2012, interest rates for housing loans have been generally falling in Slovenia, particularly the floating rate. The ECB key rate has been zero from March 2016.

Slovenia insterest rates housing

Average housing loan interest rates in Slovenia in December 2019:

  • Floating and IRF of up to 1 year: 1.81%, down from 1.89% in December 2018
  • IRF over 1 and up to 5 years: 3.15%, down from 3.22% in December 2018
  • IRF over 5 years and up to 10 years: 2.5%, down from 2.74% in December 2018
  • IRF over 10 years: 2.7%, down from 2.95% in December 2018

Small mortgage market

Slovenia’s mortgage market has expanded from 7.6% of GDP in 2007 to about 13.6% of GDP in 2018. It has been held back by structural problems - the underdeveloped land registration system, weak foreclosure procedures, and other problems of the legal environment, according to the Finance Ministry´s Matej More.

slovenia housing loans

The total outstanding housing loans rose by 4.4% in 2018, after growing by an annual average of 22% from 2008 to 2010, and 3.1% from 2011 to 2017.

In December 2019, total lending for house purchases increased by 5.6% to €6.59 billion (US$ 7.11 billion) from the previous year, based on the figures from the Bank of Slovenia.

  • Loans for house purchases denominated in domestic currency rose by 6.8% to €6.25 billion (US$ 6.75 billion) during the year to December 2019.
  • Loans for house purchases denominated in foreign currency, on the other hand, plunged by 12.5% y-o-y to €337 million (US$ 364 million) in December 2019.

Slovenia housing loans mil euro

Slovenia´s banking sector is dominated by state-owned banks which control more than 40% of the market, while France´s SocieteGenerale, Italy´s Unicredit, and a number of Austrian banks are also present in the market.

Rental yields are moderate to good

Apartments in Ljubljana have moderate to good rental yields, based on the Global Property Guide research in September 2018.

In the centre of Ljubljana, the gross rental yield for apartments i.e., the gross return on investment in an apartment if fully rented out, range from 4.69% to 5.08%, with smaller apartments having higher yields.

In Ljubljana´s city centre, a 50-sq. m. apartment can be rented at around €771 (US$ 884) per month, while a bigger 120-sq. m. apartment has an average monthly rent of around €1,716 (US$ 1,968).

The real estate portal Nepremicnine´s figures suggest that gross rental yields of houses in Ljubljana City may be higher, at 7.8% - and 10.5% for houses in the city´s surrounding areas.

Covid-19 serves as major headwind for Slovenia’s economic growth in 2020 

In 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.

slovenia GDP inflation

On February 26, President BorutPahornominatedright-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.


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