Local demand push prices up in Slovenia

Last Updated: May 09, 2008

Local demand push prices up in Slovenia

After several years of strong growth, house prices in Slovenia will likely stabilize due to higher interest rates and slower economic growth. Nevertheless, the upward momentum seems strong.

Apartment prices in Ljubljana, the capital, increased by 14.3% in 2007, according to a report by RTV Slovenija. Prices in the suburbs of Ljubljana rose by an average 14.7%.

Real estate prices in Slovenia rose 13.9% in 2006, after rising by 8% in 2005.The median price of apartments rose by an average of 7% annually from 2000 to 2006, according to the Real Estate Institute.

Slovenia’s rapid economic growth is the main fuel for the recent price increases. In 2007, GDP rose by 6%, firmly up on 2006’s 5.7% growth. These growth rates were higher than the average growth rates for the Euro area, which were 4.4% in 2007 and 5.2% in 2006.

GDP per capita has risen dramatically from €10,700 in 2000 to €16,700 in 2007. Average wages rose by 3.6% in 2005, and 2.6% 2006 and 5% in 2007 in real terms. The unemployment rate was down to 4.8% in 2007, from 9% in 1993.

The owner-occupancy rate is generally high in Slovenia (at 82% in 2002). Improved infrastructure has led to massive investment in housing in Ljubljana and its periphery. In 2005 and 2006, more than 7,500 dwellings were completed in Slovenia, according to the Statistical Office.

Lukewarm demand from EU buyers

Slovenia’s real estate market has been completely open to EU nationals since Slovenia joined the EU in 2004. This was expected to usher in thousands of EU citizens eager to buy properties in Slovenia, but only a handful came.

During the first year after liberalization, only about 500 properties were sold to EU citizens, according to the Slovenia’s Tax Administration (DURS). From January to April 2006, foreigners bought only 989 properties in Slovenia. Most of the buyers were Britons (48%), Italians (27%) and Austrians (7% properties).

The Public Relations and Media Office of Slovenia reports that most of the properties sold were either seaside or in the northeastern region of Prekmurje. Most of the buyers along the seaside prefer apartments and condos. Buyers in Prekmurje, meanwhile, generally prefer houses and old buildings.

Fast-growing mortgage market

Nevertheless, Slovenia’s housing market benefited from the country’s membership in the EU and the adoption of the euro.

In order to qualify for EU accession, Slovenia adopted strict monetary discipline. As a result, inflation was tamed, falling from 32% in 1993 to 3.6% in 2004 and 2.5% in 2006.

Interest rates have also gone down with EU membership. For instance, interest rates for house purchases fell from an average of 10% in 2003 to 7% in 2004 and 5.8% in 2005. This led to an increase in lending activity particularly for home purchases. Housing loans, as a share of total loans to households, has risen from 25% in 2005 to around 40% in 2007. In 2007, total housing loans increased between 40% and 50% year-on-year.

Aside from lower interest rates, more mortgage products were also developed. Housing loans with interest rates fixed for 5 to 10 years or more are now available.

Slowdown imminent?

Slovenia’s housing market is expected to slow down in line with the over-all economy. GDP growth is expected to decelerate to around 4% in 2008 and 2009. Inflation reached 6.5% in February 2008 from a year earlier; the highest level in five years.

Credit conditions are tightening after the European Central Bank (ECB) raised key interest rates seven times from 2% in Nov 2005 to 4% June 2007. The rate has been unchanged since then. The average interest rate for house purchases has risen to 6.12% in 2007.