Slovakia’s housing market poised to recover
Things are getting better in Slovakia! Buoyed by the economic recovery, average housing prices fell only 1.36% (-2.41% in real terms) y-o-y to Q3 2010. House prices are 15.8% down from the peak, the national average price being €1,304 per square meter.
In Bratislava region, prices rose 1.16% (0.09% in real terms) y-o-y to Q3 2010.
Banska Bystrica and Kosice regions experienced house price increases y-o-y to Q3 2010, with price rises of 6.68% and 5.02% respectively. Trencin, on the other hand, had the sharpest drop (-10.18%) over the same period.
The housing boom in Slovakia lasted from 2006 to Q2 2008, with rises ranging from 14% to 35% per annum. The surge stopped in late 2008. Since then, prices have been dropping continuously. Consumer demand remains weak, and unemployment is expected to reach 14% by the end of the year, up from 9.6% in 2008.
During the 2009 global crisis, Slovakia’s economy contracted 4.7%, a sharp decline from GDP growth of 6.17% in 2008. Thanks to renewed export demand, the economy grew by 3.8% (y-o-y) in Q3 2010, and 4.2% in the previous quarter.
Apartment prices haven’t fully recovered yet
During Slovakia’s property boom, apartment prices rose 87% between 2005 and 2008 (70% in real terms), increasing from €635 per square meters to €1,080 per square meters.
- Smaller apartments (one room units) rose 104% (85% in real terms) 2005-2008, to €1,239 per square metre
- 5-room apartment prices rose 56% (39% in real terms)
- Detached house prices rose 40% (27% in real terms) during the boom years from 2005 to 2008, with average prices increasing from €680 per square meters to €862 square meters.
- Villa prices increased a meagre 25% (14% in real terms).
Prices of smaller apartments fell most during the crash.
Slight improvements have taken place in 2010, although flats (in general) and villas remain weak.
AVERAGE RESIDENTIAL PROPERTY PRICES
|PER SQ. M. (Q2 – 2010)||Q-O-Q CHANGE||Y-O-Y
|HOUSE PRICE BOOM (2005 – 2008)|
|1 – room||1,443||0.28||-2.63||104.07|
|2 – rooms||1,396||1.75||-2.63||91.11|
|3 – rooms||1,278||0.87||0.31||77.29|
|4 – rooms||1,259||0.00||-5.20||80.84|
|5 – rooms||1,555||1.11||6.51||56.43|
|Source: National Bank of Slovakia|
Lower interest rates
Slovakian interest rates gradually declined throughout 2010. By November 2010, average housing loans had fallen to:
- Floating rate, or fixed for up to 1 year: 4.68%,
- Fixed for 1 – 5 years: 4.64%,
- Fixed for 5+ years: 6.18%.
Meanwhile, the ECB repo rate has remained at 1% since May 2009
However as a reaction to the crisis, banks have become very cautious in their lending activities.
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.
One of the most famous characteristics of the Slovak economy is its ‘flat tax’ of 19% on income, consumption, and corporate profits, operative since 2004. “It just works!” explained former minister of finance Ivan Miklos to a Cato Seminar.
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 10.4% in 2007, following 8.2% for 2006, 5% for 2005, and 5.5% for 2004. Kia, Volkswagen, and Peugeot Citroen all have large car plants in Slovakia.
In 2008 there was 6.17% growth, and then a collapse with the crisis to a 4.66% GDP contraction in 2009.
Unemployment was 8.7% in Q4 2008, a significant drop from 19% in 2000. However, unemployment rose again to 14.1% in Q3 2010.
New government – good news for the economy
In the June 2010 Parliamentary elections Iveta Radicova’s centre-right coalition, led by the Slovak Democratic and Christian Union (SDKU), won power from Prime Minister Robert Fico’s centre-left coalition.
Fico’s party had been elected in 2006 on the basis of a populist leftist campaign against the free-market policies of the former PM, Dzurinda. In office Fico realized that he would cripple the economy if he reverted to socialism, and did little. However his government included the anti-Hungarian and anti-gypsy Slovak National Party (SNS) party, led by Jan Slota, whose drunken anti-Hungarian speeches, never disavowed by the government, caused tension with neighbouring Hungary.
New Prime Minister Radicova has made restoring the country´s public finances, under strain as a result of the 2008 global financial crisis, her government´s main priority.
She also promised to return Slovakia to the high growth rates it previously enjoyed.
The new right-wing government will face tough challenges. Slovakia’s budget deficit rose from 2.19% of GDP in 2008 to 6.77% in 2009. However the Ministry of Finance expects to cut the deficit to 4% next year and to below 3% by 2011. The recently approved 2011 budget, aims to cut the deficit to €3.81 billion, from 2010’s €4.54 billion deficit.
Though Slovakia only joined the Euro zone in January 2009, it has already refused to contribute to the €10 billion bailout to Greece. Prime Minister Iveta Radicova has said that overly indebted countries should declare bankruptcy, and not be bailed out.
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