Market focus on Slovenia
Thursday November 2, 2006Saundra Satterlee
Just three years after European Union accession, on January 1 2007 Slovenia will become the first former Soviet bloc country to adopt the euro. ?Adoption of the euro will bring exchange rate stability,? says PriceWaterhouse Coopers economist, Brian Farthing. ?The government will also have a strong incentive to maintain anti-inflationary policies.?
Flanked by existing Eurozone countries Austria, Hungary and Italy ? and EU hopeful Croatia ? the introduction of the euro is just one of a long legacy in Slovene ?firsts?. Slovenia was the most liberal republic within former Yugoslavia and in 1991 became the first region of the federation to gain independence. Economically, as part of the former Yugoslavia ? which was itself the most open economy in Central and Eastern Europe ? Slovenia was the federation?s first principal trading arm with the west. There is no shortage of positive precursors that have helped to facilitate Slovenia?s ongoing catch-up to current European practices and standards in the process of convergence.
Country and economySlovenia ? one of the most densely forested countries of Europe ? boasts ?scenic? landscapes, from snow-capped alpine peaks, lakes, rivers and ravines to castles, cottages, spas and vineyards. Once a part of the Austro-Hungarian Empire ? and followed by decades of communism ? Slovenia nowadays boasts a developed infrastructure, a highly educated population and a thriving economy.
The economy is on course to record another year of strong economic growth in this year, potentially the fastest since 1999. ?The economy expanded by 5.2% during the first half of 2006, a significant increase compared with the 4.2% GDP growth level recorded for the whole of 2005,? says Mr. Farthing. GNI per capita income is higher than any other Central or Eastern European state and at US$17,350, confirms the World Bank, sits above EU members Malta and Portugal.
Despite economic stability ? and being described as the ?Switzerland? of Central Europe with the addition of nearly 50km of Adriatic coastline ? the Slovenian property market until recently has been largely overlooked as an international property destination. Knight Frank?s head of residential research Liam Bailey explains: ?The country has a strong niche appeal for outdoor sports enthusiasts, and that it is largely unaffected by big global developers means the country has not been heavily marketed in the international arena.?
Property marketIn the lead up to EU membership, reciprocal agreements for a limited time allowed the mutual purchase of property between Slovenia and other EU states. Since January 2004 the real estate market has opened up for EU citizens, with one restriction ? Article 37. Article 37 of the Treaty of Accession allows the Slovenian government the right to opt out of the present open-door property arrangement for the first seven years after accession.
Frances Sargent, managing director of Slovenian Properties, believes that this option is unlikely to be exercised: ?Slovenia is very keen to promote the tourist industry and aligned with this, the acquisition of property by foreign buyers is seen to create new jobs ? all good for the economy.? Further, many rural properties are left abandoned because of migration to urban centres and for the time being the Slovenes favour modern properties.
Outside of the EU, citizens of the United States have the right to purchase property as a result of an 1881 trade treaty ?under a most favoured status clause?. Other nationalities can buy real estate in Slovenia without restrictions if they establish and register a company with the head office in Slovenia in compliance with the legal system.
?With the anticipated entry of Slovenia, from 2001 to 2004, property prices rose between 35 and 60%,? says Knight Frank economic analyst Gareth Williams, ?representing 50% growth.? Over the past two years prices have doubled in some places, such as the province of Gorenska, where according Sargent: ?You?d be hard pressed to find a house or apartment under ?140,000.?
The most popular property markets for the international buyer are the capital, the coast and certain hinterland destinations.
CapitalThat Slovenia was formerly part of the Austro-Hungarian Empire means there is a rich architectural heritage in the historic centre of Ljubljana. Similar to any capital city in an emerging market, demand for investment properties is on the rise.
Knight Frank puts the average price of a 500-metre, five-bedroom period house in central Ljubljana at ?1m (?2,000 per square metre). On a square metre basis, apartments are more expensive, for example, a two-bedroom 100 sq m centrally located apartment typically sells for ?330,000 (circa ?3,200 per sq m). ?As might be expected, prices on the outskirts of Ljubljana are lower, with values around ?800 to ?2,000 per sq m,? says Williams.
CoastPrices on the Adriatic coast are similar to Ljubjana. Slovenian Properties, whose portfolio covers the entire country, have a two-bedroom apartment in Koper for ?174,000. More expensive is a three-bedroom house for ?280,000 with views over the historic fishing village of Piran; or in Isola, a four-bedroom house for ?650,000.
HinterlandTop tourist destinations and highly desirable property locations include Kranjska Gora in the Julian Alps and Lake Bled and environs. A large three-bedroom house just outside of Lake Bled ? with its castles and picturesque church ? is on the market for ?190,000. The closer lakeside, the more you pay. In Kranjska Gora, ?180,000 is typical for a one-bedroom apartment, says Sargent.
Close to the ski slopes of Kloba and an easy drive to Lake Bled and Lake Bohinj is a new Alpine-style ski development where offplan studios start at ?72,000.
The above three hinterland properties are available from Slovenian Properties.
Slovenia Cottages agency specialises in properties in the east, many of which need renovation and can go for under ?40,000. Long-established Agencija Barbara sells in selected parts of the country.
Pitfalls and practicalitiesBe aware that Article 37 remains an option (although unlikely to be exercised) until 2011. Also, pay attention to Slovenian taxes. What you pay in fees and charges above the cost of the property will depend on whether you are buying a new build or an older property. ?Normally you should factor in around 5% of the selling price to cover legal fees, stamp duty, VAT, registration etc. for an older property,? notes Sargent. Expect to pay more for a new build, especially because they are subject to hefty VAT charges. And Knight Frank?s Williams points out that at point of sale capital gains tax is charged at 25%.
Standard practice is that the same lawyer or notary acts for both sides (though buyers can opt to have their own). A rule of thumb is that the larger the property, the better the value . . . at least for now. Larger properties tend to sell more slowly in part because, to date, foreigners are not eligible for local mortgages. The process of buying property takes eight to 10 weeks except in the case of agricultural land.
Government of the Republic of Slovenia
The World Bank
Rebecca Brown is in the process of buying land in Slovenia, and recommends her property agent, Tomaz Poredos sp.
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