5 min.
Editorial Invest in Slovakia
You must have heard news like: prices for flats and houses are rising fast! Mortgages with low interest rates are going down. It's getting harder and harder to buy property. So many of you are wondering if it's not a good idea to wait. In a previous article we answered the question, "Is it worth investing in real estate even before the downturn?" Today we will look at the aforementioned "real estate bubble". What is it, are we in it, and what if its end is on the horizon? And what answer does the investors' club bring?
Bubble we call an economic cycle in which there is a rapid rise in the market value of an asset price. This inflation is followed by a rapid decline, also called a crash or burst.
We have seen bubbles in the real estate market in the past. One of the most famous is the one in the US, which represented one of the causes of the 2008 financial crisis.
Simply put, one of its causes was that between 2002 and 2007, banks also provided low credit to unstable clients who, because of their affordability, were indebted beyond a safe level. Demand for real estate thus grew rapidly, and the price of real estate grew as a result. When the Federal Reserve raised interest rates in 2004, non-prime clients were unable to repay their loans and the banks ran out of money.
Not only the American ones went bankrupt because of this, but also European banksthat have been involved in financing clients due to globalisation. Consequently, the crisis has also affected property prices, which have fallen to historic lows.
Even today, property prices in our country continue to rise. Even the spread of the coronavirus, which froze the economy for some time, the war in Ukraine or the high inflation in the recent period have not stopped them. The real estate market is now facing further challenges, such as price increases for materials (those according to the Statistical Office of the Slovak Republic increased by 23 % year-on-year and construction prices by 7 %) and increasing interest rates. What impact do experts foresee on the development of property prices?
Some are predicting the bursting of the bubble. Others explain the rise in prices mainly by unsaturated demand, which is still quite high despite the fact that property price growth in Slovakia is among the highest in Europe. According to the National Bank of Slovakia the last time house and apartment prices increased at this rate was between 2006 and 2008, just before the financial crisis.
Interesting fact - While property prices increased by "only" 7.5 % in 2019, in 2020 it was an increase of 11.9 % and in 2021 o 23,5 %.
For the model situation, let us assume that the Slovak real estate market is already in a bubble. No expert can accurately predict how the real estate bubble will behave. Some say that it will not end so soon, others believe that it will burst even if it does, there may not be a market crash. Instead, there will be a curtailment of prices.
In practice, this means that investors who are currently waiting for property prices to fall may not wait for it. Especially when it comes to new properties.
These are currently purchased by two main groups:
It is investment properties that do not pay much at high prices. So if you don't expect to invest payback up to in decades.
If you are looking for a way to value your finances on the real estate market (or to best protect them from the negative impact of high inflation), but do not want to risk buying overpriced houses or apartments with a view of appreciation in decades, there is a golden mean. It is real estate crowdfundingwhich allows you to become an investor without a lot of capital and with minimal risk. Smaller investors can invest as little as €100, but investors with more capital will also find their own way.
Join the Investors Club on the Invest in Slovakia platform and evaluate your assets. We will analyse the projects for you, you choose the ones that interest you the most from our offer. Or even all of them. 😉
