3 min.
Editorial Invest in Slovakia
House prices in many countries have now fallen significantly and are falling further. However, the situation remains country specific as the determining factors differ in most countries. In Slovakia, the situation is still uncertain and people are still discussing whether there will be a crisis or only a minor correction. House prices in our country are rising steadily, albeit at a slower pace. A similar scenario played out 14 years ago. At that time, the crisis caused property prices to fall by between 15 and 30 % and helped to clean up the property market.
The real estate crisis of 2008 disproved the beliefs of those who thought that property prices could only rise. For the first fifteen years since the establishment of the Slovak Republic, this was the case. According to data available from the National Bank of Slovakia the price per square metre climbed in the period from 2002 to 2008 from 592 € to 1 511 €.
But then came the crisis, which cleaned up the real estate market. Although the amounts did not fall as drastically as in the United States, the changes were noticeable. Especially in 2014, when the average price per square metre amounted to € 1 219.
In the following years, prices rose slowly, with the 2020 to a sharp increase, which has not yet stopped.
The professional public still disagrees on whether we are in a real estate bubble. The most common arguments against it include low unemployment, still relatively affordable mortgages and supply still lagging behind demand. Despite this, some investors are reluctant to buy on mortgage. Why? Behind the fears are mainly high prices and the expectation of a decline, and thus the purchase on a mortgage is mainly approached by those who have no choice and urgently need a new home.
The situation in 2022 is very similar to that of 2008, but there is one fundamental difference. In 2008, there was a decline in prices and a bursting of the real estate bubble due to a decline in interest in real estate. Clients were simply not buying as they had been for years before. The reduced demand directly affected supply and sellers had to go down in price.
However, at the moment the Slovaks are interested in real estate still high interest, which is related to the low supply of housing as well as the possibility of protecting savings from the impact of inflation. This allows sellers to continue to increase prices, although not at such a fast pace and only for new properties.
At the end of the second quarter of 2022, the average price per sqm will attack the psychological threshold for both apartments (EUR 2947) and houses (EUR 1987). The average price of residential properties is at the level of EUR 2 671 per square metre, which compared to the second quarter of 2020 (EUR 1,731) represents an increase of 54.25 %. The feeling of inability to predict future developments and also the psychological limit leads many to ask, "When will the real estate bubble burst and a market "cleansing" like in 2008 occur?"
No one knows the answer to this question. Neither the coronavirus nor the war in Ukraine has stopped the rise in prices. After the mortgage rises, which some banks have yet to implement, price growth has slowed slightly. The main reason in this case is the fact that, by raising interest rates, the maximum principal amount of a mortgage loan is reduced if the repayment amount remains unchanged. Most clients are thus in a situation where they are forced to finance an increasing proportion of the purchase price from their own resources.
"Construction is low and slow, supply is low and this will not change for a long time with the complexity of legislation and high bureaucracy, while demand remains high and is unlikely to be affected by a small increase in rates, which will be basically offset by an increase in salaries."
Stanislav Pánis, Economist at J&T banka
Investors can therefore assume that it pays to invest in real estate even before the downturn. But if you are currently haunted by a long-term commitment, or you feel a lack of your own funds to buy an investment property through a mortgage, you still have a few options.
Our favourite is real estate crowdfunding, because investing with it is easy and hassle-free. In addition, you have the opportunity to invest in our Investors Club from 100 euros and no fees.
