Rental Market in Slovakia - Overview

Over the last two years Slovakia has been attracting growing numbers of mostly British and Irish property investors looking for buy-to-let opportunities. Although the numbers of foreigners owning residential property in Slovakia are still very low (in the low hundreds by estimate), they will increasingly make a disproportionately significant impact on the country's rental market.

To start, there aren't many rental markets in Slovakia in the first place. Slovaks are owner occupiers; owning a home is the #1 goal for anyone passing the age of 20.

The country has a 95% owner occupancy rate. Only 3% of property is privately rented (further 2% are municipal flats rented to socially weak families).

In the years following the fall of comunism (1989), families - until then living in yments for any given property are (mostly significantly) lower than the rents (for such home).

So, are there any potential tenants, and who are they?

Well, to answer this question, we need to be more area- specific. There are very few rental markets in Slovakia (larger cities having either a large expat community or/and student population), while most smaller to medium towns (and of course villages and countryside) have no rental demand at all. Generally speaking we see two types of tenant.

The first group - students, low income workers, new migrants - rents cheap apartments at rents of 200-300 euro per month, mostly shared by several people. Typical properties are communist built "panelak" flats in areas such as Petrzalka(Bratislava V), and parts of the districts II and IV.

Although rental yields of such properties can be reasonably high (rented on a shared basis), they are unlikely to be a target of property investors. The reason: communist flats are no longer experiencing any capital growth and are, in fact, going down in price in many areas.

The second tenant group consists of foreign expat tenants and companies. The largest and longest established market catering to expats is Bratislava, with one or two secondary cities currently seeing a surge in demand due to significant foreign investments and new concentration of international companies (the new car centres of Trnava and Zilina).

Foreign tenants are, however, very particular in terms of property and location, especially in Bratislava, that is not only geographically larger but also offers a wider supply of quality property.

The area of choice for most expat tenants is the city centre (BA I). Good quality flats in well maintained blocks can be rented out at 500-800 euro/month for 1 beds, and 700- 1,200 euro for 2 beds. Larger apartments can achieve up to 2,000 euro/month, however, most foreign tenants look to spend a maximum of 1,000 euro for a 2 bedroom apartment. Rental yields currently range from 5-8% p.a. gross.

Newly built properties with parking can be let (in BA I) at 20% higher rates as they are extremely rare in this area (virtually all property in the city centre consists of classic pre- and post-war blocks; as the name of the 1st
district implies, it is the 'Old Town').

Investors with preferences for new built properties will usually have to look outside the historic city centre, yet should opt for the shortest possible distance to
the centre itself. The further outside of Bratislava I,the lesser demand there is from foreign tenants and companies.

So, while new built properties are popular in Slovakia (with Slovak buyers = owner occupiers), they are not necessarily a sure let. What matters most is a central
location, and high quality property; Whether new or classic (pre-war that is, not communist built) is less important.

Plus, given the extremely high demand for property in the first district, and no new supply, the city centre has also been the area of highest price growth over the last
few years.

Stare mesto (Old Town, BA I) has always been the location of choice for many wealthier Slovaks to buy a flat - or, at the very top end, a villa on the Castle Hill - and this demand will certainly continue for the foreseeable future.

A new factor over the recent year or so are the increasing numbers of foreign buyers purchasing in Bratislava. Although the overall numbers are very low, and as such have no impact on property prices, they will be noticed in the
rental market.

While 99% of property is sold to Slovaks who are mostly owner occupiers, most foreign buyers are purchasing flats with the objective of letting. In a limited rental market, even a couple hundred new rental properties can make an impact. Therefore, as more properties are purchased by investors, increasing the supply of good quality rental property in Bratislava, the tenants, until recently having few options of high standard property, will have more choice.

This may create downward pressure on rents (to a lesser extent) and, more likely, increase the void period between tenancies. Increasingly, estate/letting agents with good links to foreign companies with offices in Bratislava will be of advantage. Companies tend to transfer a larger number of staff to Slovakia at once, which often creates cycles of very high to low rental demand.

While the Slovak property market continues to offer some of Europe's best opportunities, with low prices and healthyand solid growth (for the right type of property in the
right area), it is important for an investor to understand
the dynamics of this market.

The correct choice of a (central) location with solid present rental demand, and good quality property (high standard fittings are increasingly making a difference)
are pre-requisites for successful letting in Bratislava.

And, of one thing you can be sure: as virtually all property sales go to locals, 95% of whom, as we have seen, are owner occupiers in their (family) apartment or house, you will always be able to sell your property on to a Slovak buyer,
ensuring a safe exit strategy.

From the January 2006 Slovakia Investment Property Newsletter