Overview of investing in the Slovak Republic

World Bank’s top performer
In the years after its secession from the old Czechoslovakia in 1993, the new nation of Slovakia had its share of problems. The corner was turned, however, with the end of Vladimir Meciar’s authoritarian rule in 1998. In the years since, Slovakia has earned a name for itself as the most dramatically improved investment destination in Europe. And don’t just take our word for it. Back in 2004, the World Bank itself nominated Slovakia as the country that had done most in the world to improve its investment climate. Since then, reform has continued steadily, with every prospect of further benefit for the country’s economic fortunes. For you, as an investor, there are several factors which makes this country a very tempting prospect indeed.

It’s not just about Slovakia’s central location, although this undoubtedly helps to explain the massive recent inflow of foreign investment. The country is nestled conveniently between Austria, Hungary and the Czech Republic, with Vienna international airport a mere 40km from Bratislava, the pretty Slovak capital. Not that it’s necessary to go to Austria for your connection, as a host of budget airlines (including the inevitable Easyjet and Ryanair) now run direct flights to several Slovak cities.

Open to investors
The Slovak government has shown itself a friend of the foreign investor, in both the industrial and real estate sectors. Small wonder that, with the arrival of Hyundai to join Volkswagen and Peugeot-Citroen, the country has become the highest per capita producer of cars in the world in 2006. The government has also introduced a wonderfully simple flat tax, with a uniform rate of 19% for both individuals and companies. Interested in buying property in Slovakia? No problem, as foreigners have exactly the same purchasing rights as locals, and there’s no need to set up a local Slovak company to make your investment. (Arable land is the only form of real estate to which foreign access is presently restricted.)

Bargain prices
Crucially from your viewpoint, however, Slovakian property is not only freely available, but often an excellent bargain to boot. Bratislava, for example, may have only 600,000 inhabitants, but it has all the charm and elegance of Prague. The difference is that prices are generally much lower than in the Czech capital. Capital growth prospects are excellent, with annual increases of 15-20% being common in recent years. Moreover, experts generally agree that this rate of appreciation is set fair to continue.

Vast demand – and rising
The main reason for the property price boom is, of course, that old staple, supply and demand. Put simply, Slovakians are getting richer and richer, and there simply aren’t enough quality houses and flats to go round. This is especially noticeable in Bratislava, but it’s also a countrywide phenomenon apparent in every Slovak city. One telling statistic: the number of dwellings in Slovakia is 309 per 1,000 inhabitants, as against an EU average of 450. (Sharing of property is not uncommon, less by choice than by necessity, with several family generations often occupying the same house.) If you can get your hands on a well-equipped property in a good state of repair, and in a reasonably popular location, you should see your investment rapidly gain in value. New-build homes, of which there’s a severe shortage, are in particularly high demand. Many Slovak families are still trapped in clapped-out Soviet-era apartment blocks, and are desperate to find new accommodation more in line with their new spending power.

Bear in mind, however, that there is one peculiarity of the Slovak housing market. This is its extemely high rate of owner occupancy. While in many European countries, east or west, anything up to 60% of the populace rent their accommodation, the rate in Slovakia is a minuscule 6%. Moreover, most of these tenants tend to be concentrated at the lower end of the market: either students, or workers in poorly-paid jobs.

Location, location
The implications of this for the buy-to-rent market are obvious. However, those investors who are interested in renting out their properties should not abandon all hope. An upmarket property in the historic district of Bratislava I, for example, should attract a good deal of interest from the local expat business community, or from among the wealthier local population. Failing this, you should probably see your property as a capital investment, to be sold on at a considerable profit further down the line. If the modern and flexible Slovak mortgage market explains the high rate of owner occupancy, it also means there should be no shortage of buyers for your property when the time is ripe.