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January 27, 2010

Slovakia Locals Buying

CE Invest is successfully selling the apartments of foreign investors to the local market in Bratislava. The demand for quality housing in the capital city has not abated and now that the prices have come down a little (20%), Slovaks have decided to buy. This phenomenon can only be observed in the segment of the residential market which has always been most attractive to buy-to-let investors, namely city-center, preferably newly-built, attractive 1-2-bedroom units.

What drives the market?

As opposed to Prague and Budapest, there is such a drastic relative scarcity of new stylish apartments in the city that as soon as one crosses the imaginary affordability threshold, people rush to buy. What may not seem so apparent from Western Europe, the contrast between old “Communist” housing and new developments built between 2004-2008 is tremendous. We are not only talking about grey pre-fab blocks of flats; the average apartments in the city, advertised as “brick buildings,” whether pre- or post-war, are avoided by new buyers. The main issues are the “old feel;” poor infrastructure; poorly lit, cold, ghastly stairwells and corridors full of the neighbor’s flower pots, laundry, and household junk; aggravated by the inefficient heating methods, leaking roofs, and aging plumbing and electric systems, which fuel constant debate among the tenants of the building. New buyers are not looking for old units and existing owners are looking for ways to sell at a reasonable price, and move out.

What is more, because of the recession, practically all new construction has stopped, so the supply is limited. The significant demand for new-built apartments has not disappeared in the wake of the credit crunch, for it was driven by a healthy economic need in this post-Communist Central European country. The boom until 2008 has certainly brought unrealistic expectations, so prices are still high, it takes a while for owners to settle for a lower price and now, seeing the increasing demand, those who can afford it, have decided to wait.

Credit is readily available in Slovakia for local residents. The banks provide mortgage loans with the same conditions as before the credit crunch. The only change is that credit is not available (yet) to non-residents. It is possible to obtain a loan with 4.3% interest while the rental yield on the apartment is 6%. There is practically no unemployment in Bratislava, as opposed to the eastern part of the country where the gap between rich and poor is widening. On top of the favorable credit situation, many Slovaks have saved up sizeable amounts of cash. Therefore all the circumstances are ripe for a steady rise in property transactions and prices in 2010.

Examples of what is for sale in Bratislava

Three Towers Development, Bratislava
Click here for more pictures

Stunning views from the landmark buildings of Three Towers, proudly rising over Bratislava. The amazing stylish feel of this apartment for sale, the many sports facilities next door, attract the corporate community from the nearby office buildings and shopping-entertainment mall.

Total area: 49m2 (1-bedroom)
Balcony: 5m2
Floor: 9
East orientation

Price: 135,000 Euros with indoor parking
Furniture: 10,480 Euros (optional)

Realistic rent: 600 Euros net

 

Kitchen in the Three Towers Apartment
Click here for more pictures

Fully-furnished apartment for sale in the unique Three Towers development. Spacious bright living room, quality finish, very elegantly and practically furnished.

Total area: 58,4 m2 (1-bedroom)
Balcony: 4,85 m2
Floor: 11
East orientation

Price: 143,000 Euros with indoor parking

Realistic rent: 600 Euros net

 

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January 21, 2010

CE Invest, as the leading property management company of Bratislava, provides up-to-date data about the prices in the city. The rental market is strong in Bratislava. Apartments are rented within a week or two. The reason for the demand is the low supply of newly-built apartments in the city. A central location is also a much-sought-after deal for the tenants, 50% of whom are locals, the other 50% foreign businessmen, diplomats, and students.

Rental prices of newly-built units in Bratislava

Property	Rent €	Utilities €
Studio 1-bed 2-bed	370 500-600 750-900	130 150 200

 

Rental prices of Old Town apartments in Bratislava

Property	Rent €	Utilities €
Studio 1-bed 2-bed	300-350 450-600 750	100 150 200

Utilities are paid by the tenant. Note that in case of a vacancy, it is not only the missing rent, but the mounting utility expenses, namely building common costs, which take their toll on the investors.

Mortgage Information
Currently only two Slovak banks, OTP Bank and VUB Bank, the latter only in exceptional cases, provide mortgage loans for non-residents in the range of 50-70% loan to value (LTV). The current interest rate varies between 5.2 and 5.6%. The administrative period is around one month until the mortgage is released.
Some recent examples from the re-sale market of newly-built properties:

1-bedroom 59m2 apartment in the 3 Towers development bought by an Austrian citizen working in Bratislava for 152,000 Euros, including parking space.

1-bedroom apartment in the development Jegeho Alej by Finep was bought by a Slovak bank employee for 110,000 Euros, including parking space.

Re-sale Prices of Newly-Built Properties in Bratislava

Property	Price€
Studio 1-bed 2-bed	65-85,000 100-155,000 150-185,000

No VAT is involved when apartments are re-sold by private persons. Costs involved in apartment re-sale for the owner include a brokerage commission of 3.5% + VAT as well as legal fees at 0.5% + VAT. Regarding 19% capital gains tax, which is to be paid on the difference between the current sales price and the original purchase price, there is a tax exemption after 5 years in case the foreign owner is registered in the apartment as his/her “place of residence.” Expenses of renovation, furniture, legal & agency fees as well as a standard 4025.70 Euro tax ded uction, can be offset against the tax base.
For those who do not wish to or cannot sell, the fee for property management is 10% of the monthly rental income + VAT. An additional tenant-finding fee of one month's rent + VAT is charged upon finding a new tenant. Costs of complete furnishing including full kitchen with appliances, delivery, assembly, installation, and VAT, are as follows.

Property	Price€
Studio 1-bed 2-bed	9397 10,465 12,556

 

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May 22, 2009

VAT up to 25% in Hungary from July 1 (excerpt)

As part of the conditions for the latest IMF package to Hungary, the new Hungarian government introduced tax modifications, the current 20% VAT will be increased to 25%. The increased VAT will apply to every invoice issued after the 1st of July, 2009. (VAT remains 19% in Slovakia.)

The VAT increase will affect buyers of newly built property, as contracts signed before the tax modification will not be exempt. This means that developers must apply the VAT valid at the time of the transfer of the purchase price installment. So practically there is a 5% price increase on the remaining installments of the purchase price. If you fall into this category, in order to avoid the +5% increase, the remaining installment(s) must be transferred before 30th of June 2009.

There is no VAT on resale property or rental income.

Foreclosed BMV apartments for sale in Budapest

Amazing, you can find an apartment in central Budapest for 20,000 euros!

Here are a number of interesting offers from the banks, significantly below market value,  which are worth considering as an investment. Remember you make your money when you BUY real estate, you just realize it when you are selling. Most of these studios and apartments must be renovated and furnished before they can be let, but the yield is significant...

Property Management

CE Invest is proud to announce that we have doubled our property management portfolio in Budapest in the last 6 months. We have waiting lists of tenants in most locations, taking on apartments to rent from other property management companies just to meet the demand. Our furnishing and apartment-renovating teams are busy creating visually appealing and highly functional rental apartments in the city for corporate tenants, foreign students, and local young professionals.

 

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March 16, 2009

Income Tax Returns due March 31 in Slovakia and Hungary (excerpt)

If you are renting property in these countries as a private person (and you are not a corporate owner) we recommend you 1) be informed about your tax liabilities as property owner and 2) appoint someone to submit the tax forms for the year 2008.

The authorities have become stricter this past year due partly to the financial crisis and partly to these countries' increasing harmonization to EU regulations. We have had an instance recently where a client received a personal tax audit because one of his apartments registered a rental income and the other did not, which the tax authority noticed and wanted to know why.

Income tax is calculated differently in Slovakia and Hungary. In Slovakia the tax base is significantly reduced by expenses for individual apartment owners and what is left is taxed at 19%. In Hungary there is much less room for deducting expenses and the income is taxed at 25%.

 

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January 22, 2009

The Credit Situation in Hungary (excerpt)

The mortgage options in Hungary have been tightened, but are still present for foreign investors. Any foreigner can apply for and receive a loan. Preference is given to easily marketable property, which is already built, or off-plan where the bank giving the mortgage is heavily involved in the financing of the development.

The number of buyers has fallen drastically on the real estate market throughout the country, as is the case all over the world, especially in areas of buy-to-let investment. The Hungarian forint has weakened significantly, 1 EUR = 282.42 HUF, 1 GBP = 300.66 HUF, and 1 USD =216.58 HUF. Hungary still experiences currency fluctuations, unlike Slovakia, where the euro has successfully been introduced on January 1. The base interest rate is currently 9.5%, recently dropped, 2 days ago (National Bank www.mnb.hu). Therefore property in Hungary has suddenly become cheaper for the Western European buyer. Interests remain high, EUR loans cost 10.5% while HUF loans cost 15.1%, including all bank fees. LTV is relatively low, 72%, usually for 30 year terms. Best rates apply on off-plan sales, little lower LTV on resale property. The banks have tightened their conditions both to individual buyers as well as developers, but not as much as was expected at the end of 2008.

Because of the shortage of cash, some developers in Budapest are already starting to advertise off-plan apartments with a 10% downpayment now and 90% upon completion. This is good news for investors, as there is less risk involved. We are expecting more of this throughout the year.

The bank loan is cheaper if there is proof of a steady employment income ...

 

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October 28, 2008

Buy Completed New Apartments (excerpt)

Instead of off-plan

SLOVAKIA

In Bratislava the value of resale old apartments (the least-sought-after product) went down 20-30%. Of course not everyone advertises at this level yet, however, if someone wants to sell, there is no choice. This applies to the featureless old buildings. This means we have 2006 prices, around 1850 EUR/m2, we are down to more realistic "Budapest levels" in Bratislava.

This price dive does not apply to new off-plan units, however. Developers saw no reason so far to decrease prices, in spite of them being approached daily by aggressive agents and investors looking for 30-50% discounts. They are satisfied with the ongoing sales, there is a strong local demand, and there is no sign of discounts for buyers or commission for agents. Apparently, they are very confident, even those who are just beginning sales and construction is still far ahead. In the meantime we hear of companies which have completely halted construction works for the year. Trustworthy sources report that certain banks have fully canceled developer financing on specified projects, demanding their money back, and are renegotiating terms with others.

HUNGARY

The latest news which rocked the Hungarian market is the massive currency fluctuation. The Hungarian forint weakened from around 230 HUF to the euro back in July to nearly 280 now. Today the mid-rate of the National Bank stands at 271.9 to the euro. GBP is 335.82. This means a 17% devaluation compared to the original value! This is only around 15% in the case of the GBP during the same period.

Hungarian property, which was already the cheapest in the region, suddenly became 17% cheaper. Hungarian products and services are even more affordable now.

To restore the trust of foreign investors in the Hungarian currency, on October 22 the National Bank increased the base interest rate from 8.5% to 11.5%. This stopped the falling currency. We are back in the era of double digit interest rates which characterized the period before and immediately after accession to the European Union.

 

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October 14, 2008

Credit Crunch in the CEE Region (excerpt)

The story is no longer about financing

Andras Patkai visited the ExpoReal Commercial Property Exhibition in Munich last week. Here is a summary of the general mood among property professionals at the exhibition and “back home” in Hungary and Slovakia.

While everyone is talking about the falling markets, the end of leverage, and core markets correcting, which certainly spells a major change in the industry, there are also an increasing number of voices talking about the abundance of exciting new opportunities.

Institutional Investors

Most institutional investors claim to increase their allocations in real estate, after having burnt themselves on the money markets. This means more money for certain developments from funds. For example the insurance giant Allianz will increase its allocation to real estate from 3.5% to 7%. “Only real estate can carry you through the crisis.”

Hungary

This week 2 banks in Hungary (MKB and Volksbank) have announced they will no longer provide Swiss franc-based loans to clients because of the fluctuating exchange rate. There are rumors that CIB, Citibank, Budapest Bank, and Erste Bank will follow suit.

Slovakia

Slovakia says its banks had limited exposure to the high-risk debt that triggered the global financial crisis. However, the small and open economy relies heavily on exports of cars and electronics goods to western Europe where the credit crunch is eroding demand.

 

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September 30, 2008

Cost of land in Hungary and Slovakia (excerpt)

Don't be fooled, supply and demand determine prices

Slovakia

Cost of construction land (EUR/m2 - average) and capital appreciation in Slovakia

Locality	Aug-07	Feb-08	Aug-08
Bratislava I	614	663	764
Bratislava III	187	229	252
Bratislava IV	168	227	223
Kosice I	33	45	54
Kosice IV	44	96	76
Banska Bystrica	44	54	60
Trnava	44	48	63
Zilina	82	36	45

 

The data above shows significant differences in the price of land for construction in different localities in Slovakia. The average price is three times higher in central district Bratislava I (Stare Mesto) than the popular north-eastern district of Bratislava III, incorporating Nove Mesto, Koliba, Raca, and Vajnory. Naturally, the closer we come to the city center, the more expensive land becomes.

Dividing Bratislava merely into Stare Mesto (Old Town) and 4 large districts surrounding it, can be misleading, as there are tremendous differences in pricing among very distinct further divisions within these districts, as shown in the maps below.

Stare Mesto consists of the historical Old City, the diplomat area west of it, and the commercial hub to the east.

Hungary

Cautious lending practices, coupled with the lack of a price bubble, saved Hungary the headaches of the international credit crisis.

District 8 is undergoing massive revitalization, it is best to buy plots in the sections which have not yet emerged from the rubble. One can buy 300-600 m2 plots starting at 200,000 EUR. There are 700-1200 m2 plots with buildings to be demolished on them, on the market for 400,000 - 1 million euros.

Plots (or buildings to be demolished or converted) in central districts 5 and 6 are the most sought-after. Neighboring District 7 has some 600-1000 m2 plots between 830,000 EUR and 1.3 million EUR, but there is also 500 m2 available for 2.7 million EUR. For the same amount over 10,000 m2 can be bought in District 9 to the south, and District 13 to the north is also popular, where 500-900 plots sell for 200,000 EUR upwards to 375,000 EUR.

Hilly Buda and flat Pest

Commuter Belt

Rising plot prices in the commuter belt around Budapest have caught the attention of investors. The fact that a population of over 600,000 people has grown around the capital city in just a few decades is a unique phenomenon in Europe. 50-80% of the residents in these satellite towns commute daily to Budapest. Hungary has the most efficient motorway system in Central Eastern Europe, where the eastern section of the M0 motorway ring has recently been opened, connecting the western and eastern motorways, making it possible to travel around Pest from northern Buda all the way to southern Buda.

The plots in towns and villages around Pest are cheaper, around 40 EUR/m2, where prices are especially rising in the hilly and less polluted north, in particular because of the recent opening of the north-eastern section of the M0 motorway from the airport at Vecses all the way past Fot across the Danube to the Buda side, with access to Szentendre. The new motorway is undoubtedly the major impact in the area, driving residential and commercial prices up. A new family house typically costs 146,000 EUR in this area. Apartments in new-built multi-family buildings sell for 1460 EUR/m2 on average.

 

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September 17, 2008

Are Prices Going Down in Bratislava? (excerpt)

How are prices behaving on the brink of the euro?

It is certainly more difficult to sell property in Bratislava today than at the beginning of the summer. Especially older used apartments. With only 3 and a half months to go until the euro is introduced in Slovakia, buyers are waiting to see what the new currency will bring. There is a widespread belief among the public that prices have been so inflated that they will actually go down. However, the demand which fueled the growth until April-May 2008 is still here, and developers are not bringing prices down. What is more, there are many new residential projects coming up in the capital city, including some mega housing developments in the outskirts which will most likely provide a currently missing cheaper product for the many who would buy in Bratislava, but cannot afford the high inner-city price tags.

Let us look at the numbers.

Average square meter prices for 1-bed apartments in Slovakia BA I, BA II, BA V are the 1st, 2nd, and 5th districts of Bratislava, respectively.
Source: NARKS, CMN

The numbers above give an indication of prices of both new-built and used apartments. What is immediately obvious is that the prices of residential property in the central district of Bratislava are continuing their eminent rise of 14-15% p.a., despite a slight downturn in other parts of the country. One is not surprised when comparing these still very friendly prices to prime areas in other European capitals. It is striking that capital appreciation in BA I has accelerated since February 2008. BA II, with a very large old apartment stock saw a slight decline in the second half of the year, while BA V (Petrzalka), which is practically all panel blocks, has suffered most, prices dipping below 2000 EUR/m2.

How will the collapse of international financial giants affect the Central European property market?

EQUITY

In Central-Eastern Europe the majority of the population owns their home, they do not rent. This is the reason a rental market exists only in big cities. Most working people do not yet have a mortgage. Most homes are paid for, people are sitting on large chunks of equity.

JOBS

As significant parts of the IT service industry and research & developments centers, as well as much manufacturing is  relocated from Western Europe, there are plenty of jobs to "grow into." EU development funds provide the capital for major infrastructural projects. This means a steady increase in the standard of living, which leads to spending, which leads to higher expectations - larger, better, newer homes.

 

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Old Town, Bratislava

Presidential Palace, Bratislava