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Armand Faganel

Key words: real estate market, European Union, Slovenia, accession ABSTRACT Slovenian real estate market made an important progress in recent decade, after the independence, gained in 1992. The privatization that took part in 90's, contributed to the fact that over 90% of Slovenians live in their own dwellings. Prices of real estate property are already on European Union level. There are still some unsolved issues like real estate property tax implementation and the question of former Italian property in Istria. We tried to investigate, what was happening on the Slovenian real estate market in the last year, on the demand and supply side, after the accession of Slovenia to the European Union. We are also presenting trends, that are dominating the European real estate market and predicting possible future development on this area.


We are presenting some statistics about the situation on the real estate market in Slovenia: residence status in Slovenia, extremely high percentage of privately owned property, progressive number of unnocupied dwellings, the trends of constructing new dwellings, average prices of dwellings on Slovenian market. We also discuss the real estate policy after the privatization that followed the independence of Slovenia and present the marginalization and discrimination of the rental sector. There is some increase on the demand side for the lower priced real estate in previously neglected regions of Slovenia, because of their remoteness from the civic centres. In Dolenjska region, the prices increased for 10 % in last year, better road connections are one of the reasons, search for good investments is another, a small amount of the foreign demand is also beginning slowly to appear (Pust 2005). Housing policy is one of the areas, on which there was very little done in the past in Slovenia. These results in high prices of real estate are one of the reasons that dissuade young Slovenians to form a family (Cirman and Polanec 2005). The Central Eastern European real estate market is just developing, having previously existed only in rougher form prior to 1990. Year 2004 brought a dose of uncertainty to Slovenian real estate market too. One reason was the enthusiasm and great expectations about a nearby accession to the EU and wondering what will it bring to the market, and 66

another one the release of the first housing savings scheme in July 2004, which should make possible to all the participants to get long-term loans for housing with an interest rate subsidy and an loan-to-value ratio up to 50%. All this contributed to higher prices of real estate in Slovenia, as they would be normally. Some facts about Slovenia: 1,996,773 inhabitants; political stability; reform-oriented economic policy; highest per capita income in Central and Eastern Europe; due to relatively small domestic market, main demand stimulus comes from the export sector; in medium term we expect an annual growth of 3.5 to 4 % on the back of a more dynamic EU economy; privatization of large enterprises has begun; restructuring of small and medium sized firms complete; economy dominated by service sector, which generates 60 % of GDP. After the January 2004 issue of International survey of risk and payment capability IRPR (Dun & Bradstreet), Slovenia remains with the rate of DB2C the less risky country for business in region; structure of land register not yet finalized; recently, individuals and legal persons from EU countries can acquire real estate with few restrictions. Proof of a three-year domicile in Slovenia is no longer required and the principle of reciprocity has no more to be complied with. In last year, 500 real estate were sold to foreigners in Slovenia, mostly Italians on coastal region and mainly apartments (STA 2005). Only 13 years ago, Slovenia was the richest republic in the Yugoslav federation. Now it is the most prosperous among the newly accessed European Union members. The GDP (PPS) in year 2004 is over 22.000 USD (77% of EU-25), growth in GDP in 2003: 2.5%. Slovenia has reduced its annual rate of inflation from 10.9 percent in 2000 to 4.6 percent in 2003. The sector of real estate according to added value did +14.7% in 2001. After the independence, the state made possible to all residents in state dwellings to buy them at a very convenient discount: two rooms flat could be bought from 5,00025,000 Euro. On June 10th, 1996 Slovenia applied for the accession to the European Union. The signing of the Europe Association Agreement with Slovenia was held back by Italy, which refused to approve the agreement with Slovenia. The reason for this was a problem, not yet resolved, of the restitution of real estate property claimed by Italians, who left the territory of Istria (in current Slovenia) after the II World War. In December 1995 the Spanish presidency of the EU formulated a compromise, which established the possibility for foreigners to gain the access to real estate property in Slovenia. With the acceptance of the so-called “Spanish compromise”, Slovenia allowed EU citizens to contribute to the real estate market if they were residents for at least three years and a reciprocity rule was set in place. Slovenia obtained a safeguard clause for the restriction of the purchase of real estate from the EEA States until 01.05.2011. The new Italian government started a new round of discussions with Slovenia in 1996. The Italian government headed by Premier Prodi accepted the formulation, which avoids the mention of Italian national rights to property in Slovenia directly. Italy declared, just before the signing of the European Agreement, that the problem relating to the restitution of compensation of former Italian property in Istria is not yet resolved, but that it is now only a bilateral matter. 67



Table 1 Dwellings by useful floor space and type of settlement, censuses 1991 and 2002 Useful floor space sq. metres Total Proportions (%) under 18 18-34 35-44 45-59 60-74 75-89 90-109 110-129 130+ Total 1991 683,137 100.0 1.1 10.4 11.3 20.4 23.0 12.3 12.6 4.7 4.2

2002 777,772 100.0 0.4 7.8 9.2 17.7 22.5 14.2 14.9 6.3 7.1

Source: Statistical office of the Republic of Slovenia 2002

From Table 1 we can see the trend that profiled in Slovenian real estate market in the last decade, the dwellings are becoming more comfortable, smaller dwellings under 18 sq. metres are disappearing and the share of the luxurious dwellings over 130 sq. metres almost doubled. Tables 2 and 3 are displaying, that there is a prevailing share of one dwelling houses, this is probably a result of the traditional relation and attitude to the property in Slovenia. Table 2 Dwellings by number of rooms, censuses 1991 and 2002 Dwellings by number of rooms Together Proportions (%) Separate rooms Bed site and one room Two rooms Three rooms Four rooms Five rooms and more
Source: Statistical office of the Republic of Slovenia 2002

Total 1991 683,137 100.0 1.0 16.5 33.7 28.7 12.8 7.3

2002 777,772 100.0 0.2 14.1 31.8 30.8 14.5 8.7


Larger flats are becoming a standard in Slovenia, three and more rooms are no more exceptions, but the prevailing type is still a two rooms flat, and they are easier to sell, too. Table 3 Number and useful floor space of dwellings, census 2002 Type of building Dwellings useful floor space 777,772 58.031,187 100.0 100.0 46.7 54.8 18.6 18.9 34.7 26.3

Total Proportions (%) one dwelling house two dwelling house three or more

Source: Statistical office of the Republic of Slovenia 2002

Extremely high is the percentage of privately owned property, correlated to the previously mentioned tradition in Slovenia, which is also the case in Hungary and prior Yugoslav republics. Average amount for gathering, preparation and to communal fit out the property in central Slovenia is about 240 Euro/sq.metre. This sum reflects high land prices (on the best locations in Ljubljana exceeding 500 Euro/sq.metre). Reserves for cutting the prices can be sought in lowering the land price and expenses for its communal equipment. To expand the offer of built-up areas, it would be very helpful to introduce real estate tax (Cirman and Polanec 2005). Table 4 Number and useful floor space of dwellings by ownership, census 2002 Total Dwellings Useful floor space 777,772 58,031,187 Ownership of dwellings Private persons Public sector Other 92.40% 6.30% 1.30% 94.70% 4.30% 1.10%

Source: Statistical office of the Republic of Slovenia 2002

New category in Slovenia, comparing to the census 1991 are flat users. They represent 9 % share and capture households in parental or relatives flats, which were classified as owners before. So, Slovenians seem to esteem the property more then Swedes do, for example with 39 % share or Germans and Austrians with 41 and 50 % share of ownership. In the Table 5 we can see, that the number of unoccupied flats rise dramatically in the last decade, as a result of the privatization after the independence in 1991, when the share of rental flats decreased from 32 % in 1991 to 12 % in 1993, and following this the average number of persons living in dwelling fall down to 2.9. Additional reason for this could be also that the number of singles is growing and that people use to marry in the mid 30-ies, like all over Europe.


Table 5 Dwellings according to 1971-2002 censuses 1971 1981 477,273 607,682 96.6 93.3 2.1 3.1 1.3 3.6 56.5 15.5 3.7 63.2 19.3 3.3 1991 683,137 91.6 3.9 4.5 67.3 22.0 3.1 2002 777,772 85.5 10.1 4.4 74.6 26.3 2.9

Total dwellings Occupied (%) Unoccupied (%) For occasional use (%) Average floor space (sq. metre) Aver. floor space per person (sq. metre) Average number of persons in dwelling

Source: Statistical office of the Republic of Slovenia 2002

In 2002, 19,007 dwellings were under construction in Slovenia, of those not even 38% were completed by the end of the year. Average useful floor area of dwelling completed in 2002 was 113.50 square metres and 70% of completed dwellings have three or more rooms. The share of completed dwellings construction of which was financed by legal persons was 26%, which is the greatest share in the past five years. At the end of 2002, 11,742 dwellings were still under construction, which is the fewest in the past five years. As in the previous years, in 2002, the housing fund increased too, mostly due to new construction, since only 4% of dwellings were obtained by conversion – improvement (Vujasin 2004). Figure 1 Number of completed dwellings by types of investor

Number of completed dwellings by types of investor 1997- 2002
8000 7000 6000 5000 4000 3000 2000 1000 0 1997 1998 1999 2000 2001 2002

private person legal person

Source: Vujasin 2004




We made a research on the prices of dwellings, that could be found on the Slovenian market in January 2004, on some of the real estate agencies web sites:,, and on the biggest small announcements web site The study includes 300 dwellings in all, 100 of 1 room dwellings, 100 of 2 room and 100 of 3 and more room dwellings. There were 15 % of new constructions, the others were old ones. Table 6 Prices (Euro) of dwellings on sale in different regions of Slovenia in 2004 Ljubljana-centre Ljubljana-surround. Coastal region Other areas 1 room dwelling 2 room dwelling 3,4 room dwelling
Source: web sites above

1200-2500 1400-3000 1500-2400

1200-2350 1200-2500 1450-2000

1350-3100 1300-2600 840-2500

400-1300 400-900 530-950

We shouldn’t forget that these average prices can be deceptive, as there exist no equal real estate. Every singular real estate has different characteristics that match exclusive comparison of already sold property and to the potential buyers, which in a certain time period are seeking to buy a real estate. There are several factors that determine the formation of price: first one and the most important is without any doubt the location, then infrastructure, age of the building, the settlement and maintenance of building, singular unit, occupants structure, density of settlement, mortgages, some payment peculiarities. The buyers are ready to pay significant sums for an exclusive site of the real estate (with balcony or terrace in the first line by sea and with sea sight, capital centre or few other prime locations). The main demand for the coastal region is shown from the Slovenian capital Ljubljana and other Slovenian towns; they are asking for smaller flats and apartments around 40 sq. metres, for holiday purpose. Last year some interest was noted from foreign legal and private person. With the privatization of the state dwellings the real estate policy marginalized the rental sector and with the absence of corresponding support measures for its new development and revitalization created conditions, when renting does not represent a true alternative. Rental sector consists from crumbled private sector with high profit rents on one side and security net of nonprofit and social flats on other side. With long waiting lists and restrictive terms for gaining those flats, the pressure on private sector is considerable. In great deal we can say, that high attraction of ownership versus renting is mostly created by the real estate policy, which happens to discriminate the renting sector, and the clue question for the households is not the dilemma buy-rent but when can we become owners. Households with lower incomes can answer to this question with difficulty and with increasing number of these households due to the growing prices of real estates and the highest proportion of flat prices and incomes among the transition countries the only possible answer on long run is that the extremely high rate of owned flats is untenable (Cirman 2004).


Market rent in Slovenia is at the moment 7% of the market value of the flat a year (1300-1400 Euro/sq.metre). Nonprofit rents are at 4.68% constructing value of the nonprofit flat (in Ljubljana 840 Euro/sq.metre) (Vukovic 2003). The rents in the capital of Slovenia vary from 125 Euro for single room to 550 Euro for average 3BR properties. The rents for residential purposes did not change during the 90´s for the most expensive segments of the market. They changed very moderately for the lower and middle segments +20 Euro for a single room, +50 Euro for a small studio, +30 Euro for 1BR and +15 Euro for 2 BR properties. However, the top prices in Ljubljana range from 3500 to 4000 Euro/sq.metre, but there is low offer of used luxury housings (Kuplenk in Maček 2005). The rents for commercial and office purposes in the 90’s followed the general pattern of fluctuation observed in the office selling market. The rents varied between 5 and 20 Euro/sq.metre and in the beginning of the 2004 are staying in average at 15 Euro/sq.metre. The prices of the residential and commercial properties in other regions of the country could attain the level set by the capital (e.g. in Gorenjska region) or could reach as low as 30 percent of the prices in Ljubljana (e.g. in Pomurska region). The rents for the residential purposes at the coastal region can be even a little higher than in the capital of Ljubljana. Here you can buy 1BR for 1390-2200 Euro/sq.metre, 2BR for 1130-1450 Euro/sq.metre and 3BR and more for 1030-1330 Euro/sq.metre. One of the reasons for the lack of new buildings is the shortage of building terrains. And because of the high prices of the terrain (up to 400 Euro/sq.metre), investors mainly decide to reconstruct (adaptation in hole) old buildings. Prices for smaller reconstructed unites reach 15302000 Euro/sq.metre, bigger 1280-1430 Euro/sq.metre. On the coastal region, there is the biggest demand after small unites in low-etage buildings, 30-40 sq.metres, with balcony – roughly 55.000 Euro. In 2003, the average net income of Slovene was 700 Euro, average price of newly made housing was 1112 Euro/sq.metre. For a typical two rooms dwelling of 4 members family, a couple with average income has to work almost five years. Comparing with other transition countries, the proportion between average dwelling price and average income in Slovenia is the highest, our capital city can easily face the Berlin or Brussels about the dwellings prices (Cirman and Polanec 2005). The almost stable residential real estate market can partly be explained by the high level of state regulation and the state social policy of providing cheaper credit. For young families under 35 y.o., there are special credit programmes with a floating annual interest rate +3% above the main interest rate. For a limited number of home credit applicants the interest could go as low as +2.25 above the main interest rate. The repayment terms are most often set between 10 and 20 years (Mitropolitski 2000). Every real estate in Republic of Slovenia is registered in the Cadastre of Real Estate. Should any investor intend to purchase property in Slovenia, it is recommended to obtain a relevant extract from the Cadastre, which comprises details of the owner and any encumbrances tied to the property such as mortgages and easements (if any). It is also recommended to obtain a statement on the price of the real estate produced by a 72

court appointed expert which statement also provides information relating to the technical condition of the real estates. The Real Estate Registration Modernization Project aims to improve the efficiency and effectiveness of real estate administration in Slovenia. There are eight main components. The land and building cadastre prepares maps, improves cadastral maps, installs computer linkages to the land registry, and sets up a building register. The land register component removes backlogs in land registry offices, assists in computerization of the register, installs computer linkages to the cadastre, and improves registration procedures. The apartment registration development designs and tests an apartment registration system including several pilot projects. The fourth completes development of a land use monitoring system for European Union’s Common Agricultural Programme (EU CAP) in support of Slovenia’s accession to EU. The fifth component develops a real estate property tax and valuation system and tests in two municipalities. The sixth component improves the legal framework for housing finance, including mortgage system reform. The seventh component improves the legal framework for property ownership and registration. The eighth component coordinates the project, and develops an information technology/information management strategy and a cost recovery strategy. Real estate tax is still to be implemented in Slovenia in year 2005. Today we have two types of tributes on real estate: tax on the citizens’ property and the compensation for the usage of building lot. They are collected unsystematically and there exist big variations, as the criteria are not completed and the municipalities have too much independence. A person could have more real estates and was renting them, without paying anything to the state. Cadastre should be the basis to determine the ownership, but right now they have up to three years in arrears. Real estate tax wont solve all the troubles on the real estate market in Slovenia. But other countries experience shows, that proper height of tax could be an additional stimulation for activating the market, as it forces real estate owners to rationalize the governance of the property. So we can expect a gradual increase of unoccupied real estates on the market, through sale, exchange or rent. This tax will be charged annually, based on the market value of the real estate as computed by the special valuation rules (depending on location, age, size). In EU there are different tax degrees: Austria 0.5-2%, Italy 0.4-0.7%, Germany 0.35% (municipalities can increase it up to 500%), Netherlands fix 1.5, 2.5 and 3.5% etc. The real estate market arguably has a more direct impact on people’s lives and the development of the economy than many other aspects of financial sector. Some of the most obvious areas that are hindered by the lack of a fully functioning real estate market are (Smith 2003): • Labour mobility. Without being able to move and redistribute labour, areas of high unemployment and over employment take much longer to resolve and the economy stagnates. This also influences government policies. • Pension’s life insurance. The pensions, life insurance and other long-term savings markets are closely linked to ownership of property. Not only are these financial services encouraged when there is a well developed real estate market, but the very existence of such a market provides pension


funds with an alternative to investing in very narrow, often illiquid, equity markets and so reduces the risks but enhance the returns. Housing stock. Privately owned (as opposed to state-owned) property is seen to be an investment and as such is normally better maintained. In addition, the money spent on maintenance/improvement stimulates the local economy.

Slovenia being a small country does not have a problem with labour mobility, also with the highway construction program running, it will be possible to come from capital Ljubljana to the most remote village in 90 minutes maximum. This is already reflecting on the real estate prices also, areas in more remote parts of Slovenia experience a big push upwards.

4. CONCLUSIONS The introduction of Euro has already begun to influence very positively the European business climate and has accelerated the process of corporate mergers and acquisitions. These acquisitions have bigger impacts on the real estate markets in smaller European countries, because these transactions mean very often that offices are changing the tenants. The bigger these tenants are, the more likely their presence on the real estate market will push the rents up. The continuing process of internal liberalization of the financial services within the EU also means that more and more big players will dispute the prime office spaces while the builders are trying to catch up with the sudden influx of affluent clients. Public mentality has changed in Europe in the recent years. Now the financial considerations are the top priority for the most newly created households when deciding to rent or to buy a property. This is a real revolution in societies where owners were always considered to be superior class. Even more important is the fact that this revolution wasn't imported, it grew up from within Europe itself. To buy a house is the same as to buy shares or to put your savings into gold. In accordance with what happened in Austria and other countries after the accession to the EU and to the interest shown after real estate market release in Slovenia, we witnessed, that there was no drastic turnover on the real estate market in Slovenia after the May 1st, 2004. Real estate prices are already on the European level, especially on the most interesting areas in Ljubljana, Gorenjska and coastal region. The terrain for new housings is lacking, but there are a lot of unoccupied buildings (10.1%) and second residences (4.4%), that will cover up the possible increase of demand on the real estate market. Buying a second residence isn’t considered to be investments at all. It's a sign of prestige to have a villa for your summer vacation, a symbol of noblesse so to say. The only positive thing you can expect in financial terms out if this is to resell your villa to someone else on a higher price. It may happen but almost nobody thinks about this when buying or building the second residence. As the real estate market in Slovenia is relatively small (Slovenes represent less then 0.4% of population in EU) the interest of big companies to relocate their business to 74

Slovenia isn’t very likely to increase. The interest from private persons in last year has shown to be only informative and very little of it concluded with the contract. The economical situation in Europe isn’t blossoming at the moment and Europeans are not ready to buy a property and then wait a year or more to have their property right written in cadastre. An interesting phenomenon appeared in UK, so called "jet-to-let generation" is seeking for purchase of real estate outside of UK, but in the reach of onetwo hours by plane. The report says that the new breed of first-time buyers, dubbed the "jet-to-let generation", will spend an average of 145,000 Euro to buy abroad - nearly 116,000 Euro less than the average house price in Britain, and figures recently released by Halifax back this up. These showed that property prices in nine out of 10 UK towns are out of reach of first-time buyers, whose average age has now reached 34. Almost 50 per cent of 18 to 29 year olds are planning to buy a property abroad, according to a survey by the pollsters, YouGov, and two-thirds of those expected their foreign purchase to be their first foothold on the property ladder (Wilson 2005). We can conclude that the real estate market in Republic of Slovenia, after all the property legislation is being harmonized, is going to be a part of European real estate market and it´s going to share its destiny. On long term, prices will be leveled all over the Europe, investors are probably going to invest carefully and they will be looking for good locations and once more, good locations…

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