Fewer Deals, Higher Prices. The Current Situation on the Slovenian Real Estate Market
November 16, 2020
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After the first easing introduced at the end of April 2020, the Slovenian real estate market has revived. And even though there were fewer deals than before the pandemic, demand still exceeds supply. That allows to keep average prices at a high level. Read about the situation on the market in the language of numbers in our material.
2020: Sales Fell, Prices Rose
About 10,800 transactions in the first six months of 2020 were registered in the Slovenian real estate market totaling €770 million. Compared to the same period last year, both figures are lower by 40% and 45%, respectively. However, it should be taken into account that 2019 was a record year for many indicators, including due to the large number of transactions with commercial real estate, according to the Surveying and Mapping Authority of the Republic of Slovenia (GURS).
In 2020, almost 70% of the turnover is contracts concluded from January to July in the Slovenian housing market. In quantitative terms it is 5,452 transactions. At the same time, if the purchase and sale agreements in the secondary market were signed by 35% less than in the first half of 2019, the drop in the primary market was 70%.
By July 2020, the number of purchase and sale agreements with commercial real estate also decreased by 41% (1,186 transactions in 2019 against 697 in 2020), as well as with land plots by 45% (9,063 transactions against 4,954) compared to the same period in 2019.
Meanwhile, Slovenian property prices continued to rise. This is especially true for properties on the secondary market: +7% compared to the six months of 2019 and +10.3% compared to the same period in 2018. As a result, by mid-2020, the average cost per square meter in Slovenia exceeded a record €1,900.
Do not forget that the Slovenian real estate market is growing in prices for a while now. Prices have been rising steadily since 2015. At that time, the average price per square meter was €1,450. The largest increase, according to the GURS, was recorded in 2018. That year, housing added 9% in value compared to 2017 (up to €1,760 per sq. m). In 2019, growth continued, but at a slightly slower pace. As a result, prices have increased by almost 30% since 2015 (in real terms by 15-20%) and in 2019 reached a record figure of €1,850 per square meter.
The capital region is traditionally the most popular among investors. It is an economic, political and cultural center. This means that the demand for real estate here is stable, and its liquidity and prices are higher than the national average. In 2020, the capital has added more values.
So, the share of Ljubljana in the total number of transactions in the country during the study period increased from the "usual" 25% to almost 30%. The cost per square meter reached €2,910 (+4.5% compared to the first half of 2019).
Average price per square meter in different regions of Slovenia, €
The highest demand in the secondary market was for one-or two-bedroom apartments with an area of 50 to 64 square meters, mainly in houses built in the 1970s that do not require large investments in renovation.
The study conducted by the GURS shows: at the moment, the Slovenian real estate market is stable. Despite a two-month downtime, prices rose and activity declined less sharply than might have been expected under the circumstances. Mainly due to transactions concluded before the epidemic was declared, and the rapid recovery of the real estate market after the lifting of quarantine measures. But another suspension of operations with facilities due to a new wave of the epidemic will almost certainly lead to a deep and prolonged crisis.
Interestingly, a similar phenomenon of a decrease in the number of transactions and an increase in the value of real estate was observed in 2008. However, that year the decline was sharper than it is now, and the growth in the cost per square meter, according to GURS experts, was supported by transactions for the purchase and sale of better and more expensive properties, prices for which do not fall due to market inertia.
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Victoria Savchenko, the Director of Foreign Investment at Future Real Estate:
From February to August, the market was paralyzed. In the period of announced quarantine, which lasted for two months, visits were banned, notaries and banks did not work. But even after the tipping point associated with the spread of the virus was passed, for a long time the borders of not only Slovenia, but also many other countries remained closed. Plus, local banks have slowed down the pace of mortgage issuance, which is a key factor for buyers in the Slovenian market.
Together, these reasons affected the timing of transactions (the process was delayed) and their number (it became smaller). However, a strong drawdown did not occur, as accumulated demand was formed, mainly from the local population.
Even taking into account the downtime, our company negotiated, signed contracts with tenants, conducted inspections and transactions with customers in the first half of the year at the same pace as in 2019. The most active buyers were the Slovenes and the Austrians.
By the way, applications were also received during the quarantine period, however, they moved online.
Properties on the secondary market were in high demand from January to July, as new housing is quickly sold out at the construction stage. The demand of commercial premises is also growing: retail space with tenants such as a grocery store, banks, pharmacyies, insurance companies. There were significantly fewer requests for office space and hotels. And many times more for housing away from big cities, in the mountains or by the lake, starting from €90,000.
If you look at the demand in the regional context, the most popular were the capital and its surroundings, as well as cities closer to the borders of Austria and Italy.
We expect that in the near future the demand for real estate from the local population will increase. Why? There are several reasons.
First, Slovenian banks have introduced negative rates for saving funds above €500,000 for individuals and legal entities. That is, now 0.5% of the amount will need to be given to the bank annually. This is a good motivation for Slovenes and companies to invest in local square meters. Especially for those who have something to invest. For example, in Slovenia, there are more than 5 thousand individuals who have more than €1 million in their local bank accounts. Such data is provided by the publication 24ur.com with reference to data from the country's Financial Administration.
At the same time, Slovenes save more income than the EU average over several years. Thus, according to the authorities and the Central Bank of the country, the average family in Slovenia saves 13.3% of their salary every month, in Estonia it is 13.5%, and, for example, in Austria – 13.7%. In other words, the level of capital on the accounts of these countries is similar. This means that the local population has the opportunity to invest, and after 2020 this interest in buying properties will increase. In our opinion, the most popular properties in the coming year will be commercial, retail and residential real estate that brings passive income.
Second, banks continue to provide financing on favorable terms. The rate today is 2.5-3.0% per annum.
Finally, Pfizer released a vaccine. In January 2021, Slovenians will be vaccinated for free. And according to the most positive forecasts, the pandemic will end by the end of February.
