Slovenia's housing market rising
January 22, 2018
The nationwide price of dwellings rose by 8.34% (6.85% inflation-adjusted) during the year to Q2 2017, based on the figures from the Statistical Office of the Republic of Slovenia. On a quarterly basis, house prices were up by 4.26% (2.9% inflation-adjusted) in Q2 2017.
- In Ljubljana, Slovenia’s capital, the house price index for existing flats increased by 12.83% (11.27% inflation-adjusted) during the year to Q2 2017. During the latest quarter, house prices rose 3.7% (2.35% inflation-adjusted) from the previous quarter.
- In the rest of Slovenia, the prices of existing flats rose by 5.75% y-o-y (4.3% inflation-adjusted) in Q2 2017. During the latest quarter (Q2) the price index rose by 2.57% (1.24% inflation-adjusted).
While the number of dwelling transactions increased by 2.8% to 2,867 units in Q2 2017, this recent figure is a significant slowdown from Q2 2016's 24.29% y-o-y rise in the number of transactions, according to the Statistical Office of the Republic of Slovenia, due to a sharp decline in transactions of newly built dwellings, which plunged by around 60% y-o-y. In contrast, transactions of existing dwellings rose by 9.67%.
Lending for house purchases rose by 4.54% to €5.94 billion (US$ 7.01 billion) during the year to October 2017, according to the Bank of Slovenia, the country's central bank.
Due to a stock overhang, during the first ten months of 2017, the number of dwelling permits issued for residential buildings fell by 4.4% to 2,098 units, based on the figures from the Statistical Office of the Republic of Slovenia. The floor space of dwellings authorized also shrank by 4% to 536,369 square metres (sq. m.) during the same period.
Foreigners have been able to buy property since February 2003, on a reciprocal basis. Reciprocity is a principle verified by the Ministry of Justice (MoJ) on the basis of the Law on Reciprocity (Official Gazette No 9/99). Then following accession to the EU in 2004, EU citizens may now buy properties in Slovenia without restrictions.
Price rises for old and new properties
Prices of existing dwellings have risen robustly since the beginning of 2017:
- The existing flats price index rose by 8.6% y-o-y (7.1% inflation-adjusted) in Q2 2017. On a quarterly basis, the index also rose by 3.04% (1.7% inflation-adjusted) in Q2 2017.
- The existing family houses price index rose by 5.82% y-o-y (4.37% inflation-adjusted) in Q2 2017. Prices also went up by 4.17% (2.82% inflation-adjusted) from the previous quarter in Q2 2017.
Newly built dwellings had even sharper price rises in Q2 2017, despite a sharp decline in the number of transactions, mainly due to soaring prices of flats sold in Ljubljana.
- The newly built flats price index rose sharply by 15.93% (14.33% inflation-adjusted) during the year to Q2 2017. During the latest quarter, prices rose by 11.32% q-o-q (9.87% inflation-adjusted) in Q2 2017.
- The newly built family houses price index, on the other hand, fell by 4.89% y-o-y (-6.20% inflation-adjusted) in Q2 2017. While the index slightly rose by 0.11% from the previous quarter, it is still down by 1.19% when adjusted for inflation.
After booming in early-2000s, Slovenia’s property market weakened in 2008 due to the global economic crisis. The following years were difficult. House prices fell by 0.16% in 2008 (-3.4% inflation-adjusted), by 8.12% in 2009 (-9.14% inflation-adjusted), and by another 0.15% in 2010 (-1.8% inflation-adjusted).
In 2011, house prices bounced back, increasing by 1.37% (-1.07 inflation-adjusted), but slumped in 2012 with prices falling 8.83% (-11.12% inflation-adjusted). House prices fell in 2013 by 4.38% (-5.42% inflation-adjusted) and by another 4.39% (-4.3% inflation-adjusted) in 2014. In 2015, the housing market started to stabilize, with house prices rising slightly by 0.1% from a year earlier (0.64 inflation-adjusted). The housing market recovered in 2016, with house prices rising by 6.89% (6.27% inflation-adjusted).
More transactions for existing dwellings
The number of dwellings transacted increased 2.8% to 2,867 units during the year to Q2 2017, according to the Statistical Office of the Republic of Slovenia.
- Newly-built dwelling transactions fell by 60% y-o-y in Q2 2017, mainly because of a sharp drop in transactions of newly-built flats, which shrank by 68.7% y-o-y. In contrast, transactions of newly built family houses went up by 13.79% y-o-y.
- Existing dwelling transactions rose by 9.67% during the year to Q2 2017. Existing flats transactions, which accounted for 70% of the total, rose 9.61% y-o-y. Existing family house transactions rose 9.82% y-o-y.
Housing loan interest rates remain low
The ECB key rate has been zero from March 2016, due to the eurozone's low inflation, lacklustre economic growth, and rising unemployment.
Since the ECB started to trim the repo rate in 2012, interest rates for housing loans have been generally falling in Slovenia, particularly the floating rate.
Average housing loan interest rates in Slovenia in October 2017:
- Floating and IRF of up to 1 year: 2.01%, up from 1.98% in October 2016
- IRF over 1 and up to 5 years: 2.88%, down from 3.36% in October 2016
- IRF over 5 years and up to 10 years: 2.64%, slightly lower than 2.68% in October 2016
- IRF over 10 years: 2.91%, up from 2.57% in October 2016
Small mortgage market
Slovenia's mortgage market, although still small, has significantly expanded from 2.9% of GDP in 2004 to around 14.1% of GDP in 2016. It has been held back by structural problems - the underdevelopment of the land registration system, weak foreclosure procedures, and other problems of the legal environment, according to the Finance Ministry´s Matej More.
New housing loans rose by 19.5% in 2016. However, total outstanding housing loans increased by only 3.5% in 2016, after growing by an annual average of 22% from 2008 to 2010, and 2.7% from 2011 to 2015.
Banks have slightly relaxed their credit standards and terms on housing loans. The loan-to-value (LTV) ratio for new housing loans averaged 60% in 2016, up from 56.3% in the previous year. Housing loans with LTVs of more than 70% accounted for almost a third of the total value of new housing loans in 2015.
In October 2017, total lending for house purchases increased by 4.5% to €5.94 billion (US$ 6.99 billion) from the same period last year, based on the figures from the Bank of Slovenia.
- Loans for house purchases denominated in domestic currency sharply rose by 7.4% to €5.50 billion (US$ 6.47 billion) during the year to October 2017.
- Loans for house purchases denominated in foreign currency fell by 21.3% to €447 million (US$ 526 million) during the year to October 2017.
Slovenia’s banking sector is dominated by state-owned banks which control more than 40% of the market, while France’s Societe Generale, Italy’s Unicredit, and a number of Austrian banks are also present in the market.
Moderate to good rental yields
Gross rental yields on apartments in Ljubljana are moderate to good, based on the Global Property Guide research in July 2017.
Gross apartment yields in the city centre of Ljubljana, i.e., the gross return on investment in an apartment if fully rented out, range from 4.56% to 5.13%.
The real estate portal Nepremicnine estimates that in Ljubljana City apartments have an average yield of 5.84%, while houses have a higher yield of 7.78%. Rental yields in the surrounding areas of Ljubljana are much higher, recording an average of 7.08% for apartments and 10.51% for houses.
In Ljubljana's city centre, a 50-sq. m. apartment can be rented at around €612 (US$ 720) per month, while a bigger 120-sq. m. apartment has an average monthly rent of around €1,499 (US$ 1,765).
Apartments in Ljubljana City can be rented at €11.28 (US$ 13) per sq. m. per month, while around €9.28 (US$ 11) per sq. m. per month for houses. In Ljubljana's surroundings, apartments have monthly rents of €8.66 (US$ 10) per sq. m. and €9.03 (US$ 11) per sq. m. for houses.
Slovenia's economic outlook remains positive in 2017 and 2018
Slovenia's economic growth continued in 2016, with its GDP rising by 3.1%, according to Statistical Office of the Republic of Slovenia. Last year's growth was attributed to more private and government consumption, posting annual increases of 4.2% and 2.5%, respectively. In contrast, gross investments fell by 0.1% y-o-y in 2016, after three years of growth.
The economy performed even better in the first three quarters of 2017. In the third quarter of 2017, Slovenia's GDP rose by 4.5% y-o-y, thanks to the faster increase in exports resulting in a record high external trade surplus of 11.6% of GDP.
After growth of 4.2% annually during the good years from 2000 to 2008, the economy contracted by 7.8% in 2009. The economy slightly recovered in 2010 and 2011, with GDP growth rates of 1.2% and 0.6%, respectively. However, in 2012 the economy shrank 2.7%, followed by another 1.1% economic contraction in 2013.
In the last three years, the economy grew by 3.1% in 2016, 2.3% in 2015, and 3% in 2014. Slovenia's economy is expected to expand by 3.5% in 2017 and by 3.1% in 2018, according to its central bank.
Slovenia's government managed to reduce its budget deficit to 1.9% of GDP in 2016 from 2.9% of GDP in the previous year. The budget deficit is expected to shrink further to 0.8% of GDP this year, and to zero in 2018. From 78.5% of GDP in 2016, gross public debt is also predicted to decline to 76.4% of GDP in 2017, and 74.1% of GDP in 2018, according to the European Commission.
Because of these better deficit and debt metrics:
- Moody's upgraded Slovenia's credit rating in September 2017 from Baa3 to Baa1.
- Standard & Poor’s upgraded the country's credit rating in June 2017 from A to A+.
- Fitch upgraded the country’s credit rating in September 2016 from BBB+ to A.
Inflation was up by 1.2% in November 2017, an improvement from a 0.6% inflation rate recorded in the same period last year, according to the Statistical Office of the Republic of Slovenia.
Unemployment was 6.3% in the third quarter of 2017, down from 7.3% in Q3 2016, according to Statistical Office of the Republic of Slovenia.
- Slovenia’s housing market recovering, amidst surging demand - November 08, 2016
- Unhappy Ljubljana, Slovenia - April 10, 2014