Slovenia´s housing market has had the fastest annual house price growth in the EU during the year to third quarter of 2018, extending three previous years of real price rises. But the strong rises seem to be stretching people´s capacity to buy, and during the latest quarter there has been a decline in prices in Ljubljana, a significant decline in the prices of new apartments, and a big decline in transactions.
Slovenia´s nationwide house price index rose by 15.1% (13% inflation-adjusted) during the year to Q3 2018, based on figures from the Statistical Office of the Republic of Slovenia. Its nearest rivals were Netherlands (up by 10.2% y-o-y), and Ireland (up by 9.1% y-o-y), according to Eurostat. In comparison, house prices across the EU increased on average by 4.3% y-o-y during the same period.
On a quarterly basis, house prices in Slovenia were up 1.9% (2.3% inflation-adjusted) in Q3 2018, according to the Statistical Office of the Republic of Slovenia.
- In Ljubljana, Slovenia´s capital, the house price index for existing flats rose by 8.9% (6.9% inflation-adjusted) during the year to Q3 2018. On a quarterly basis, house prices fell by 1.8% (-1.5% inflation-adjusted) in Q3 2018.
- In the rest of Slovenia, the prices of existing flats increased by 10.6% y-o-y (8.6% inflation-adjusted) in Q3 2018. On a quarterly basis, the price index went up by 2% (2.3% inflation-adjusted) in Q3 2018.
In contrast to the surging house prices, transactions have declined. In the third quarter of 2018, the number of dwelling transactions plunged by 17.2% to 2,014 units from the same period last year, according to the Statistical Office of the Republic of Slovenia. Most of the decline was observed in newly built dwellings, with transactions plunging by more than half (58.3%) from the previous year. Transactions of existing dwellings also dropped, but at a slower rate of 14.5%.
The decline could be attributed to a lack of supply despite strong demand, since according to a study by the Ljubljana Faculty of Social Sciences and the Institute of Spatial and Housing Policies, apartment construction in Ljubljana has been significantly slower than the capital´s population growth. During the period 2008 to 2017, the number of apartments increased by only 3,300 units, way below the rise in the number of residents - about 15,500. The study estimated there would be an apartment shortage in Ljubljana of around 16,000 units by 2025.
However affordability may be a large part of the reason for the drop in transactions. Average house prices have accelerated between 2011 and 2017 at a faster pace (up by 26%) than wages (up by 5%). Despite interest rates being been low and falling, lending for house purchases rose by only 4.4% to €6.24 billion (US$ 7.16 billion) during the year to December 2018, according to the country’s central bank, the Bank of Slovenia - less than the increase in house prices.
Supply is trying to catch up. In 2018, the total number of dwelling permits issued for residential buildings increased by 2.8% to 2,788 units, according to the Statistical Office of the Republic of Slovenia. The floor space of dwellings authorized also rose by 10.9% to 775,237 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.
Prices are up for old and new properties
Existing dwellings are currently rising in value faster than newly-built dwellings:
- The existing dwellings price index surged by 15.3% (13.1% inflation-adjusted) during the year to Q3 2018, and was up by 4.1% (4.5% inflation-adjusted) during the latest quarter.
- The existing flats price index rose by 9.9% y-o-y (7.9% inflation-adjusted), and was up by 0.5% (0.8% inflation-adjusted) during the latest quarter.
- The existing family houses price index rose by 26.3% y-o-y (24% inflation-adjusted), and was up by 11.4% (11.8% inflation-adjusted) during the latest quarter.
The value of newly-built dwellings rose by only 10% (7.9% inflation-adjusted), largely because the price of newly-built flats plunged during the latest quarter:
- The newly built flats price index increased by 10.1% during the year ending in Q3 2018 (8% inflation-adjusted). However during the latest quarter (q-o-q) the index dropped by almost 19% (-18.7% inflation-adjusted).
- The newly built family houses price index was up by 9.4% y-o-y during the year ending in Q3 2018 (7.3% inflation-adjusted). But during the latest quarter prices slightly fell by 1.5% (-1.1% inflation-adjusted).
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). However, prices plunged again in 2012, which continued until 2014. House prices started to recover in 2015, and had been on a rising trend since then.
Nominal and Inflation-adjusted House Price Change in Slovenia
|Source: Statistical Office of the Republic of Slovenia|
Dwelling transactions are down
In the third quarter of 2018, the total number of dwelling transactions sharply fell by 17.2% to 2,014 units from the same period last year, according to the Statistical Office of the Republic of Slovenia.
- Newly-built dwelling transactions sharply dropped by 58.3% during the year to Q3 2018. Transactions of newly-built flats declined by 67.2% y-o-y, while it fell by around 15.4% for newly built family houses.
- Existing dwelling transaction also plunged by 14.5% y-o-y in Q3 2018. Transactions of existing flats, which account for 70% of the total, fell by 14.8% y-o-y. Existing family house transactions also declined by 13.7% y-o-y.
Low housing loan rates
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. The ECB key rate has been zero from March 2016.
Average housing loan interest rates in Slovenia in November 2018:
- Floating and IRF of up to 1 year: 1.88%, down from 1.99% in November 2017
- IRF over 1 and up to 5 years: 3%, down from 3.31% in November 2017
- IRF over 5 years and up to 10 years: 2.71%, up from 2.51% in November 2017
- IRF over 10 years: 2.97%, slightly up from 2.94% in November 2017
Small mortgage market
Slovenia´s mortgage market is still small, although it has significantly expanded from 2.9% of GDP in 2004 to around 13.9% of GDP in 2017. It has been held back by structural problems - the underdeveloped 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 5.5% in 2017. Likewise, the total outstanding housing loans also rose by 4.5% in 2017, after growing by an annual average of 22% from 2008 to 2010, and 2.9% from 2011 to 2016.
The loan-to-value (LTV) ratio for new housing loans averaged around 60% in 2017, unchanged from the previous year.
In December 2018, total lending for house purchases rose by 4.4% to €6.24 billion (US$ 7.16 billion) from the same period last year, based on the figures from the Bank of Slovenia.
- Loans for house purchases denominated in domestic currency rose by 5.6% to €5.85 billion (US$ 6.71 billion) during the year to December 2018.
- Loans for house purchases denominated in foreign currency declined by 10.9% to €385 million (US$ 442 million) during the year to December 2018.
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.
Rental yields are moderate to good
Apartments in Ljubljana have moderate to good rental yields, based on the Global Property Guide research in September 2018.
In the centre of Ljubljana, the gross rental yield for apartments i.e., the gross return on investment in an apartment if fully rented out, range from 4.69% to 5.08%, with smaller apartments having higher yields.
In Ljubljana´s city centre, a 50-sq. m. apartment can be rented at around €771 (US$ 884) per month, while a bigger 120-sq. m. apartment has an average monthly rent of around €1,716 (US$ 1,968).
The real estate portal Nepremicnine´s figures suggest that gross rental yields of houses in Ljubljana City may be higher, at 7.8% - and 10.5% for houses in the city´s surrounding areas.
Slovenia´s robust economic growth continues
Slovenia´s economy is growing strongly, and in 2017 recorded a ten-year growth high of 5%, according to Statistical Office of the Republic of Slovenia, with robust increases in exports (up by 10.6%), gross capital formation (up by 8.4%), and domestic demand (up by 4%).
This robust economic expansion continued during the first three quarters of 2018. In Q3 2018, the country´s GDP expanded by around 4.5% y-o-y as domestic demand continued to increase at a solid pace.
In the last four years, the economy grew by 5% in 2017, 3.1% in 2016, 2.3% in 2015, and 3% in 2014. The economy was expected to have grown by 4.2% in 2018.
Slovenia´s economic outlook remains positive, with the central bank predicting 3.9% growth in 2019 and 3.4% growth in 2020.
The government achieved a budget surplus of 0.1% in 2017, according to the European Commission, after deficit of 1.9% of GDP in 2016. The budget surplus is expected to be around 0.5% of GDP in 2018, according to Finance Minister Andrej Bertoncelj.
Gross public debt is falling, projected to be at 70.3% of GDP in 2018, down from 78.7% of GDP in 2016, and is expected to fall further to 66.6% of GDP in 2019.
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 stood at 1.4% in December 2018, down from 1.8% during the same period last year, according to the Statistical Office of the Republic of Slovenia.
Unemployment was 5% in Q3 2018, Slovenia´s lowest unemployment rate since 2008, according to Statistical Office of the Republic of Slovenia - down from 6.3% a year earlier.
- Slovenia reports the EU´s fastest rise in house prices in 3Q18 (bne IntelliNews): http://www.intellinews.com/slovenia-reports-the-eu-s-fastest-rise-in-house-prices-in-3q18-154989/
- Housing price statistics - house price index (Eurostat): https://ec.europa.eu/eurostat/statistics-explained/index.php/Housing_price_statistics_-_house_price_index
- Apartments in Ljubljana Increasingly Unaffordable (Total Slovenia News): https://www.total-slovenia-news.com/lifestyle/2427-apartments-in-ljubljana-increasingly-unaffordable
- EMF Hypostat 2018 (European Mortgage Federation): https://hypo.org/emf/publications/hypostat/hypostat-2018/
- GDP up by 6.0% in the fourth quarter of 2017 and by 5.0% in 2017 (Statistical Office of the Republic of Slovenia): https://www.stat.si/statweb/en/News/Index/7266
- GDP in the second quarter of 2018 up by 4.8% over the third quarter of 2017 (Statistical Office of the Republic of Slovenia): https://www.stat.si/StatWeb/en/News/Index/7802
- Eurostat confirmed: Government surplus in 2017 the same as published in September (0.1% of GDP) (Statistical Office of the Republic of Slovenia): https://www.stat.si/StatWeb/en/News/Index/7741
- UPDATE 1 - Slovenia´s GDP grows by 5.0% in 2017 - table (SeeNews): https://seenews.com/news/update-1-slovenias-gdp-grows-by-50-in-2017-table-603382
- Slovenia: GDP growth in 2017 shoots up to a ten-year high (FocusEconomics): https://www.focus-economics.com/countries/slovenia/news/gdp/gdp-growth-in-2017-shoots-up-to-a-ten-year-high
- Slovenia: Economy gains traction in the third quarter (FocusEconomics): https://www.focus-economics.com/countries/slovenia/news/gdp/economy-gains-traction-in-the-third-quarter
- Slovenia: Inflation recedes in December (FocusEconomics): https://www.focus-economics.com/countries/slovenia/news/inflation/inflation-recedes-in-december
- The ILO unemployment rate in the third quarter of 2018 even lower, 5.0% (Statistical Office of the Republic of Slovenia): https://www.stat.si/StatWeb/en/news/Index/7707
- Moody´s upgrades Slovenia´s government bond ratings to Baa1, assigns stable outlook (Moody´s Investors Service): https://www.moodys.com/research/Moodys-upgrades-Slovenias-government-bond-ratings-to-Baa1-assigns-stable--PR_371559
- Slovenia sees 2018 budget surplus of 0.5pc of GDP (Business Recorder): https://www.brecorder.com/2018/10/19/447232/slovenia-sees-2018-budget-surplus-of-0-5pc-of-gdp/