THE REAL ESTATE MARKET AND

SLOVENIA’S EU ACCESSION
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.

1. INTRODUCTION

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

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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 5,000-
25,000 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.

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2. SOME STATISTICS ABOUT THE RESIDENCE STATUS IN SLOVENIA

Table 1 Dwellings by useful floor space and type of settlement, censuses 1991 and
2002

Useful floor space Total

sq. metres 1991 2002
Total 683,137 777,772
Proportions (%) 100.0 100.0
under 18 1.1 0.4
18-34 10.4 7.8
35-44 11.3 9.2
45-59 20.4 17.7
60-74 23.0 22.5
75-89 12.3 14.2
90-109 12.6 14.9
110-129 4.7 6.3
130+ 4.2 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 Total

of rooms 1991 2002
Together 683,137 777,772
Proportions (%) 100.0 100.0
Separate rooms 1.0 0.2
Bed site and one room 16.5 14.1
Two rooms 33.7 31.8
Three rooms 28.7 30.8
Four rooms 12.8 14.5
Five rooms and more 7.3 8.7

Source: Statistical office of the Republic of Slovenia 2002

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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
Total 777,772 58.031,187
Proportions (%) 100.0 100.0
one dwelling house 46.7 54.8
two dwelling house 18.6 18.9
three or more 34.7 26.3
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 Ownership of dwellings

Private persons Public sector Other
Dwellings 777,772 92.40% 6.30% 1.30%
Useful floor space 58,031,187 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.

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 Table 5 Dwellings according to 1971-2002 censuses

1971 1981 1991 2002

Total dwellings 477,273 607,682 683,137 777,772
Occupied (%) 96.6 93.3 91.6 85.5
Unoccupied (%) 2.1 3.1 3.9 10.1
For occasional use (%) 1.3 3.6 4.5 4.4

Average floor space (sq. metre) 56.5 63.2 67.3 74.6

Aver. floor space per person (sq. metre) 15.5 19.3 22.0 26.3
Average number of persons in dwelling 3.7 3.3 3.1 2.9

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
private person
4000
legal person
3000
2000
1000
0
1997 1998 1999 2000 2001 2002

Source: Vujasin 2004

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3. SITUATION ON THE REAL ESTATE MARKET IN SLOVENIA

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:
www.nepremicnine.net/, www.nepremicnine.si21.com/, www.obala-realestate.com/
and on the biggest small announcements web site www.salomon.si/oglasnik/. 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 1200-2500 1200-2350 1350-3100 400-1300
2 room dwelling 1400-3000 1200-2500 1300-2600 400-900
3,4 room dwelling 1500-2400 1450-2000 840-2500 530-950

Source: web sites above

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).

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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 1530-
2000 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

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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

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 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

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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 one-
two 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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Cirman, A. (2004), Slovenske sanje: lastno stanovanje, Delo. Sobotna priloga, 3.1.2004, 20.

Cirman A. and Polanec S. (2005), Kdo navija cene stanovanj, Finance, 19.4.2005, 8-9.

Maček, Florjan (2005), Za kvadratni meter do 3500 evrov, Delo, 8.4.2005, 6.

Mitropolitski, S. (2000), Slovenian real estate market, http://www.ired.com/news/mkt/slovenia.htm html

document (10.04.2005).

Pust, B. (2005), Nepremičninski trg: V minulem letu so cene zrasle za desetino, Finance, 20.4.2005, 22.

Smith, K. (2003), “The Banker”. Constructing a housing market,

http://www.findarticles.com/cf_dls/n3259/923_152/97448878/p1/article/jhtml html document (10.04.2005).

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http://www.stat.si/eng/novice_poglej.asp?ID=131, html document (13.10.2004).

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www.salomon.si/oglasnik/

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