The Slovenia Times

High Prices Despite Low Demand



The prices of flats in Slovenia remain relatively high, especially when it comes to new apartments. Even the Ljubljana Housing Fund has been forced to increase its offer on properties seized by banks as collateral when a number of developers failed to meet their financial obligations. After an initial bid of EUR 1,850 per square metre for two-bed apartments failed to attract any sellers - primarily banks - the fund has now raised its offer to EUR 2,450. This is just one small reflection of the current state of the market.
Prices of new housing in Slovenia edged 0.5 percent higher in the second quarter of 2011, the third consecutive increase despite a lower number of transactions. Compared to the same quarter in 2010, prices were 9.9 percent higher and 11 percent higher than the same period in 2009. Prices of existing flats in Slovenia also increased - by 4.2 percent in the second quarter of 2011 compared to the preceding quarter. The average price per square metre stood at EUR 1,800 in the second quarter of 2011, compared to EUR 1,727 in the preceding quarter.

On the up

The Surveying and Mapping Authority attributes the rise in the average price to an increased share of flat transactions in pricier areas. The increase was most notable in Ljubljana where 30 percent of all flats were sold. Prices for flats remain highest in the coastal region, with an average cost of EUR 2,561 per square metre in the second quarter. Prices in Ljubljana come in second. The average cost of a flat has not changed this year, standing at EUR 2,524 in the second quarter.
In the meantime, house prices in Slovenia went up about five percent in the second quarter of 2011 compared to the previous quarter. The average price for a house was EUR 290,242 in Ljubljana and EUR 251,794 in the coastal region.

Settled market

"The average prices and the number of transactions in the four largest Slovenian cities, where more than half of the flats in Slovenia are sold, are a good indicator of a calm real estate market in Slovenia this year," the Surveying and Mapping Authority argues.
Despite increases in the latest quarter, the prices of flats have settled according to the Authority - they are now about 10 percent lower than before the crisis. However, although prices may not be near the pre-crisis level, they are still on the increase. This despite the fact the number of flats sold went down by more than 50 percent compared to pre-crisis times.

The worst is yet to come

Alexander Picker - chairman of the Slovenian subsidiary of the Austrian Hypo Group Alpe Adria bank, which is strongly present on the Slovenian real estate market - does not see a quick solution. He believes the stagnation is largely a psychological one with buyers waiting for prices to fall and sellers expecting them to increase.
"All players have gotten in too deep," Picker says in an interview with STA. "The banks lent too much and the builders and developers took on excessive debts, all based on the conviction that the level of prices attained could be kept or that they would even grow."

Bubble bubble toil and trouble

The problem is a classic example of a real estate bubble, Picker argues - something which has happened before and which he believes is likely to happen again. He predicts it will take a while for the market to recover and suspects banks cannot do much to alleviate the crunch on the real estate market.
Bojan Ivanc, CFA, senior research analyst at KD Banka, believes things will still get worse before they get better.
"With regards to the current real estate crisis in Slovenia we can imply that worse is yet to come as the real estate market prices are downward sticky," Ivanc says. "The current banking crisis which boosted interest rates on short term deposits only aggravates the situation."
"The collateral of many impaired loans are real estate and that is likely to put some pressure on real estate prices for the following couple of years. A tail risk event [a sudden fall in prices due to forced sales from banks] cannot be excluded although we think that the state might intervene with an establishment of a real estate trust to create a cushion."
Though sellers will certainly be happy to see an upward trend in real estate prices, it appears this is not the best way to get the market moving again.


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