“I remember the times when one-bedroom apartments cost 50 to 70 thousand euros. Today a parking space costs as much,” says the real estate analyst. Apartment prices in Bratislava are constantly rising. It could easily be said that apartments in Bratislava will never be cheaper, which is both bad and good. A real estate bubble to be burst is not yet a reality. Herrys partner, Filip Žoldák, in an interview for Refresher explained why construction is focusing on ever smaller apartments, why developers are not to be blamed for the rising prices on their own, and he also revealed how the downtown Metropolis project in the real estate agency’s portfolio is doing.
Recently on social media I saw a funny summary of the Bratislava’s real estate market in 2022: 3-room apartments with an area of that of 2 rooms are being sold at prices of 4-room apartments. How much truth is in that?
It is absolutely true. This is caused by demand exceeding supply, which is based on the still very good availability of financing. The availability of housing in Bratislava is historically the best in comparison with other countries. Here, we have the third most affordable housing in the whole of Europe. Throughout the year, the markets were trending ever growing prices in search of a ceiling.
Which, though, has not been reached yet…
Precisely. For the time being, the prices are going up. In order for developers to be able to provide affordable housing, they must reduce the size of apartments. Where a two-room apartment from before 1989 had 60 square metres, today it is 50 square metres, and it will be built even smaller. In new buildings, these spaces have a standard floor space of 42 to 44 square metres. I remember the times when one-bedroom apartments cost 50 to 70 thousand euros. Today a parking space costs as much.
Does the reduction in floor space apply to all locations in Bratislava?
The availability of housing for all target groups in terms of the final selling price is the alpha and omega of the whole process. When costs are rising and availability is stagnant, i.e. The payments do not grow in proportion, the floor space must go down. In the framework of projects there are some exceptions to be found, such as penthouses on the highest floors, but in principle this is the rule. Most of what is being built has already been sold. Everyone is endeavouring to buy at the best price possible, meaning that they want to be at the beginning of the project’s sale.
According to the IUR data, only 1 957 housing units received binding approval in Bratislava in 2020 (which is 1 000 less than the apartments approved for use in the same period). Does it feel as if there was a shortage of apartments in the market?
When you are looking for a new housing today, you are very limited. In total, you have four or five projects that are offered as most promoted and are targeted by the entire market. Then there are the remaining projects, where the last 10 percent of unsold apartments remain at the highest possible prices. The offer is very limited, and this is reflected in the fact that prices continue to rise.
Can the supply of apartments improve significantly in the near future? When we look at the downtown, it looks like there is a construction boom in Bratislava.
The Statistical Office has not released data for last year yet, so I cannot say for sure. It looks like that in Bratislava, construction is going on. But most of what is being built has already been sold. Everyone is endeavouring to buy at the best price possible, meaning that they want to be at the beginning of the project’s sale. With Metropolis, which we are currently selling, we still have not got above ground level and we have sold more than half of the apartments.
Is it a lot for such a project?
It’s extraordinarily a lot. Despite this, we raised prices eleven times over the past year.
How much more did the project cost in the end result?
I assume that today it is more than 50 percent for certain categories of apartments since the start of the sale, which was in November 2020.
Do you still have people wanting to buy…?
Sales are gradually slowing down. With a falling offer, this is normal, but we still have more than two years to realistically complete the building. We still have time.
You also bought an investment apartment in Metropolis. What convinced you to do this?
We considered several aspects, but the location and the technological and material standard of the project prevailed. Mlynské nivy is a very promising location in terms of price growth. Today, four-room apartments are in a price range that most people cannot afford.
Are premium housing prices moving differently from other residential property prices in terms of growth dynamics?
The demand of conservative investors focuses on these, let’s call them, premium locations, and projects. The dynamics of prices is thus different. As with Metropolis, prices there in general rise faster because supply is very limited.
If the offer does not improve, and adding other factors such as inflation and building material prices, how far do you think the price per square metre can grow? Will this year’s increase be as dramatic as that from the last year?
It’s an old tune, but no one has a crystal ball. Someone has said that it will be a 10- to 15-percent increase, so we are all repeating this formula now. Our assumption that the growth will not be so high is based on the fact that we come against availability. Today, four-room apartments are in a price range that most people cannot afford.
Are we heading for a real estate bubble that could burst?
The National Bank has taken measures that should alleviate the inflation of the real estate bubble. We are in a completely different situation than we were in 2008, even though people may perceive this situation as on the verge. The market is still promising for most developers. Even those who were not involved in the construction of residences have already begun to change their minds.
Does inflation motivate people to buy property quickly? When inflation rises, it is advantageous to be a borrower.
Yes, but we’ve observing this trend for some time now, people have been worried about inflation already last year. All the investment purchases we experienced last year were for sure partly based on this motivation. The market is still promising for most developers. Even those who were not involved in the construction of residences have already begun to change their minds. One such case is HB Reavis, who is going to build in the Chalupkova zone. For example, but also other developers. This is, naturally, an interesting business and there are enough apartments still being prepared. Slow permit procedures mean that projects do not come all at once, but on the other hand that is also beneficial. This could cause a supply shock.
What is a supply shock?
A supply shock would mean that at a single moment the offer is several times higher than demand for example.
Is it even possible for the supply shock to occur in the current real estate situation in Bratislava?
Do you anticipate that the conditions for obtaining a mortgage will be tightened or that mortgages will become more expensive?
It is very unclear at the moment. For a while we thought that mortgages would not become more expensive this year, then we came to the conclusion that this could happen. But it’s unlikely to be as drastic as everyone fears. The situation in our country will not copy that of the Czech Republic. The European Central Bank does not want to take up an equally substantial increase in interest rates. More expensive mortgages in our country have already been announced by the first banks, as we can see in the media.
Let’s look at what’s happened in the Czech Republic.
The Czech National Bank has raised the interest rate to more than four percent. Mortgages there cost about 5 percent today. With high sales prices for apartments, especially in Prague, developers are rightly worried about whether housing will still be affordable.
Bratislava is now launching rental housing projects. Can this fundamentally affect the behaviour of those interested in buying an apartment by deciding to wait for rental housing and postpone the purchase?
In terms of the number of rental apartments announced, I don’t think this will have any dramatic effect. Looking at the commercial rental market today, there are 4 000 to 5 000 apartments on offer and circulating.
As part of the construction of rental housing, the city has established and is planning more cooperation with developers, where the zoning plan will also be changed in selected locations. Could that help?
I hope that this will be the case and that the situation will improve. However, we cannot say for sure yet. Today, land intended for purely residential construction represents less than 5 percent. All other spaces have some sort of complication, for example, that developers must build mostly civic amenities there. When the change in the cooperation between the city and the developers occurs quickly, it will most definitely help a lot. The longer a project is being built, the lower the potential margin of the developer, as your financing costs increase.
What could or had to happen in the market for prices to start falling?
I say that when prices fall, this is not a good situation. Those who wanted to buy postpone their decision and wait until prices drop even more, and those who already own property, logically do not like the state of things. In my opinion, for this to happen today, there would have to be war also in Slovakia. For now, developers have no reason to go down with prices; rather the rising costs make them to increase the prices.
So, the rising prices is not the whim of will of “bad developers” ...
No. It is all the result of a situation. Imagine you have 70 percent of apartments sold in a project that is now in the middle of its construction. The contractor comes to see you and tells you that either you accept the new prices, else he leaves the construction site. And you have no choice, because you can’t pay him from the income you have gained so far. Moreover, you have borrowed money from the bank. You are forced to attach a higher price tag on the apartments.
What is the approximate margin in the development business?
With a return on own resources, we are talking about a level of around 10 to 13 percent. The longer a project is being built, the lower the potential margin, as your financing costs increase.
Rising prices can please those who bought the property as an investment. Is it worth investing in real estate even now?
Housing is, in my opinion, the best investment. It can combine own consumption with investment. In terms of centuries of development, which we can observe in other countries, the price of real estate is constantly rising. Even in terms of mortgages, the price of an apartment will always grow.
Where and how big an apartment is it worth buying now?
We are now witnessing a large outflow of people interested in their own housing from the category of 4- to 5-room apartments. The most category most in demand are 2- and 3-room apartments. Today, two-room apartments make up almost half of the entire offer. It is assumed that in the short term, the prices of those apartments fewest in the number will grow. 1-room, 1.5-room, 3-room.
So, for example, is it worth buying two 1.5-room apartments rather than one 4-room apartment?
What should be considered before deciding to invest in real estate?
Whether you are able to invest the necessary amount of money in it, whether it is sellable, rentable and whether you can rent it at least for a rent that can pay your mortgage, something that is not a matter of course in Bratislava.
Author: Editorial REFRESHER, Veronika Szűcs Rajničová
* The interview was prepared before the conflict in Ukraine.