Dr. Filomena

photo by dr. Filomena; click to enlarge

I still feel exactly the same as I did last year, so I will only post a link to the previous post on this subject:

“Remembrance to me has little to do with actually going to graves, preferably dressing up according to the latest fashion trends and decorating the grave once a year. It is about keeping my loved ones in my thoughts year-round and remembering the times we spent together and what I’ve learned from them. Undoubtedly, one of the lessons that stuck is to enjoy the company of those who are very much alive. Here and now.”

Read the entire post: http://www.drfilomena.com/2007/11/remembrance/

Looking for another draft, I came across this text which I’d written for my employer, GBD Real Estate. Even though I am momentarily not involved with real estate (but still recommend GBD to anyone interested in real estate in Slovenia!) I’ve had several interesting discussions over the past few days.

A large piece of land in an interesting location for a substantial investment was put up for auction by the City of Ljubljana today and despite a significantly reduced price, there were no bidders. None whatsoever. Click here to hear/see the story in Slovenian (courtesy of Radio Kaos). Good location, reasonable price, would have been gone in a heartbeat not too long ago. Has the City made a mistake by offering it for sale too late? Possibly not. The City has made some lucrative deals and holding on to this particular plot of land, though it may lay heavy in the City’s hands and on its books, will not translate to a disaster. The event does, however, reflect the changing situation on the Slovenian real estate market.

I still do not expect any bubbles bursting at the speed and with the sound of the great overseas balloons, but with buyers either convinced that prices will be further slashed or unable to secure loans because of the rising interest rates and/or job insecurity, the times ahead will pose a challenge to investors, builders, sellers, buyers and lenders alike. I would a venture a guess that the only ones sitting pretty are those few whose business consists of quality-service rental properties.

It will be most interesting to see the development by the end of Summer 2009. Even here in Luxembourg, property prices  are on the decline and that’s saying something. Hold on, everyone!

Published on 8 April 2008:

Are they bound to decline?

Lately, clients have been asking for our predictions regarding prices of real estate in Slovenia, particularly in Ljubljana where the growth has been exceeding expectations for years.

Marko Puschner of Slonep reports that the Surveying and Mapping Authority of the Republic of Slovenia will publish its report on the price trends in late May 2008. The report was due in March, but some glitches in data collection occurred.

In view of extensive new development in Ljubljana and surroundings we believe older properties are unlikely continue to appreciate with the same pace and the prices of properties close in the greater Ljubljana area have grown so much over the recent years that the trend is not likely to continue in absence of substantial changes in Slovenian economy.

The growing real estate prices were accompanied by a growing sector of real estate loans which, as an example, grew by 71.5 per cent in 2005. The share of real estate loans in the debt of the Slovenian population with banks increased from one tenth in 2004 to 67 per cent in 2005 alone. (source: Institute of Macroeconomic Analysis and Development of the Republic of Slovenia)

The properties most likely to retain their current value and increase it over time although probably not at the same rate as in the past, are those in the most sought-after locations and high-quality new constructions.

Ljubljana, 12 February. As reported by RTV Slovenije and Delo among other media, an investigation into alleged criminal offences in connection with corruption and public tenders was revealed today as the police paid unannounced early morning visits to companies SCT, Vegrad and Primorje and allegedy temporarily detained 12 persons, including the Chairwoman of the Board of Vegrad Hilda Tovšak, Chairman of the Board of SCT Ivan Zidar and Chairman of the Board of Primorje Dušan Črnigoj. The investigation is said to have begun in 2007 and lasted several months before the wheels were set in motion today.

The public tenders won by the companies in question involve immense funds so any developments in connection with this investigation will be of pivotal interest to Slovenian media. Consequences could be both economic and political as light is shed on any part of the alleged network of corruption.

As predicted at this blog before, prices of real estate in Slovenia, especially Ljubljana, have continued their upward trend.

RTV Slovenija reports that an analysis has shown that the advertised prices of Ljubljana properties have increased by an average of 14.3% in one year. Apartments in the immediate surroundings of the capital have appreciated even further, by an average of 14.7%. As expected, the greatest price increase was marked in the segment of small apartments while the prices of the smallest (studios) and large apartments grew more slowly (their intense upward surge occurred in 2006).

The average advertised price for small apartments has already passed the EUR 3,000/m2 mark, which makes property purchase a growingly elusive goal to many. Quite a number of new apartments are expected to be developed in the next three years, which should help curb the trend somewhat, although it is unikely that the new supply will satisfy the demand.

In Maribor, Slovenia’s second largest town, prices are much lower and it is not uncommon to pay half the price of a comparable property in Ljubljana. In addition, prices have been rising at a much lower rate with one-bedroom apartments appreciating 5.6% since March 2007 and the average advertised prices of apartments from EUR 955 to EUR 1,675 per square metre.

The only area that compares to Ljubljana in terms of real estate prices is the coastal region with some parts of Gorenjska not lagging far behind.

Although I still do not possess a reliable crystal ball, my prediction would be for property prices to keep rising although at a slightly lower rate with properties in the suburbs and in scenic but remote areas picking up. Furthermore, it will be interesting to observe the effect these trends will have on rentals with fewer people buying and more renting.

All in all, the real estate market will be just fine. As long as people’s earnings start picking up the pace with the property value trends.

One of the most frequently asked questions we receive from clients is what is the usual difference between the advertised and actual sale price of real estate in Slovenia.

Based on our experience and limited research done by students in the scope of their undergraduate theses (source), the difference seems to be affected by both the type and location of the property, but most sales are concluded at prices around 6% to 10% lower than originally advertised.

So you’ve decided you’d like to build your own property in Slovenia and are looking to buy a plot to develop. Assuming that you can buy real estate in accordance with Slovenian legislation (in case of doubt, read this), these are the basic steps you’ll be taking once you’ve found a plot to your liking:

• Obtain a land register record for the plot in question
• Obtain the municipality’s certificate of the purpose of the plot and information on the permissible development of the plot
• Obtain a confirmation or decision from the municipality stating its waiver of the right of pre-emption (if it has such a right) or a waiver of the right of pre-emption from any other holders of such right to the plot in question
• Obtain consent for the sale of an undeveloped building plot issued by the competent administrative unit of the Ministry of Defence if such a consent is required
• Sign a sales contract in the form of a notarial record drafted by a notary or drafted by another lawyer with the seller’s signature later certified by a notary
• The seller then has to report the sale to tax authorities that levy the sales tax (required: two copies of the sales contract as one is retained by the tax authorities)
• Tax authorities provide a mony order form for the levied tax
• When the form with the bank’s proof of payment (this tax is paid by the seller) is returned to the tax office, it returns one of the copies of the sales contract with a seal certifying the tax has been paid
• Notarize the seller’s signature on the sales contract
• Prepare a motion for the entry of your ownership right into the land register (done by a notary, lawyer or real estate agent) and supplement with:
  a/ The original sales contract stamped by the tax authorities
  b/ Certificate of the Purpose of the Plot
  c/ Proof of payment of the court fee for the entry of the ownerhip right
• Submit the motion and supplements to the land register at the competent court
• The court issues a decision on the entry of the ownership right into the land register
• Obtain a new land register record for the plot (which will already list you as its owner)

Once the above steps have been taken, you will have full title of the plot and can continue the process by obtaining a building permit.

It is advised to use a competent real estate agent that will guide you through the process and minimize your worries and involvement with paperwork.

In order to sign a sales contract, you will need to first obtain a Slovenian personal registration number and a tax number if you do not have those papers yet. (Again, a good real estate agent will handle that bit of paperwork for you as well.)

Whether you are selling or buying real estate in Slovenia, you might be interested in the issue of the right of pre-emption.

Pre-emptive right (see: right of first refusal: The seller is under an obligation to inform the pre-emptive right holder of an intended sale to a particular person and of the conditions of the intended sale and to offer to him its sale under the same conditions.

I’ve tried to put it as simply and concisely as possible and list the various legal bases of pre-emptive rights in real estate under the Slovenian legislation. In any case, if the pre-emptive right is established contractually and is not statutory, it must be entered into the land register.

Code of Obligations (Obligacijski zakonik)

A pre-emptive right can be statutory (Art. 513) or established with a contract (Art. 507). It cannot be enforced in case of a compulsory public auction, but a holder of the pre-emptive right can request cancellation of such auction if he does not receive a due invitation.

Law of Property Code (Stvarnopravni zakonik) awards pre-emptive right to:

• Any co-owner (Art. 66)
• Other condominium / sectional title holders if there are two or more owners and fewer than six individual parts (Art. 124)

Click here for an explanation of condominium owner (sectional title holder)

Housing Act (Stanovanjski zakon)

• A Lessee/holder of a right of occupancy with a lease contract for an indefinite period has a pre-emptive right to the apartment if such right is not exercised by its co-owner.

(Next in line are the sectional tile holders under the Law of Property Code, the Municipality under the Spatial Planning Act and the The Housing Fund of the Republic of Slovenia – if the apartment was built by the Fund and is sold in less than 5 years from original purchase.)

Agricultural Land Act (Zakon o kmetijskih zemljiščih)

If purchasing agricultural land, forest or farm and other laws do not provide otherwise, the following order or precedence applies (Art.23):

1. Co-owner;
2. A farmer who owns property bordering on the land being sold;
3. The tenant of the and being sold;
4. Another farmer;
5. Agricultural organisation or a sole proprietor who require the land or farm for the purpose of an agricultural or forestry activity;
6. The Farmland and Forest Fund of the Republic of Slovenia

If none of the holders of the pre-emptive right exercises his right of pre-emption, the seller can sell agricultural land to any other person.

Spatial Planning Act (Zakon o urejanju prostora)

• Municipality (Art. 85) – in all populated areas decreed as areas in which the municipality has a pre-emptive right and in the areas of existing and planned infrastructure network and facilities beyond populated areas

However, the municipality cannot exercise its pre-emptive right in the case of a sale or gift to a spouse, a lineal relative, adopter or adoptee or in case of a sale to the state or a state-founded legal person of public law, a provider of state public service or an infrastructure investor under Article 91.

So, if you are buying real estate in Slovenia, you may want to know whether another person (natural or legal) holds a statutory (based on laws and regulations) or contractual (check the land register record) right of pre-emption to the property in question.

If you are selling your property, you will need to offer it to any pre-emptive right holders before the transaction with the interested person can go through.

There are two types of ownership when it comes to multiple-unit buildings:

• Condominium (sectional title, etažna lastnina);
• Ideal share (idealni delež).

Condominium implies ownership of an individual part of the building and co-ownership of common areas where:

• An individual part of the building must be an individual functional unit fit for standalone use, e.g. an apartment or office (other, separate facilities can belong to such an individual part, e.g. a shed or a garage); and
• Common areas are other parts of the building intended for joint use by the sectional title holders and the land on which the building stands, or even other real estate.

Ideal share: If condominium/sectional title is not established, the owners of the various parts of the multiple-unit building are entered in the land register as owners of a(n ideal) share of the entire property.

As long as the ideal share refers to (and is defined as such in the sales contract) a physically separate area (e.g. an apartment, ground floor of a house, etc.), it is a title equal to condominium. You can, for example, mortgage the property, although banks much prefer condominium.

One of the differences is in that in case of ideal-share property, the owners of other ideal shares (co-owners of sorts) have the right of pre-emption. Example: If you own an apartment that is not entered in the land register as condominium and would like to sell it, you have to first offer it for sale to all other owners in the building and cannot sell it to a third party under more favourable conditions than waived by the other (co)owners.

One of the houses included in the new public records
(sold in 2007 by GBD Nepremičnine d.d. / GBD Real Estate)

As of Wednesday, 21 November 2007, the Surveying and Mapping Authority of the Republic of Slovenia (GURS) is allowing limited public access to the Real Estate Market Records. This allows the public to monitor the actual sales prices of real estate in Slovenia for the first time.

The real estate market records have been established as a joint effort by the Ministry of the Environment and Spatial Planning and the Ministry of Finance within the scope of the national project of development a mass real estate appraisal system.

Centrally managed public records will allow long-term systematic monitoring of real estate price trends, equal access to information for all active and potential real estate market players and market transparency.

The real estate market records will be used primarily for the purpose of:

• mass real estate appraisal;
• national statistics and real estate market analyses and research;
• supplying information to the public.

The central database of real estate market records was established on 1 January 2007 and as of 15 November 2007 includes data on approximately 39,000 legal transactions in the area of real estate.

The records are accessible through the GURS portal. The public part of the records can be found at http://prostor.gov.si/jv_etn/index.jsp

GURS will publish six-monthly reports on the development of real estate prices in Slovenia, which will allow the public to monitor property market trends. The first such report is expected to be ready and presented to the media by the end of the first quarter of 2008.

Houses Sold in Slovenia in 2005 and 2006 (Source: GURS)

Long for a Ljubljanica riverfront property? You might need to borrow some money 😉

In the previous post on the subject of real estate in Slovenia we arrived at the question of: How does one handle all the local and imported real estate fuel and finances the purchase of real estate in Slovenia?

Ideally, you have money readily available and pay in cash you pull from under your personal or corporate pillow. This is the so-called “own financing” option. If you’re a mortal like Dr. Fil, however, several types of loans are available to you.

On the Slovenian financial market, you can choose between regular loans secured by insurance, guarantor or the property itself (mortgage), financial products that combine loans with life insurance or investment in mutual funds, or so-called lease-loans (hire-purchase).

Loans:

Financial houses offer three main types of housing loans differing with regard to the collateral for the loan:

• housing loan (stanovanjsko posojilo) secured at an insurance company, with a term of repayment of no longer than 15 years (suitable for smaller loans, approved quickly). In case of default, the bank assigns the loan to the insurance company. If taking out this type of a loan, you may want to consider taking out a life insurance policy as well, which will cover the debt repayment in case of the borrower’s death and the debt will not be transferred to his or her heirs;
• real estate loan (nepremičninsko posojilo) secured by guarantors. The conditions are similar to those above;
• mortgage loans (posojilo, zavarovano s hipoteko); these loans usually allow the longest repayment terms up to 30 years (although some financial houses already offer the same periods for “leasing” loans), depending on the age of the borrower. Usually, the interest rates for mortgages are lower than in other types of loans. The rate will depend on the borrower’s creditworthiness (and negotiation skills). In addition to the principal and interest, this loan comes with the added expense of loan approval, attorney, notary and entering the lien into the land register. In case of default, if all else fails, the court seizes the property, auctions it off and uses the proceeds to pay the bank’s claim.

Combined financial products, for example:

• a combination of a loan and life insurance (repayment term up to 20 years) with the borrower paying only the interests on the monthly basis, which allows the bank to approve a higher amount as the monthly instalments are smaller. In addition, the client pays a monthly life insurance premium. In the end, the principal is paid from the investment life insurance sum or – in case of death – from the life insurance falling due;
• a combination of a housing loan and an investment in a mutual fund. This package is suitable for those with a high income who already own their homes, but would like to go into rental. The borrower pays the interests every month and pay the principal with the yields of the mutual funds. The borrower bears the risk of the mutual fund yields failing to meet the projected results and not sufficing for repayment of the loan.

Lease-loans:

Leasing is a contractual relationship between the lease-loan lender and lease-loan borrower (the buyer, i.e. you). The lender allows you to use the subject of the lease (in this case an apartment or house etc.) for an agreed term and surrenders so-called ‘economic ownership’ of the property in return for which the borrower pays monthly instalments for the agreed term of the lease. When the last instalment is paid, full title is transferred from the lender to the borrower and as of that moment the property is no longer owned by the bank or financial house but by yourself.

Since the lease-loan means that the financial house acquires ownership of the property, the additional security required is usually considerably lower than in case of taking out other loans described above. Financial houses can therefore require much smaller down payments (usually 20 to 30 per cent) on average than in case of other loans. Furthermore, when natural persons (rather than a legal entity) are concerned, the bank considers not only salary, but all types of income in determining one’s creditworthiness. This does come at a cost of a usually higher interest rate, but enables you to buy property even with minimal liquid assets. If the borrower can prove the ability to pay the instalments and can use another property or guarantors as security, the financing can go up as high as 100% of the property value.

Useful links:

• Banks in Slovenia
• Credit institutions of EEA countries in Slovenia

In the next post in this series, we will look into the expenses and taxes related to the purchase or sale of real estate in Slovenia. Unfortunately, Slovenian politicians have not yet been overheard saying “read my lips” but dr. Fil will let you read hers 😉