Determinants influencing the current real estate market in the Slovak Republic
Authors: Daniela Spirkova, Julius Golej, Monika Zatrochova
Abstract: Increasing mortgage loan prices, interest rates, the decline in the attractiveness of investment housing, inflation, and the energy crisis are the determinants that significantly affect real estate, especially the residential market. Currently, in December 2022, the European Central Bank (ECB) has raised key interest rates by 50 basis points and is expected to raise them further. According to the ECB's latest forecasts, the average inflation rate will reach 8.4% this year and fall to 6.3% in 2023. In the following years, the ECB expects inflation to average 3.4% in 2024 and 2.3% in 2025. Thus, current developments bring turbulence to the property market, but radical changes in the residential property market cannot be expected. In the past, investment properties accounted for up to half of all transactions in the real estate market in Slovakia. Those intended for rent are suffering under the impact of sharp price increases, as several analyses have shown. Another interesting fact is the payback period for such an investment. For example, in the centre of Slovakia's capital Bratislava, the return on a one-room flat has been extended by more than four years to 30.5 years from January to June 2022. Bratislava has thus overtaken Warsaw (27.3 years) and Budapest (30.1 years). The reason for the extension of the investment payback period when buying an apartment was the increase in prices, but this was no longer matched by the increase in rents, which were lagging behind. Therefore, current development is bringing shocks to the real estate market not only in Slovakia. The authors assume that home ownership may be affordable in the future only for a limited income group, especially in large cities. Due to the energy crisis, and increasing interest rates on housing loans, there will be a group of people who will not be able to repay their mortgage and will have to change from owner-occupied housing to rental housing. The aforementioned real estate market situation with an emphasis on residential housing is an unexplored topic in the current international literature. This paper focuses on the economic and behavioural aspects that are related to the issue of the residential real estate market, as well as the negative consequences of the energy crisis combined with the increase in interest rates, inflation, etc. In their research, the authors analyze and interpret relevant aspects of the behavioural aspects of the residential real estate market with a significant impact on the price development, sustainability, and affordability of residential real estate due to the negative turbulence on a global scale. The partial results will be presented in the paper.
Keywords: real estate prices, inflation, residential market, mortgage, energy crisis, rental housing, interest rates
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