Dominic Swire in Bratislava -

While many Central and Eastern European countries are bracing themselves for a downturn in their property markets, the boom in Slovakia is undiminished. Membership of the Schengen zone, strengthened ties with Austria and the expected changeover to the euro currency in 2009 have swelled a wave of optimism that continues to be reflected in the real estate sector.

Following years of rising prices, the housing markets across much of CEE are either in or on the verge of a downturn. The most acutely affected are the Baltic nations led by Estonia, which has seen a 10% drop in prices in the capital Tallinn since the start of the year. Poland is in a similar situation: after seeing prices in Warsaw rise 33% in 2006, realtors Mamdom estimate this figure fell 5% on year in the third quarter of 2007. Prices in Hungary are also suffering, mostly as a result of the economic and political chaos that doesn't look like improving anytime soon.

In Slovakia, it's a different story. House prices there have been rocketing and look set to stay high for the foreseeable future. In 2002, the average price of Slovak property was SKK17,832 (€553) per square metre; at the end of last year, this figure had risen 109% to SKK37,306. Growth in Bratislava has been even more spectacular, rising 114% from SKK23,457 per square metre in 2002 to SKK50,188 in 2007, according to figures from the National Bank of Slovakia.

Prices have been pushed so high that some places in Bratislava are now more expensive than neighbouring Vienna, something that was unthinkable just a few years ago. As a result, some enterprising Slovaks have relocated out of Bratislava across the border to nearby villages in Hungary and even Austria because the house prices there are significantly cheaper. "Many people have been investing in Slovak real estate because it's the best possible investment. The real estate sector has been growing 20% per year, so if you invest SKK1m, next year your flat is worth SKK1.2m. It's perfect," says Branislav Huncik, senior manager at PricewaterhouseCoopers in Bratislava.

The speed of this transition can't be overstated. Peter Malik, managing director of Erste Bank subsidiary Immorent, points out that in 2001 the first shopping centre opened in Bratislava and banks were reluctant to finance it. "Now there are three or four and the two biggest ones each have plans to expand by 10,000sqm."

Blava bling

There are a number of factors behind this rapid rise in property prices, including an acute lack of new flats coupled with an increasing number of Slovaks aspiring to move out of the grey, communist-era panelak buildings that still occupy large parts of the city. Henry Hofferk from Bratislava-based property investors CE Invest says Bratislava is still short of some 40,000 apartments.

The city's small size also has the effect of increasing pressure on a relatively small number of prime locations. And many experts claim the arrival of a significant number of speculative foreign investors, especially from Ireland and the UK, who have pushed up prices. However, this still remains anecdotal, as there are no official figures for this.

Bratislava has also been bolstered by increasingly strong ties with the Austrian capital of Vienna, which is now just 30 minutes drive away following the opening of a new stretch of motorway at the end of 2007. The two cities are also connected by a popular high-speed catamaran, and work has begun on rebuilding an old tramline that used to run between the two cities.

It's a love affair that has blossomed only recently as for a long time traditionally conservative Austria was skeptical about increasing ties with its poorer neighbour. For many years Slovakia did not enjoy the best image in Austria partly because of a number of well-publicised car thefts soon after Slovakia entered the EU. Now Austria is one of the biggest investors in Slovakia, pumping $268.2m into the country in 2006 and accounting for 13.8% all foreign investments. Similar figures are expected for 2007.

Unlike so many of its neighbours, the outlook for Slovakia's property market remains positive, mainly due to the anticipated switch to the euro currency in 2009. "High demand will continue for another five years. The rate of increase may fall over the next two years, but not under 10%," reckons Hofferk, who is confident Slovakia will get the nod to change to the euro at the start of next year. "We have already fulfilled all the requirements so there would have to be extraordinary to be denied at this stage."

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