Real estate prices have been rising at the fastest pace since the financial crisis, how are developers responding to this?

Developers are making apartments smaller

From 2000 to 2020, the average living area of a completed apartment decreased by as much as 15.88%. The reason is rising real estate prices, which are becoming increasingly unaffordable for young people. The construction sector has adapted to this trend by reducing apartment sizes. With this strategy, people can still afford to buy a multi-room apartment, but with a smaller floor area than in previous years. For this reason, people who hesitated to buy apartments are now purchasing not only at a higher price, but they are also getting a smaller apartment size.

Real estate prices rose fastest in the Prešov Region

In the last quarter of 2021, residential property prices in the Prešov Region increased at the fastest pace, rising by as much as 10.47% quarter-on-quarter to EUR 1,488 per m². In the Bratislava Region, where property prices have traditionally been the highest in Slovakia, prices increased by 6.60% over the same period to EUR 3,091 per m². By contrast, the cheapest properties are still in the Nitra Region, where prices rose by 4.26% quarter-on-quarter, reaching “only” EUR 1,126 per m². The slowest growth in the monitored period was recorded in the Trenčín Region, where the growth rate was 1.75%, pushing the price per m² to EUR 1,279.

Villas are the most expensive

In Slovakia, villas have been able to maintain high value over the long term, even during the 2008 financial crisis. In that period, most properties corrected in value, but villas managed to hold their value even then. The reason is that most owners of lucrative real estate are not forced to sell in difficult times. After the problems subsided, their prices began to rise again together with other residential properties. The average price of a villa per m² in the fourth quarter was EUR 2,969. By contrast, houses are significantly cheaper, with a price per m² of “only” EUR 1,741. Among apartments, three-room units are the cheapest, priced at EUR 2,369 per m². Interestingly, one-room apartments have the highest price per m², at EUR 2,900.

Residential real estate price growth could slow

At the end of last year, Slovakia had almost the highest number of apartments under construction in its history, as many as 80,000 units. A slightly higher number was under construction before the pandemic, however, during the pandemic demand for apartments increased sharply and most available units were sold. The real estate market today reacts very quickly, as shown by the record number of apartments under construction. The second factor that could help stabilize property prices is a hawkish ECB monetary policy scenario. This could accelerate the slowdown of asset purchases and lead to interest rate increases starting already this year. If this scenario were to materialize, the enormous pressure on the real estate market would gradually begin to ease, since it would result in more expensive mortgage loans.