STA, 31 December 2021 – Housing prices have risen rapidly since the March market recovery with growing demand backed by low interest rates and the availability of credit. The Surveying and Mapping Authority (GURS) says that the growth of prices will not slow down until the supply of new housing exceeds demand.
Residential real estate prices rose sharply this year, rising by 12.9% year on year in the third quarter, according to the statistical office.
Compared to the end of last year, in the first half of this year the prices of second-hand flats in multi-apartment buildings increased by around 8%. This is the highest six-month price growth since the housing market crisis in 2008, according to the SORS’s report on the Slovenian real estate market.
Record growth was driven by housing prices in multi-apartment buildings in the largest cities, with the exception of Ljubljana. In Koper, Kranj, Celje and Maribor, prices jumped by 10-12%.
In Ljubljana, which remains the most expensive city, prices rose by 6 percent in the first half of this year and set new records: the average price of a second-hand apartment in Ljubljana was 3,250 euros per square meter.
The acceleration of the growth of residential real estate prices is also reflected in the indicators of the overestimation of residential real estate prices, the Bank of Slovenia wrote in a report on banks’ operations for December.
“Most overvaluation indicators already reflect around 10% overvaluation of real estate prices compared to the dynamics of other macroeconomic indicators,” the central bank said.
Although nominal prices have already surpassed the 2008 peak, real prices are still lagging around 10 percentage points.
The rapid rise in prices was driven by strong demand, supported by low interest rates, quickly available loans and a limited supply of new construction, GURS reports.
They added that low interest rates encourage both the purchase of real estate for own use and investment purchases.
The rise in prices is also increasingly influenced by the rise in land prices and, indirectly, by the rise in construction costs due to the global rise in prices for transport and construction materials.
In the first half of 2021, the SORS recorded 20% more sales of land for housing construction than in the second half of last year and 90% more than in the first half of last year.
“Accelerated growth in demand for land for housing construction indicates a strong demand for the construction of housing for resale on the market and the construction of family houses for their own use,” they explained.
The number of land transactions for the construction of residential houses in the first half of the year even exceeded the number of sales of residential houses themselves.
The central bank also notes that loans to households have strengthened since the first quarter of this year, with year-on-year growth in housing loans reaching 8.1% in October.
In its macroeconomic forecasts for December, the Central Bank notes that the gap between supply and demand was particularly pronounced, especially in larger cities. Therefore, he expects investment in residential real estate to increase.
“We estimate that with a vibrant labor market and favorable credit conditions, higher demand will continue to be one of the key drivers of housing and development,” they wrote.
Similarly, the SORS finds that the supply of new housing is still lagging behind demand practically everywhere in Slovenia, despite the fact that more new residential real estate is coming to the market.
“The growth of housing prices should not stop until the supply of new housing exceeds demand and the time needed to sell new housing is significantly extended, or stocks of unsold housing begin to accumulate,” they said.
“So far, despite record prices, most newly built apartments in major cities and popular tourist destinations are still being sold before they are even built,” GURS said.