The Real Estate Market in Slovenia:
Liberalisation and the Approach to EU Regulation
by Anton Koar
1.Some facts and figures about
the real estate market in Slovenia
In general, the real estate business in Slovenia is organised
as elsewhere in Europe and the rest of the developed world.
On the other hand, there are some features typical of this small
country on the sunny side of the Alps.
Slovenia lies at the cross-road of traditional trade and transport
routes, hal way between Vienna and Venice. In one day you could
ski on slopes of the Alps and swim in the Adriatic Sea. The
country is small but vastly varied landscapes shaped by influences
of at least continental and Meditterinian climate.
In dry language of figures, Slovenia has 2 million inhabitants
living on just over 20,000 square km with population density
of 96 per one square km. The growth rate of population in the
period 1991- 20002 was negative: –0.08% per year.
The average household had 2.8 members in 1999 and this figure
remains unchanged. The average number of persons per dwelling
(or residents) was 2.8 in 1999 and has not changed.
Table 1: Dwelling (residents) stock per 31.12.1999 in Slovenia
area of dwellings
floor area of dwellings
floor area per person
number of persons in a dwelling
According to the 2002 Population Census in Slovenia there are
688,000 households and 775,000dwellings. The average number
of household members has decrease from 3.1 in 1991 to 2.8 in
The average growth of dwellings in the period 1991 to 2002 was
1.14% annually. During the same period, the average growth of
number of households was much lower – only 0.7%. We can
conclude that for a long period of time (more than 11 years)
the growth of dwellings was 0.4 percentage points above the
growth of households.
The number of dwellings was below number of households in 1991.
The situation was balanced in 1999. For example, the number
of households was (706,000) very close to the number of dwellings
(around 700,000). After that year the relation was the favour
On the other hand, there are some regions – namely Ljubljana
as the capital city with surroundings where the number of households
exceeds the number of dwellings. Consequently there has been
a boom in real estate prices in Ljubljana.
At this point I would like to present two opposite views about
the real estate market in Slovenia.
1. According to one view (mostly advocated by scholars) the
number of dwellings is sufficient. Even though there are some
regional gaps between actual stock of dwellings and demand,
that should be managed by (i) daily migration of labour force
or even by (ii) long-term migration of people.
2. The advocates of the opposite view argue that there the
stock of dwellings in Slovenia does not meet the needs. Very
high prices of land and thus real estate units confirm this
statement. People in Slovenia are generally reluctant to move
from one town to another. The solution to the problem would
be to attract investors to pour more money in the market for
A step in the right direction would be to use macroeconomic
policy (real estate tax policy, taxing idle land, buildings
or dwellings, manage bank loans, interest subsidy, national
housing savings scheme, environmental, urban and spatial policy
measures) to encourage behaviour in the spirit of market economy.
As it usually happen in real life, the recipe for Slovenia's
future housing policy is a combination of the two opposite positions.
Economists believe that the macroeconomic policy should tailor
its economic measures to make people change their behaviour
(and habits). They argue that people will soon adjust one they
get the right parameters. For example, they will commute from
the suburbs to the city centre if they save money on taxes etc.
2. Privatisation of dwelling
stock from October 1991- October 1993
The privatisation of dwellings started at the October 1991.
Around one third of the dwellings, almost all 400,000 dwelling
houses, had been in the private ownership at that time. Apartments,
particularly in apartment houses were rarely in private hands.
The stock of apartments was around 250,000 and 90% of that was
under the privatisation process.
The bulk of privatisation was realised in the period of less
than two year – somewhere in the October 1993. The legal
basis is still valid. There are some cases that the privatisation
has been going on – due to several reasons (de-nationalisation,
people involved in the process went on court etc).
After the privatisation of the dwelling stock in 1991-93, the
structure of ownership changed rapidly. Around 88% of all dwellings
were in private ownership. That means that 88% was owner occupied
and 12% was rental dwellings. Those 12% dwellings was in
the central government, local government and even in the corporate
ownership. At the end of 20 around 84,000 apartments or around
11% of the total dwelling stock in Slovenia was state-owned.
These apartments are used for social policy purposes (e.g. household
pays non-profit rent).
Today the percentage of private owned dwellings in Slovenia
is very high (89% in 2002) in comparison with other countries.
The corresponding percentage is 58% in Portugal, in Spain and
Greece 77% and those are countries that have comparable level
living standard and GDP per capita as Slovenia. In Germany,
for example, only 38% of flats is in private ownership while
in the Netherlands only 48%. In UK and Italy they have 67% etc.
It is expected that the concentration of real estate units
(particularly flats) will continue at fast pace in Slovenia.
3. Price Developments for real
estate and rents 1995-2002.
3.1. Prices have risen – particularly the building land
The prices for apartments in capital city have risen since
1995. The “mark up” was particularly high in 1995-96
and again in 2000. We can put the following question. Are there
signs of a price bubble in Slovenia on the real estate market?
A soft answer would be: not yet – but it is likely to
happen unless timely steps are taken to prevent overheating
of Slovenia's real estate market.
For example, the price for an (old) apartment – is quite
expensive: also by international yardstick.
The price for a new apartment in Ljubljana has risen €
1500-2200 per m2 in 2002. The average price for the central
region of Slovenia (capital city + suburbs) is around 1100€
in the year 2002.
Graph 1: Bid prices for apartments in capital city Ljubljana
Note: Bachelor’s r. = Bachelor’s roomed around 28
m2, One r. = one roomed flatlet etc.
The supply of land for development has been shrinking in recent
years. The price for building land in Ljubljana has jumped from
60 DEM (around 30€) in 1995 to around 200 DEM in 2000 and
even more for some prime locations.
The prices of building land have risen even more than prices
for apartments. The biggest “mark up” was in 1996
and 1999 when prices hit a record high. The price of one m2
land is 150 € or 300 DEM/m2 in 2002. Here we are talking
about a plot without the construction (building) permit and
When a plot is bought other costs are a) the municipal contribution
for sewage, electricity and water supply plus b) the contribution
for changing the purpose of land (from non-building purpose
to building purpose).
The final price of building land is then 300- 600 DEM/m2 or
around 150-300€/m2. These elements present the “entrance
threshold” on the construction market. It has to be overcomed
by developers, building companies and investors.
Graph 2: Bid prices for land 1995-2000 in DEM for different
Source:http://slonep.si Note: Bachelor’s r. = Bachelor’s
roomed around 28 m2, One r. = one roomed flatlet etc.
The market for renting Residental Offices and Retail was very
stable in 1995-2000 and remains stable. The market for renting
Pubs has been more volatile.
Graph 3: Bid rent prices for Residental Offices, Pubs and Retail
1995-2001 in DEM/m2 per month
Table 2: Price stability of new dwellings, construction cost
index and expensiveness of new apartments in Slovenia
Source: Statistical Yearbook, Slovenia, 2001
The relation between the construction cost index and CPI in
the period 1995-2002 shows that the cost of construction –
as a proxy variable for replacement cost – were above
(in cumulative terms) the inflation rate. That is mainly due
to extra (around 5%) growth of replacement costs in 1996.
Graph 4: CPI and construction Cost Index in Slovenia (1995-2002)
Source: Statistical office of Republic of Slovenia, Fiabci
Slovenia, CCI Slovenia
It seems that market deviations in Slovenia have driven up
replacement costs for residential property (in terms of construction
cost index) beyond the “core” market trends of old
apartments. We can conclude that base prices in construction
industry have not fuelled prices of new apartments on the Slovenian
real estate market.
3.2. What causes such a shortage
of building land?
The wealth tax on the ownership of building land is negligible
in comparison to the (potential) capital gain –when such
a land is sold on the market. The companies in Slovenia do not
pay wealth tax on land in use and on the idle land, which is
not in use. The calculation then is very simple. Many companies
hold a (non-) building land as a reserve asset with potential
high capital gain. The opportunity cost is lower than the potential
capital gain. There is a spate of taxes levied on real estate
in Slovenia 2% transaction tax on real estate 20% Value Added
Tax on new buildings (the lower VAT rate is 8.5% on goods) 25%
tax on capital gain (if the real estate is sold before 3 years
of ownership) Tax on inheritance (depends on the heir order:
the first heir order is free of any tax and the maximum rate
is 25%). Fee for construction land – depends on the quality
of land '>Wealth tax – the maximum 1.5% rate and many
exemptions.In general the tax regime on the real estate market
is not high. Thus, the tax burden is very small on average,
especially for business companies. The ownership of the land
is widely spread among households in Slovenia. Many of them
possess a small piece of land – not for use – but
rather as an investment. People like land because of the historical
memory on hyperinflation and a long period of negative interest
rates in real terms. In the eyes of the people, land is a form
of savings and a sound investment. This view could change quite
soon once the projects of computerising the land register “e-land
book” is completed and real estate is taxed without exemptions.
The Slovenian Government has promised in 2000 to introduce a
small tax rate on real estate (including land)- But there are
problems with the current records and updating digital land
register (book). We can expect that the different cadastral
registers, land register and evidences will be completed by
the end of 2003. This is a lengthy complex process. The costs
of changing these registers are expected to be in the range
of 30 million euros. The government endorsed this process at
its session on 25 September 2002.
Box 1: The share of geodesic/surveyor's records in digital or
analogous form in Slovenia (August 2002)
basic geodesic system
cadastral of buildings
spatial and house numbers
Source: http://www.gov.si/gu and Geodesic Agency.
The ten-year-old de-nationalisation process (stipulated by
Law) has halted many construction projects. This has been a
difficult problem for developers. It has caused many administrative
problems and has put the break on many projects in urban areas.
The future prospects are promising. De-nationalisation proces
reached its peak and the problems have been diminishing.
3.3. Dual Pricing (in local and
foreign currency, namely DEM and now €) has not disappeared
The price quotation in advertising was in foreign currency
in the period 1991-1999. Prices were commonly quoted in Deutsche
Mark (DEM) – a reference currency. The act promulgated
in 1999 abolished prices denominated in foreign currency (dual
According to the timetable for the integration in EU financial
market, namely ERM2, it could happen that Slovenia will peg
the tolar to the euro at the end of 2003. If so, then Slovenia
has only 15 months to run its (independent) monetary policy.
The dual pricing will soon re-appear after pegging the local
currency (tolar) to EUR. The act on denomination of prices will
have to change by the end of 2003.
The probable effect on real estate market will not be high.
In general, long term contracts in Slovenia are denominated
in local currency, with the currency clause (namely EUR). Around
87% of Slovenian exports are invoiced in EUR currency. Thus
the EUR is an acceptable unit of measure, because the exchange
rate to (former) DEM is around 2. People found out it easy to
Due to low inflation in EU countries, particularly Germany,
households in Slovenia will soon adjust to a stronger and more
4. The Turnover on Slovenian
Real Estate Market and relation to other capital markets
The turnover in real terms on the real estate market has been
rising since 1991 by 1-2% per year. We determined that the turnover
on different segments of capital market is in positive correlation.
Whenever something is happening in the “household”
currency market then – it spreads the turnover on the
other kind of capital markets in Slovenia.
Table 3: The turnover on different kind of capital markets
for household in Slovenia
The turnover on the real estate market is estimated by the author.
Around 20-30% of the turnover has been intermediated by real
There are around 1000 registered real estate agencies in Slovenia.
However, less than 300 actively advertise real estate properties.
Relatively few agencies have their offer also in English.
The agencies are widely organised in Real Estate Association
at the Chamber of Commerce and Industry Slovenia and Fiabci
There is a proposal for a Law in Parliament for intermediation.
The Code of Ethic has been in preparation for consumer protection
and regulating the conflicts between consumer and agencies.
We may conclude that the turnover on real estate market is
positively and moderately correlated (r>0.55) witth the other
kind of capital markets. All segments of capital markets have
a positive trend.
5. Gradual Process of Liberalisation
of Real Estate Market since 1991 and preparing for joining the
EU and EMU
It is important to stress that Slovenia experienced in the
period of 1970-1990 real negative interest rates: when borrowing
and when lending (deposit and lending interest rates). Thus,
the real estate and foreign currencies were functioning a long
period as a means of saving. This historical fact influenced
on prescribed articles in the Constitution of the Republic of
Slovenia in 1991 that refers to property and partly on the article
68 that refers to the property rights of Alien
Period 1991- July 1997
In the period 1991-1997 we have had a very controlled situation
regarding the property rights of aliens. Property Rights of
Aliens were defined by Article 68 of the Constitution (1991)
"Aliens may acquire ownership right to real estate under
conditions provided by law. Aliens may not acquire title to
land except by inheritance, under the condition of reciprocity."
The foreigners were not allowed to own land and any other real
estate in the period 1991-1997. Foreign states, however, might
acquire right to own property affixed to land, used by them
for diplomatic or consular purposes.
We underscore hereby that companies with foreign capital were
not treated as “Aliens” (foreigners). There were
treated as resident (domestic) legal persons. Thus, the companies
with foreign capital were equally treated as those with domestic
In other words, all legal persons and natural persons are (equally)
allowed to own real estate in Slovenia without any restrictions.
That has been a rule through the whole period 1991-2002 –
and will in the future.
B) Period from July 1997- to February 1999 and the transitional
period of +4 years 1. Slovenia changed the Constitution on July
14, 1997 in the article 68 regarding the Property Rights of
Aliens. The new wording reads as follows:
"Aliens may acquire ownership right to real estate under
conditions provided by law or if so provided by a treaty ratified
by the National Assembly, under the condition of reciprocity.Such
law and treaty from the preceding paragraph shall be adopted
by National Assembly by a two-thirds majority vote of all deputies."
2. Slovenian National Assembly ratified the Association Agreement
(AA) between the Republic of Slovenia and the EU on July 15,
1997. The AS was signed by Slovenian Government and by EU on
November 11, 1996. Ratification was postponed because of the
administrative procedures on both sides.
Along with the modifications to the Constitution, signing and
ratifying the AS the Slovenian Assembly adopted The Law on Finding
Out the Reciprocity (LFOR). It came into force on 14 February
1999. It is important for the EU citizens and others. 
The AA  entered into force in February 1, 1999. This is
an important “cut off date”. At that time the AS
was ratified by all parties in EU. We will explain in the following
paragraphs that since February 1999 the EU citizens have been
allowed to acquire ownership right to real estate, under the
provisions in the AA. How was that determined and agreed upon?
According the AS the Slovenia has adopted the Treaty Establishing
the European Community, including Chapter 4, which refers on
Capital and Payments. The AS determined the transitional period,
according to so-called “Spanish compromise”. It
was written as ANNEX XIII to Association Agreement. The “Spanish
compromise” determines the further liberalisation of Slovenian
real estate market as follows: 
"Concerning the provisions of Article 64(2) of the AS
relating to the Community rules on the movement of capital,
and in view of Slovenia’s accession to the European Union
the EU states confirmed (February 1, 1999) the following commitment
of the Republic of Slovenia: I. to take the measures necessary
to allow the citizens of the EU, on a reciprocal basis, the
right to purchase property in Slovenia on a non-discriminatory
basis by the end of the 4 year from the entry into force of
the AS (that is: by the end of January 2003). II. to grant to
the citizens of the EU, having permanently resided on the present
territory of Slovenia for a period of three years, on a reciprocal
basis, the right to purchase property from the entry into force
of the Association Agreement (that is: from February 1, 1999)"
It should be noted that the “Spanish compromise”
refers only “to purchase” and does not include other
legal basis of acquiring property. It should be noted also that
the milestone of February 2003 does not depend on the actual
accession to the EU membership.
In the period from February 1999 to March 2000 around 45 aliens
applied for the right to purchase property in Slovenia. Until
the end of 2001 this number has increased by around 100%. On
the other hand foreigners also sell the (inherited or previously
acquired real estate) in Slovenia.
What is the regulation on purchase of real estate in Slovenia
for non-residents and branches of foreign companies?
According to Article 25 of the Foreign Exchange Act (Official
Gazette of the Republic of Slovenia Nos. 23/99 and 35/01), non-residents
and branches of foreign companies may acquire real estate in
Slovenia under the conditions stated by the special law or ratified
and published international treaty.
Aliens have had 0.7% - 3.5% market share on real estate in
Slovenia in the period 1997-2002. The share varies among regions
 It should be noted that the actual share of non-resident
in Slovenian real estate market is higher. Namely, the resident
persons are all companies that are in the foreign ownership.
Due to high inflow of direct investments in Slovenia it is the
fact that the foreigners may and do acquire a lot of land and
dwellings indirectly in Slovenia.
The approach of the foreigners to Real Estate market has increased
slightly in recent years – particularly indirectly –
through the small (obligatory limited) companies and through
direct investments in existing Slovenian companies and banks.
Slovenia is going into EU and will further liberalise and adjust
regulation on real estate market to EU standards. For example,
there is a proposal to adopt the Law on intermediation on the
real estate market. The new law will regulate agents and protect
the customers (mainly households) against (abuse) intermediate
If the program on environment, spatial and urbanism is going
to be realised – together with tax reform by the 2004
it is expected that the prices will go down.
C) Payments with the rest of the world that refers on real
estate market are free
Payments abroad pertaining to the liquidation of foreign direct
investments or sale of real estate (including capital gains)
have been free in the period 1991-1997. That remains unchanged.
Payments abroad are free of any restrictions after all (tax
and other) obligations in Slovenia have been met.
Transfer of proceeds from realisation of inheritance is free
under the condition of reciprocity that is guaranteed between
Slovenia and the country of the recipient.
D) Fixing Exchange rate to EUR should be well prepared
Slovenia has a managed floating exchange regime. The current
account of the balance of payments has been in equilibrium in
the period 2000-2001. The small surplus has been reached in
Due to stable current account in the long run period the capital
movements have been liberalised in the period 1997-2002. Nevertheless,
according to Association Agreement with EU the Bank of Slovenia
has the right to introduce some short-term restrictions in the
case of series deterioration in foreign trade or capital movements.
Net inflow of foreign capital (namely direct investment in
the existing companies - greenfield investment) has increased
in the period 2000-2002. The central bank has to sterilise unstable
net inflow of foreign money – which reaches sometimes
more than 10% of GDP.
It is expected that Slovenia will fix its currency and join
the ERM2 from 1.1.2004. That is uncertain today and depends
on several factors. The most important will be the inflation
rate. The current CPI is between 7-8% in 2002. The producer
prices are lower.
The fixing of local currency to EUR will be very important
moment. If the household sector estimates that the fixing rate
is not appropriate then it will affect the capital markets.
Namely, the household sector could change a large share of
- from or to local currency deposits with banks
- from or to real estate
- from or to foreign currency deposits (mostly € denominated).
Graph 5: Change of the portfolio of households related the day
“D for EURO”–1.1.2002
Source: Bank of Slovenia, Real Estate Association and own calculations.
It is assumed that households will behave rational. How big
changes can happen? We have learned something at end of 2001
– a few months before the EU national currencies were
exchanged to € coins and banknotes.
The National Assembly took the Natinal Program of Housing in
2000. Namely, according to »national housing saving scheme«
around 10% of households in Slovenia has been already included
in long-term savings with the commercial banks. The interest
rate on these savings has been subsidiesed.
It is expected that 45% of households which are included in
»national housing saving scheme« are going to buy
new flats around capital city. According to surveys it is expected
that the demand in the central (state) area will increase by
even 52%. 
According to the scheme and according to the valid contracts
it is expected that the banks will put on the real estate market
the volume of loans of around 2% of BDP. That rises many questions
and uncertanty of the future market. Some lending for the construction
purposes should be postponed into the future. If not, that could
put some additional price pressure on the market.
6. Real Estate Indicators for
A typical developer on the real estate market is faced with
high “entrance threshold” on construction market,
measured by high prices of building land. The administrative
procedures of all permissions for the construction are complicated.
A typical investor is the bank, housing funds, semi-state
funds, co-operatives, leasing companies, big companies etc.
The banks offer mortgage-backed loans. The repayment period
is long term (5 year, 10 year and sometimes 15 and even 20 years).
The 20 years long term loan still puts too high financial burden
in young families. There are no (mortgage) loans on the period
of more than 20 years. The Government has put forward the proposal
of Law on mortgage bonds in September 2002. In general, morgate
market is underdeveloped in Slovenia. There are no Real Estate
A typical real estate agency has 1-3 employees. Real estate
agencies intermediate 20-30% transactions on the real estate
market. The intermediation is higher in the cities and lower
in the underdeveloped regions.
A typical builder is an normal building company like elswere
Table 4: Real Estate Indicators in Slovenia in period 1995
Comments and Measurement Issues
Real estate price index
actual prices are not collected even though y the Tax
Administration has all contracts. The real estate market
is not transparent
Only bid (declared)
prices are available from e-advertisements database. Time
series reflects the trend of the prices – not the actual
level. The bid prices overshot the actual between 5-20%.
Construction cost index
by Fiabci Slovenia, Association of construction at CCI
Slovenia and SICGRAS Slovenia. Construction cost index
is published on a monthly basis.
actual data are not available. Advertising bid prices
serves as a proxy variable. See: http://slonep.si
The actual prices are not available even though the Tax
Administration has all contracts. Only bid prices are
available from e-advertisements database
(i)Property stock available
preparation of the advertising agency.
(ii)Vacancy or occupancy rates
government estimated the gap between demand and supply
in 1999 – for dwellings.
(iii)Number/value of new buildings
by Statistical Office of Republic of Slovenia in Statistical
Yearbook, yearly basis
(iv) Number/value of sales
one measures the tightness of the market.
6. Stock price indices
7. Exposure to the real sector
(i) Loans outstanding
data are available in the Bank of Slovenia
(ii) Loan-to-value ratio
loan < market value of property -cost of selling discount
for emergency sell) is prescribed by:
a)Bank of Slovenia
regulation ====> loan < 100%
risk management regulation ===> loan =150%-200%
1.The table is adjusted to the Indicators published in the
Occasional Paper, No. 212, IMF, in the article Financial Soundness
Indicators: Analytical Aspects and Country Practices (author:
V.Saundararajan, Charles Enoch, Armida San Jose, Paul Hilbers,
Russell Krueger, Marina Moretti and Graham Slack), page 32-33.
2.Real Estate Association at the CCI Slovenia , 2002.
3.Monthly Bulletin, Bank of Slovenia, Fiabci Slovenia (Magazine:
 I wish to thank Mr. Maver Jerkiè, Secretary of the
FIABCI Slovenia for his valuable comments and advice that have
helped me to prepare this paper. My sincere thanks also go to
Ms. Barbara Stariè-Strajnar, State Undersecretary in
the Ministry of Environment, Spatial Development and Energy
for her guidance.
 See more about Housing problems in Slovenia: B.Stariè-Strajnar,
Housing sector in Slovenia, Ministry of Environment, Spatial
and Energy, text prepared for OECD Conference on Housing problems,
Paris, 2000 (mimeo).
 See: Anton Koar, Poveèano kupovanje prebivalstva,
The Voice of Commerce (Glas gospodarstva), Ljubljana, July-August
 Official Gazette of the Republic of Slovenia, Nos. 1-4/91-I
See also: http://www.dz- rs.si/en/aktualno/spremljanje_zakonodaje/ustava/ustava_ang.pdf
 Official Gazette of the Republic of Slovenia, Nos. 1-4/91-I
and 19/91 and 42/1997.
See also: http://www.dz- rs.si/en/aktualno/spremljanje_zakonodaje/ustava/ustava_ang.pdf
 For example, for the USA citizens. What are the rules of
According to the Law on Finding Out Reciprocity it should be
noted that the USA citizens have very favourable position on
Slovenian real estate market. Namely, Slovenia inherited the
international treaties (by Constitutional Law in 1991) that
were ratified by the former Yugoslavia. But former Yugoslavia
inherited some international treaties that were signed by Kingdom
Thus, we have to note that in this way Slovenia inherited the
Trade Treaty between Kingdom Serbia and United States of America
from the year 1881. This Trade Treaty is still in force in Slovenia.
It contains a clause “with most favoured state”
regarding possessing real estate and personal wealth, on the
base of reciprocity. We may conclude that the USA citizens have
on the base of reciprocity quite liberal access to real estate
market in Slovenia. Namely, the application at the Ministry
of justice – put forward by applicant or buyer or real
estate in Slovenia – has to be solved within 90 days.
Of course, under the condition that all prescribed documents
are presented in the adequate manner.
 Official Gazette of the Republic of Slovenia, Nos. 13/97,
 Official Gazette of the Republic of Slovenia, Nos. 13/97,
International Treaties, page 874.
 This is the reason that the majority of real estate agencies
do not have the English version of their Web site.
 See: Ministry of Environment, Spatial and Energy, A Survey
among households included in the national housing saving scheme,
July 2001, (mimeo).