Slovakia has long been identified by corporations and economic commentators as one of the most progressive new economies in Central Europe and most promising for foreign investment.
A combination of solid macroeconomic policies, comprehensive tax and social welfare reform, a strategic location to European markets and a tradition of manufacturing excellence and highly qualified labour are among the factors that have attracted high levels of foreign direct investment.
While the Slovak economy continues apace, there are key milestones as investors we need to keep in mind. One of these is entry into the Euro, which Slovakia is scheduled to join in Jan 2009.
In preparation for this, on Friday 25 November Slovakia made the Unexpected announcement that it has joined the ERM-2 exchange rate mechanism, a waiting room where the currency proves its stability for a minimum of two years before full euro adoption.
This is significant news, allowing Slovakia to manage the currency’s fluctuation and attract investment. It also points to an appreciation of the crown in anticipation of joining the Euro. Juraj Kotian, an economist at Slovenska Sporitelna, the largest bank in Slovakia commented that “The currency has a potential to rise by between 5 and 10 percent in the next two years”.
With investors eyeing the emerging European markets closely, Slovakia is keen to set itself apart and make most of its strong fiscal record and reforms. As Global Insights reports: “Bratislava ‘s unexpected move toward early membership in the ERM-II was an indication that Slovakia wants to differentiate itself from its larger neighbours, all of which are struggling to control fiscal deficits.”
Other recent news was the huge 6.2% year on year growth in Q3 2005, which underpins the finance minister’s yearly growth forecast of 5.1% for 2005. The end of 2006 inflation forecast of 2.5% was left unchanged with the possibility of further rates cuts – held at 3% recently – should inflation contain itself.
For the property investor the paving of the way for an appreciating currency is excellent news, but another factor to keep in mind is the current trade deficit. The current account is set to improve massively in 2007 as Slovakia begins to export cars, not just importing products as it is at present, and this will in turn not only further drive the appreciation of the currency but also drive wages and employment upward.
With Bratislava already suffering a shortage of residential accommodation and ageing Communist housing stock, it is no surprise that developers are in a race to provide the kind of new build accommodation as the accumulating economic factors outlined above lead to wealthier local labour and a growing foreign workforce over the latter end of the year onwards.
By the end of this year Andrej Durkovsky, the mayor of Bratislava, will announce the latest masterplan of Bratislava. The last masterplan of the city was published in 1976, and it has been recognised over the last few years that another was needed to represent the vision and ambitions of Bratislava in the 21st century.
In consultation with a variety of stakeholders, including major real estate developers, ecologists, civil engineers and social planners Durkovsky has said that what we can expect from the masterplan is a detailed outline for the development of Bratislava as a “white city” – a centre for commerce, services and businesses.
In particular Durkovsky has pointed to the industrial eye-sore to the east of Bratislava, expressing an intention to create the kind of water-side living and business parks similar to London’s Docklands. It has long been recognised that Bratislava is currently unconnected from the majestic Danube that runs through it, and the focus of strategic investments on the banks of the river promise to provide some of the most valuable opportunities for the property investor in the upcoming years.
“The rather compact centre of Bratislava will enlarge towards the Danube River within the next few years. We want Bratislava to become a city on the Danube River, and this extraordinary river will become a city-forming element,” said Andrej Durkovsky. The Mayor has plans to create kilometres of riverfront boardwalks, shops, coffee shops and parks over the next few years, and there are plans to include residential apartments within these mixed use schemes.
The Irish developer Ballymore Properties is a driving force behind this regeneration with plans for a massive mixed use project over a number of phases on the riverfront in front of the old town. The scheme will include hotels, restaurants, apartments and a business centre with offices all beside parks and a river promenade. Ballymore is expected to commence marketing and construction early in 2006.
On the other side of the old town, on the Danube west of the Ballymore project, will be the site of the eagerly awaited River Park mixed-use development. This project commonly known as the “City within a City”project is being brought to the market by the largest investor/developer in Slovakia and designed by the Dutch architect Erick van Egeraat. River Park will also include the first and only 5 star hotel in Bratislava.
The planned investment costs of River Park are in the region of EUR 120 million and will include designer shops and coffee shops, the hotel, luxury offices and retail outlets and over 40 000m2 of residential space. There is strong demand for apartments in River Park by investors and local Slovaks alike, however marketing will only start in summer 2006.