By Anna Grybel

Bratislava property is finally benefiting from the huge FDI inflows in to the country and has entered the second phase of strong capital growth. But what about the rental market, which is key for many buy to let investors?

Slovaks prefer to buy, of that there is no doubt.

The home ownership rate in the country is around 79% - higher than in Czech Republic (49%) and even Poland (75%).

According to Lexxus - the real estate agency based in Bratislava - there are around 5,000 to 7,000 rental apartments, while the total number of dwellings is 200,000. That means that the number of rental properties is tiny, around 3.5% of the total housing stock.

In reality, the size of the market is a little harder to estimate, mainly because many landlords operate on the black market, and rent units without contracts and with money paid directly to the owner.

Clearly, though, as we have seen in all other locations that experience strong capital growth, a strong rental market develops rapidly once an affordability ceiling is reached. And at that point it is clear that in Bratislava at least supply will be limited, so creating a rapidly strengthening rental market.

Loophole closed

The Slovak tax authorities have recently closed a loophole by introducing a new weapon to fight landlords who don't declare income from letting and, therefore, avoid paying the compulsory income tax.

A new registration requirement is designed to "improve the discipline of landlords". The registration of letting with the tax authorities is mandatory for everyone renting out property from December 2007. This will include residential, commercial, holiday homes and even garages.

The evidence is that the rental market is already rapidly becoming more sophisticated with more landlords deciding to use the professional services of letting agents in order to have their units rented promptly and properly managed.

The other sign of the market developing is the choice of products and type of contracts.

Currently Bratislava is developing as a tourist location and is starting to offer short term rentals along with more traditional long-term agreements.

The luxury rental sector is so far almost non-existent, but is slowly growing thanks to true high-ends projects being gradually delivered to the market.

Rising wealth

Rising wealth and the standard of living is also being translated into higher tenant expectations.

According to estate agents in Bratislava the interest in furnished apartments is 80% higher than in unfurnished units.

In general, good quality apartments with good transport links are rented the fastest and location actually plays a less important role.

That's why new buildings are in the greatest demand and have lower voids and higher rental rates. Additionally, they are becoming unbeatable in competition with panelaks, even those panelaks that are completely renovated.

Our two completed deals in Slovakia's capital - Nad Luckami and Crossroads are both in the phase of being let out and confirm the trends mentioned above.

In Nad Luckami, seven out of nine apartments are rented, while in Crossroads, 17 out of 19 units are currently let out. Most of the units are furnished.

Figures supplied by our iProperty Assets team also show that new, smaller units can generate high gross rental yields of 7-8%, while larger apartments achieve lower, but also good results of 6% on average.

The rental market in Bratislava is currently driven by local and foreign tenants, the ratio is 50/50. Long time residents of the capital city tend not to rent as they tend to buy, especially now when better financing is available and the FDI inflow finally is mirrored by increasing purchasing power.

The local rental market then relies mainly on inward migration and students.

Inward migration is key

The strength of Bratislava's rentals lies in the capital's demographic flow - inward migration, and its attraction to foreign companies, which usually bring their own management for short periods as well as a strong student population. This translates into steady supply of tenants.

According to the Statistical Office of the Slovak Republic, Bratislava's population is growing on a yearly basis - in 2006 the growth was 5.05 persons/ 1,000 population and the indicator increases every year (for example in 2001, the growth was 0.44/ 1,000 population).

The highest increase in number of residents is noticed in two districts - Bratislava II (9.19) and Bratislava IV (7.92), mainly because of the inward migration and high birth rates.

The inward migration to Bratislava is officially between 8,000 and 10,500 people per year.

Those figures do not reflect the reality as they take into account only people, who move officially, while many immigrants simply don't report they've changed their place of residence.

We believe that the real migration is at least twice as high as the official estimates.

Bratislava has one of the strongest rental markets in Slovakia, mainly due its dominant economic position within the country.

Attractive to migrants

In the city, wages are the highest in the country - 32% higher than the national average, unemployment is only 2.1% - three times lower than the national average and 60% of all FDI inflow in Slovakia goes into the capital city.

Bratislava is a huge attraction for migrants looking for career opportunities and well-paid jobs. That means young people, who will initially rent as they can't afford to buy straight away.

The expat community is also strong in Bratislava and consists mainly of Austrians, Americans and French.

Their number, strictly linked to the FDI inflow of their countries of origin, are line managers and numbers are increasing every year. In 2001, they were two foreign persons per 1,000 population the number increased by 2005 to 4.34/ 1,000 residents (the latest available data).

Generally, they tend to stay for short periods of up to nine months, except for Koreans, who come with their families and stay for longer (1-2 years). As a rule, expats tend to rent very good or high standard apartments in good locations, but Koreans, who bring families, opt for houses.

According to the statistical office, the highest number of migrants settle in Bratislava IV and Bratislava V.

Bratislava IV's demographics also indicate future strong demand for housing and rentals.

The divorce rate is here the highest in the city (3.82/ 1,000 population), which suggests a growing number of households and demand for smaller units.

At the same time the birth rate and the number of marriages per 1,000 residents in this district is also the highest in Bratislava. Both indicate strong housing needs in the future and demand for larger units and family houses as well.

Bratislava IV is already a well-established middle class area, where the housing stock is a mixture of houses and flats. However, there's still an undersupply of new and quality housing. The undersupply combined with strong migration to the districts creates excellent potential investment opportunities for buy-to-let-investors.

Currently, investors can buy for excellent capital growth in Bratislava as it enters a second strong phase of growth. At the same time they can count on a steady supply of tenants and a developing rental market with decent rental yields.