July 11, 2016
Investing in commercial real estate and a residence permit in Slovenia
Slovenia is one of the first countries of Yugoslavia, which joined the European Union, the Schengen area and accepted the Euro currency. To enter the EU and the changeover to the Euro requires certain economic indicators. Some countries that joined the European Union simultaneously with Slovenia, do not have the Euro currency (Czech Republic, Bulgaria), as these indicators have not yet reached. The Schengen area is a high level of security and a migration policy.
How profitable are investments in commercial real estate in Slovenia? We continue our conversation with Denis Gorichan (Century 21 Slovenia) and Vladimir Uvarov (Future Real Estate).
Who and why is buying Slovenian property?
If residential real estate in Slovenia is first of all interesting for Europeans (British, Italians, Austrians, Germans), commercial real estate is invested actively by the local population, and the inhabitants of the countries of the former USSR.
Real estate in the European countries of the first echelon (Austria, Germany, France, UK) is highly liquid, but the question is in yield. It rarely exceeds 3-4 %. In the Czech Republic the yield is not more than 5%. But if we're talking about Slovenia, commercial premises can give from 6 to 10% profit per year.
Some unscrupulous agents promise investors a return of 15% or even 20%. But such a yields in Europe simply doesn’t exist!
6-10% - is royal recurring investment, i.e. the net amount of rent, which comes at the bank account of the lessor until payment of the profit tax. Tenant pays all utility charges, insurance, and real estate tax.
There is no property tax, but there is a tax on built-up land (as in Russia, popularly dubbed the "real estate tax"). It depends on the location of the object. When buying property worth €100,000 in Ljubljana (where the tax rate is the highest), the annual tax will be only €200-€250.
The amount of your profit depends on how well was selected the object and how serious and long term tenant is there. In our company we have developed 3 criteria according to which for many years we successfully select "tasty" deals for our customers.
Criteria No. 1 – liquidity
The first criterion is the liquidity of the object, i.e. its type and location. If you aim at a stable income, choose properties in major cities, on the first floor. The building should be located either in the city center, or where there is high permeability.
Demand for property in big cities doesn’t depend on seasonality. In this regard, the most promising areas are Ljubljana, Maribor and Celje. With the increase of the purchase cost, the payback period of the object increase as well.
Criteria # 2 – the presence of the anchor tenant
If the premise that you buy already have so-called anchor tenant, then the probability that he moves out is minimized. Typically, such companies “make the premise” for their goals. For example, tenants-banks typically invest about €300,000 in equipment and decoration. It is obvious that for the bank is unprofitable to leave this premise in a few years.
Along with banks, secure anchor tenants are such companies as McDonald's, clothing stores, large local retail networks.
This kind of tenants sign the lease for at least 10 years. In addition, contracts have long terms of rejection of the lease. Buying an object with a reliable anchor tenant, the investor can be sure that he will not move out in two weeks.
Criteria # 3 – novelty of the building
In Slovenia, all buildings constructed after 2000, are uploaded into the electronic land register.
Having access to the electronic land register, you will be able to check not only the rights of ownership of the seller, but the existing credits, encumbrances, you can learn about the general condition of the property.
Objects in old buildings have higher utility bills, it affects the lease rate. If you are buying commercial premises on the 1 floor of a modern eco-passive home where utility bills are €1,5 – €2, rents may reach €15-€16 per square meter. In the old building utility bills will be €5, and the rental rate will be only €10.
In addition, buying a premise in an old building with an anchor tenant, be prepared for the fact that after some time he will ask you to invest together with him in major repairs.
Today in Slovenia exists the energy passport, where you can see how energy-intensive is the premise is how expensive it is. It’s impossible to cheat the buyer who has carefully studied this document, saying that utility bills are low.
When making decision on issuance of credit, banks pay attention to these criteria, especially the presence of the anchor tenant. If we are talking about the loan for the newly registered company with the foreign owner, the Bank cannot finance large sums, but the loan of 50-70% is not something unattainable.
If you buy an object for $ 100 000 with a yield of 10%, in a year you get a rental charge of €10 000. The bank takes this into account and reports that can give 70% of the loan, €70 000.
The loan term will be 7 years. Rate on loans is 3%, the loans can be repaid early without any penalties.
In Slovenia there is rather adequate system of taxation, especially compared with neighbouring countries – Austria, Germany or France. In those countries the tax rate is 2-3 times higher. In addition, there are other barriers. For example, in Austria commercial property, at least 51%, must be owned by citizen of the European Union. In Slovenia there are no such restrictions.
You can choose one of two tax systems in Slovenia:
To buy property in Slovenia, foreigners need to open a legal entity. It’s possible to register the company at the address of the purchased property.
Later you have the negotiations on the property, and when a consensus is reached with regards to the price, a contract of sale is signed. If the buyer takes the credit in bank, all the papers must be prepared. After signing the contract the investor pays 10% of the purchase amount to the account of the notary, it is a guarantee of the seriousness of his intentions.
After certification of the contract and payment of the tax, the buyer pays the remaining part. Buyer go to the notary and shows proof of payment and on this basis receives a document confirming the right of ownership.
The buyer assumes no risk. The seller receives the money only after he has fulfilled all of its obligations, namely: signed the contract and assured it the tax office, paid all the taxes. Cleanliness of the transaction is the responsibility of the notary and real estate agency.
Agency commission is from 2 to 4%. This includes all services, including fee for the work of a notary, certification and translation of papers. Thus, in addition to those 2-4% investor in Slovenia pays nothing.
It is important to understand due to the fact that in many countries, agency commissions (about 3%) is enhanced by overheads. In Austria you pay 3% to agent, 2% to notary, 1% to lawyer + 3-4% taxes. Total comes up to 10%.
Insurance transactions and licensing of brokers
All transactions with real estate in Slovenia are insured for at least €300,000. In case of any difficulties, the compensation is paid by the insurance company.
In addition, the activity of estate agents in Slovenia is licensed. In Russia or in the Czech Republic there is no such a rule. On demand real estate agent in Slovenia is obliged to show his license.
Residence permit in Slovenia
Unlike Latvia or Lithuania, residence permit in Slovenia is issued for a fixed term (for a total of 5 years), and permanent residency is issued without a term. Getting permanent residency is another step for citizenship.
There are 3 ways for immigration – on the basis of employment, education or reunion with relatives living in Slovenia. For investors the first option is the most convenient.
You can be hired by your own company, pay taxes, insurance, and pension contributions. The main condition is that the company really needs to do some kind of activity. Simply put, bogus schemes like buying the company and putting her properties in rent for yourself, disappear immediately.
The minimum requirement for the size of investment for obtaining a residence permit is €50 000. Initially, the residence permit is issued for a year (the time of registration – no more than 2-3 months), then the residence permit can be extended for 2 years, then for another 2 years. After 5 years can apply for permanent residence.
Your family members (spouses, minor children and incapacitated parents who need to receive care) can go under the category of "reunification". You won’t pay any additional costs for them, but by law your income in Slovenia should be at least €250 for 1 person. Thus, if 4 persons come, the income shall not be less than €1000. If you have enough earnings in your home country, you provide documents that confirm this fact, such as the income declaration.
The costs of the company
Your monthly cost of maintaining the company in Slovenia is €450-€500 per person. €400 – taxes on wages, €100 – accounting, another €50 – maintenance of bank accounts and other deductions.
However, it is necessary to distinguish between costs to individuals and the company's expenses because the company's expenses also include payment of your salary. At a salary of €800 tax will be €400. You personally will lose €400. But the costs of the company will be €1200.
If you are interested in business in Slovenia...
If you are interested not just to have passive income, but in doing business in Slovenia, we note that at the moment the Ministry of Economy is actively attract foreign investment. It provides great support for the business, starting from the establishment of certain relations and the ending of subsidies and allocation of funds for the development of different projects.
As for Russia, for Slovenia it is a priority, Slovenian companies pays great budgets to advertise and promote their products on the Russian market. In addition, you can apply for the European grants for the development that also is quite possible to get to Slovenia.
Text – Alena Eliseeva, ee24