Current Market Overview 

The Slovenian real estate market faces strong and rapid sales growth and higher prices since supply still cannot keep up with the increased demand. Together with the low interest rates and availability of bank credit, the real estate market is booming, despite the daily changes in prices for services, materials and products. 

Consumers emerged from the COVID-19 pandemic with increased savings in their bank accounts. At the same time, most banks in the Republic of Slovenia started charging bank levies, which resulted in further pressure on demand, especially for residential property. 

Despite the government restrictions and prohibitions related to the global health crisis and several lockdowns, the Slovenian economy achieved high economic growth of 8,1% in 2021. Most indicators suggest that the relatively favourable trends in economic activity observed at the end of last year will continue. At the same time, uncertainties due to the epidemiological situation combined with new tensions due to the crisis in Ukraine are still present in service and other economic activities. 

Housing Sales and Rentals 

In the third quarter of 2021, dwelling prices were on average 12.9% higher at the annual level, which is the highest increase since the first quarter of 2008, when they increased by 11.8%. The prices of newly built flats increased the most (by 17.9%), followed by the prices of existing flats (by 14.7%), existing family houses (by 9.6%), and newly built family houses (1.1%).  

Driving through the major cities in Slovenia, one can quickly notice several open construction sites. Most of them are in Ljubljana, the capital of Slovenia, where more than 30 multi-apartment buildings are currently under construction. It is quite common for the investors to sign sell and purchase contracts for the majority of the newly built dwellings before the construction begins.  

Despite some legislation changes in 2021, the rental market stays relatively unregulated, especially in terms of prices and rental conditions. The shortage of long-term rental housing is still a significant problem, causing a further increase in average monthly rates. Homeowners prefer short-term renting. A resurgence of Airbnb and booking.com activity is expected in 2022. 

Public Rental Service

As of 1 January 2022, the Housing Fund of the Republic of Slovenia, a public fund serving the state's interest (Fund), established the Public Rental Service (PRC). PRC operates within the Fund and acts as a liaison and service provider between the tenant and the property owner throughout the management process of the rental housing. The Fund will rent the housing on the market and sublet it to the beneficiaries at a non-profit rent for a fixed period (minimum of three years), subject to a certain reimbursement of costs by the state. 

A PCR will relieve owners of risk and ensure that they receive a regular income in the long term, which will allow those who are currently reluctant to rent to do so. The Fund will rent out housing on the market based on a permanent open call for tenders. It will also rent out housing based on a public call for tenders. Priority will be given to young people, young families and beneficiaries who have been on the priority list at least twice in the general call for non-profit housing but not been allocated a flat. 

New on the market – a combination of hotel and residential building 

Investors combined the concept of leasing apartments through platforms for short-term rentals (Airbnb, booking, Expedia, etc) and serviced apartments for personal needs. This innovation, the first in Slovenia operates under the registered brand and enables owners of the apartments to rent their apartments through the operator (management company) with an excellent return on investment. All apartments are equipped with luxury furnishing and living amenities, offering a high-quality short- or medium-term stay for tourist or business travellers. Furthermore, owners of the apartments can use all the hotel amenities (roof deck terrace with infinity pool, reception, fitness room, coworking room, etc) free of extra charge. Such a building concept is expected to be highly successful and will encourage new projects and investments of this kind.

Commercial Real Estate Market 

Even though during the COVID-19 pandemic, many companies have implemented work from home measures, the market lacks new modern class A office premises. Ljubljana has the most developed office market in Slovenia, as it serves as HQ for most international and domestic companies; however, most of the current office stock is outdated. Secondary cities include Maribor, Kranj, Celje and Koper. 

One of the newest projects in Ljubljana is the construction of “Emonika” which includes the new train and bus stations, a large shopping centre, apartments and commercial premises. Ljubljana's tallest skyscraper will be built here. Construction is planned to start in April 2022. Interesting locations for commercial real estate in Ljubljana are construction sites where new office buildings are planned and are already in the construction process. The increase in commercial real estate is expected in the near future, at least in Ljubljana. 

Legislation changes  

Until recently, commercial leases in Slovenia were governed by the 1974 Commercial Buildings and Premises Act (ZPSPP). With the entry into force of the latest amendment to the Housing Act (SZ-1E) on 21 June 2021, the Commercial Buildings and Premises Act has been repealed and now applies only to leases concluded before the amendment of the Housing Act entered into force. In the absence of another lex specialis, all business leases concluded after that date are now governed by the provisions of the Code of Obligations (OZ). Business leases for an indefinite period concluded before the amendment may be terminated after the expiry of the notice period set out in the lease agreement, which may not be less than one year. Since this minimum duration was mandatory, it could not be amended by the parties and a provision stipulating a shorter notice period in the contract was void. A lease could only be terminated judicially, so termination of such a contract always required the intervention of a court. After the amendment, this is no longer in force and parties to the contract may regulate and agree as they wish otherwise, the Code of Obligations provisions prevail. 

Construction – the New Building Act (GZ-1)

In construction, new legislation was adopted. After 1 June 2022, the new Building Act (Gradbeni zakon, GZ-1) is in force with changes expected to bring some simplifications. The new law should remove administrative obstacles and speed up the procedures for issuing building permits. Some of them are introduced in the following. 

The law (re)introduces a solution already in force before 2018, namely that the investor can start construction at his own risk on the basis of an administratively final permit and does not have to wait for the permit to become legally final (res judicata). This rule does not apply in the case of a facility with environmental impact. 

The procedure for issuing a building permit can be initiated without a certificate of payment of the communal contribution and proof of the right to build. Proof of the right to build must be submitted by the time the building permit is issued, and the certificate of payment of the utility contribution must be submitted no later than the time of notification of the start of construction. How these two changes, and at the same time, possibilities for investors will be accepted in practice is uncertain.  

The new Building Act expands the range of temporary facilities to be erected in the event of an emergency. It allows for the possibility of erecting temporary storage facilities to complement existing activity within industrial and transport areas, thus ensuring the possibility of adapting more quickly to the new economic situation. 

A different regime for opinions is introduced. Administrative authorities will be required to consistently consider the opinions of the competent authorities in building permit procedures, and the law, therefore, requires  these authorities to reflect their views and be (professionally and legally) substantiated and reasoned. 

As regards the permit to use, the range of eligible applicants for the permit is broadened, and the legal fiction that the permit to use exists is further established for all single-dwelling buildings built in accordance with a building permit before 1 June 2018 and duly registered.  

Spatial Planning – the New Spatial Planning Act (ZUreP-3)

Three years after the entry into force of the Act on Spatial Planning, a new Act on Spatial Planning (hereinafter “ZUreP-3”) was prepared and, at the end of December 2021, published in the Official Gazette of the Republic of Slovenia. The structure and content are similar to its predecessor but seek to build on it, eliminate shortcomings and optimise the procedures for drafting spatial planning acts. 

Overriding of the public interest has changed into resolving conflicts of public interest, with much of the same, but not identical, regulation (ie, it drops the statutory criteria that the government has to consider when evaluating economic impacts). The rules on the rational use of space are also set out relatively similarly. However, replacement construction is no longer possible by law, and maintenance and reconstruction of existing buildings are permissible but explicitly linked to the provisions of the zoning act. In regulating the preservation of existing individual settlements, the new act introduces criteria for when building land can be converted or enlarged by means of a site plan or a municipal zoning plan (MZP; abbreviation in Slovenian: OPN). In the second zoning area, which is intended for agricultural activities, it also explicitly allows, subject to legal conditions, permanent residence in a dwelling connected to an agricultural economy. Another important innovation is the ban on advertising on land that is not building land (agricultural, forest, etc). 

Strategic spatial planning acts include the action programme for implementing the strategy, and the decision on the location review is included among the implementing spatial planning acts (ISPA). 

The provisions on judicial protection against ISPAs remain essentially the same, but the acts against which such judicial protection is admissible are listed explicitly and do not include the Town and Country Planning Ordinance; the content (part) of the spatial planning act that can be challenged is more clearly regulated; the requirement for an NGO to participate in the ISPA adoption process to obtain active legitimacy is abolished, and the suspension of the procedure is regulated when the Constitutional Court of the Republic of Slovenia takes into constitutional review the same provisions of the ISPA; the powers of the court to regulate the situation pending the adoption of the new ISPA are also regulated differently. The requirement to obtain expertise through design competition, in certain cases, is retained but slightly modified. 

Other provisions on the preparation of the state spatial plan or the combined procedure, the OPN and the OPPN have also been amended to streamline the process. However, all obligations on early (and other) public involvement and consultation remain. 

ZUreP-3 introduces the possibility, subject to the fulfilment of the prescribed conditions, to change the designated use laid down in the OPN by means of an OPPN:

• on existing building land to implement a municipal development programme or another development project in accordance with a regional development programme; or
• to locate a production installation converting renewable energy sources.

The legally permissible exceptions to the mandatory compliance of the OPPN with the provisions of OPN are thus established. 

A building plot for new buildings is defined in the project documentation and specified in the building permit. It regulates in more detail the registration of a building plot in the official registers and the registration of a building plot in the Land Register. As before, it prohibits the alteration of the boundaries of a building plot, except in cases where the legal conditions for altering the building plot are met, established by a specific administrative decision. However, for newly constructed buildings, these provisions on the definition of the building plot should apply from the date of the establishment of the IT solution, required to be in place by 1 January 2023. Rules on the determination of the building plot attached to an existing building apply from 1 January 2024, and for alterations only from 1 January 2025. 

The section on expropriation and limitation of the ownership right also introduces some new features. In particular, the proposal extends the possibility (grounds) for a municipality or the government to decide that the construction of a facility in the public interest is urgently needed on certain land. It regulates the fiction of acceptance of a postal item containing an offer to purchase real estate and extends monetary compensation in certain cases to monetary compensation for restrictions on the use of the real estate for the period from its actual use for construction until the investor acquires ownership, other rights in rem or obligations in the real estate concerned. The possibility for the expropriator to submit a request for expropriation where he/she has limited ownership or other real right to immovable property because the property is subject to an OPN or OPPN for spatial development or already constructed facilities that may be subject to expropriation (public utility infrastructure, construction of rental housing, etc) is newly regulated. 

The new Act (ZUreP-3) brings some other solutions and requirements in  spatial planning. Intentions were good; however, how the new rules will be accepted in practice in the future are yet to be seen. 

Conclusion 

Slovenia is an attractive real estate market with huge potential for residential buildings projects. Institutional lease operators of residential buildings (eg, owners of large multi-family complexes) are not present. Several different real estate projects (residential and commercial) are planned and are in the middle of development. Market uncertainty, extreme and quick rise of prices for certain construction materials (especially metal) have already shown the impact of withholding some projects from starting and raised claims/requests from contractors for an increase of price. The increase in oil prices also influenced the cost of construction. Government is still the biggest “investor” as there is always infrastructure (railways, roads, highways, etc) to be built or renovated, which leads to the public (utilities) procurement process. Changes in laws as presented intend to enable investors with a quicker path to access building permits. Parties to the lease/rent agreements are now freer to negotiate termination clauses as they might see fit, although for the “weaker” party, this might be a bit of a downside. Optimism is still there.