State-supported rental housing in Slovakia

Historically, state support for rental housing in Slovakia was insufficient and people still want to own their own homes.¹ But nowadays buying a house is impossible for a large part of the population and long-term mortgages are less attractive for Slovaks. According to 2020 Eurostat data, 65.2% of people aged between 18 and 34 in Slovakia still live with their parents (EU average is 49.5%)².

The state has decided to address the situation through state-supported rental housing. The aim is to fill the gap between social housing, market rent and mortgages and to support people who cannot afford a mortgage but have the income to pay rent.³ The state also wants to increase employee mobility.

 

New legislation

The state has adopted legislation regulating access to rental housing and the entities involved in this process, specifically:

• Act No. 222/2022 Coll. on state-supported rental housing (Act)⁴
• Regulation of the Government of the Slovak Republic No. 327/2022 Coll. on certain measures in connection with the state-supported rental housing (Regulation)⁵

The Act came into effect on July 1, 2022, and the Regulation on November 1, 2022.

 

Entities involved in state-supported rental housing

The state has left much of the responsibility to the private sector.

The Act defines an investment partner as a legal entity with its registered office in the EU, the EEA or the Swiss Confederation, approved by the Government of the Slovak Republic for the purposes of entering into an investment contract.

Based on the proposal of the Agency for State-Supported Rental Housing (Agency), the government approves the criteria for the selection of investment partners and their selection. The criteria were approved by the government on January 31, 2023.

Investment partners should:

• have performed business activity in the field of providing apartments for rent to natural persons continuously for at least ten years (in EU, EEA or Swiss Confederation);
• own at least 10,000 apartments for rental housing purposes in the past without limitation of time period and/or in the present (in EU, EEA or Swiss Confederation);
• have no overdue financial obligations towards Slovak Republic and the country of registration,
• professional competence and credibility of the natural persons that are members of the statutory body, proxies, members of the supervisory board and leading employees;
• have financial results that are audited, disclosed and publicly available (at least for the period of the last five financial years);
• have value of assets of at least EUR1 billion continuously for at least the last five financial years (in EU, EEA or Swiss Confederation);
• have transparent and credible origin of the paid-up registered share capital and other financial resources;
• have suitable and adequate material, personnel, technical and organizational prerequisites for the performance of business in the area of rental housing, a functional management and control system, including an internal control and internal audit department, a risk management system and prudent business rules.

Another entity involved is the landlord, defined by the Act as a legal entity with its registered seat in the Slovak Republic:

• whose financial statements are audited;
• exclusively owned by investment partner(s) as shareholder(s);
• authorized to carry out business in the field of renting of apartments and non-residential premises; and
• which has entered into a contract with the investment partner for the operation of a residential building in relation to one or more residential buildings under a rental housing project approved by the Agency.

To effectively promote state-supported rental housing, the state also established the Agency. The Agency is significantly involved in the state-supported rental housing process.  Investment partners are also members of the Agency.

 

Structure of relations between the respective entities

The Agency and investment partner sign an investment contract that needs to be approved by the government. The term of an investment contract must be at least 25 years and can be extended, even repeatedly. An investment contract mainly regulates obligations of an investment partner regarding construction or other acquisition of one or more residential buildings through the landlord or more landlords and subsequent operation of the residential buildings.

The investment partner or more investment partners and landlord then sign a contract to operate a residential building. The term of the contract must be at least 25 years. The contract mainly regulates the terms and conditions for the construction or other acquisition of one or more residential buildings and the subsequent operation of one or more residential buildings in accordance with the rental housing project approved by the Agency. The term of the contract must always correspond with the term of an investment contract (and can be extended, even repeatedly).

 

Interested party and tenant

An interested party under the Act is a natural person who has expressed a non-binding interest to the Agency in obtaining the status of a tenant and concluding a lease agreement by registering in the Register of Interested Parties. An interested party must meet several conditions under the Act and Regulation. For example, the natural person must not be a tax debtor, must not have any social insurance debts, must not have any health insurance debts and must not be a debtor registered in the Central Register of Executions.

A tenant is defined by the Act as a natural person who has reached the age of 18, is a resident of the Slovak Republic, meets the criteria under the Act and the Regulation and has entered into a lease agreement with the landlord pursuant to the Act.

To qualify as a tenant, an interested party must also meet requirements set out in the Regulation dealing with income levels.

Before concluding the lease agreement, the Agency will assess whether the interested party meets the criteria for obtaining tenant status.

 

Regulated rent

The main benefit for tenants is rent pricing, which will be regulated and calculated according to Annex 1 of the Regulation.

The rent is based on the size of the apartment, location in Slovakia and will change on an annual basis depending on inflation.

 

Practical application

The state-supported rental housing project was met with considerable public skepticism and doubt. The Act and the Regulation are rather abstract and raise several questions. It’s yet to be seen whether the project and its implementation will be successful. Two investment contracts were signed on January 31, 2023, between the Agency and investment partners.

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¹Read more here
² Read more here
³ Read more here
⁴ Read more here
⁵ Read more here