Cooperative housing returns to Slovakia

Cooperative housing was once a popular option to obtain housing in Slovakia. It disappeared after the fall of the communist regime. Now, a pilot project has shown that it may supplement the market as it is especially suitable for those people who do not qualify for a mortgage.

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“The high demand confirmed our assumptions that looking for alternatives to standard financing of housing makes sense,” said Peter Dovala, director of development projects at YIT Slovakia.

Hundreds of people expressed interest in their cooperative housing project in Bratislava, launched in April.

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“We were pleasantly surprised by the high level of interest,” said Dovala. “Based on our positive experience, we would like to continue with other cooperative housing projects in Slovakia.”

Mortgage not for everyone

The turbulent economic situation, especially high inflation and interest rates, coupled with strict conditions of the National Bank of Slovakia for the provision of mortgages, contributed to the lowest housing affordability in Slovakia in the last 15 years.

“We see cooperative housing as an alternative solution to improve housing affordability for a broader segment of the population,” Lukáš Brath, senior research analyst at the Slovak arm of Cushman & Wakefield, told The Slovak Spectator. “This form of housing is particularly beneficial for population groups facing stricter mortgage approval criteria.”

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Basic conditions for getting a mortgage is that the amount of verifiable income must be sufficient. This condition may be more difficult for sole traders or young people. The repayment period on a mortgage is a maximum of 30 years, in some banks a client can stretch the mortgage to 40 years, making mortgages unavailable for older people.

For developers, cooperative housing provides another selling channel for their housing construction, Brath added.

How cooperative housing works

If interested, the applicant signs a reservation contract and applies for membership in the cooperative. Once approved, he/she pays at least 20 percent of the total price of the chosen apartment and becomes a member of the cooperative. He/she pays the remaining price of the apartment in monthly rental payments, normally over a period of 35 years, with the possibility of early repayment. Once the full amount has been paid, he/she has the right to take personal ownership of the apartment. In addition to his/her own use, the cooperative member may sublet or sell the apartment during the entire period. The cooperative flat also becomes subject to inheritance.

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In Europe, cooperative housing is gaining more and more interest every year. For example, as much as 45 percent of the population in Austria lives in cooperative housing.

This scheme was popular in Czechoslovakia during the previous regime, when the state paid one third of the flat’s value. In the Czech Republic, approximately 10 percent of the population lives in cooperative housing.

The YIT project for cooperative housing in Bratislava is supported by the largest Slovak bank, Slovenská Sporiteľňa.

“We were inspired by the long-term experience of Česká Spořitelna, which is one of the major banks supporting new cooperative housing in new buildings,” said Norbert Hovančák, member of the Board of Directors of Slovenská Sporiteľňa responsible for corporate banking. “We would like to transfer their long-standing experience to Slovakia and provide another housing option for people, especially in these times of significantly reduced housing affordability.”

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It is the housing association who enters into the financing agreement with the bank. The person interested in the cooperative flat does not enter into a relationship with the bank. He/she pays only 20 percent of the purchase price of the flat together with the reservation fee and the basic membership deposit, on the basis of which he/she becomes a member of the cooperative. Then, he/she actually rents the flat and gradually repays it within monthly fees.

Hovančák considers cooperative housing to be advantageous especially for young families. The reason for this is that the bank does not assess the income of the owner of the cooperative share, but the cooperative as a whole.

“From a business perspective, it is a stable investment for us,” he said.

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Daniela Rážová of the Bond Reality company sees as an advantage that the client does not need to have the full amount if the bank does not want to give him/her a mortgage for some reason.

“It is also an advantage that they have precisely fixed repayments throughout the repayment period,” she told The Slovak Spectator. “The disadvantage is that the client must have 20 percent of their own funds and consequently, if at some point in time he/she would like to 'sell' the flat, i.e. assign the rights to the flat for a severance payment, the amount of the severance payment cannot be refinanced with a mortgage loan.”

Brath noted that moreover, there are additional fees for running the cooperative, above and beyond the standard fees associated with the management of apartment buildings.

“The monthly payment of a cooperative flat can be at the level of the renting of a similarly sized apartment, while the option of buying to own over time is an advantage over commercial renting,” he said.

Pilot project

YIT Slovakia arrived with its cooperative housing pilot project in Bratislava earlier this year. It offered a portion of flats in its Magnolia 3 of the Nuppu residential complex in Bratislava for acquisition via this scheme. The interest was so high that the developer reached the required number of cooperative members in less than two months. It originally expected this process to last six months.

Approximately 40 people joined the Magnolia 3 Cooperative. The average price for a cooperative flat was €188,861 including VAT, what equals the market value of the given flat. Most of the flats to be acquired this way were two-room flats.

YIT noted that those who become members of the cooperative confirm that cooperative housing is a desirable solution for people in a number of life situations. Almost half the applicants expressed interest in a cooperative flat as a solution to their own housing problem, another part wanting to solve housing for their parents or for their children. Only a third of the cooperative members plan to rent out the flats as a form of investment.

“Inquiries generally confirmed that cooperative housing also removes, for example, the barriers associated with the age limit of conventional financing for older applicants,” said Dovala.

As a result, more than 40 percent of the cooperative’s members are over 40 years of age. Although they might have problems getting a mortgage from a bank, they can also provide for their children or grandchildren thanks to cooperative housing.

A number of clients after divorce, who may not qualify for a conventional mortgage, have also shown interest in cooperative housing.

“For many of those interested, cooperative housing is probably the only available form of their own housing,” said Dovala.

The administration and management of the Magnolia 3 Cooperative will be in charge of the Somat Group company, which has been cooperating with the developers a long time and manages several thousand other apartments in Bratislava.

Next projects

The developer is now launching its second cooperative housing project within its Zwirn project in the Mlynské Nivy district. In the second of three residential stages, Zwirn 3, to be completed early next year, it currently offers 81 free apartments, mostly with two to three rooms, wanting to satisfy the demand.

“Interviews with potential clients demonstrated an interest in bigger flats,” said Milan Murcko, CEO of YIT Slovakia.

The developer plans to extend this product to other planned projects in Bratislava, for example at Mlynské Nivy, at the Viedenská Cesta road or future phases of the NUPPU project. It plans not only to allocate a portion of flats in individual buildings, as is the case of Magnolia 3 or Zwirn 3, but it is also planning to build whole blocks of cooperative flats.

But other large developers are still more sceptical about cooperative housing. While Penta Investments Limited is not ruling out such a form if there is demand from customers, JTRE is considering rental housing instead.

“We are looking at the possibilities of developing rental housing,” JTRE told Markíza TV.

The previous government of Igor Matovič promised state support for rental housing when Sme Rodina leader Boris Kollár saw a possibility of building 25,000 flats this way. The project has not been not started.

Rážová and Brath see room to expand cooperative housing not only in Bratislava, but also other regional cities where the availability of housing has significantly decreased.

“Therefore, we see potential for the development of cooperative housing throughout the country, especially in the context of making new housing accessible to a larger part of the population,” said Brath.