Friday, Aug 24, 2007

By Leos Rousek

Of DOW JONES NEWSWIRES

RAJKA, Hungary (Dow Jones)--When Michal Zahor, a Slovak software engineer and entrepreneur living in Bratislava, decided to become a home owner his search for the best buy led him to this village in northwest Hungary.

Rajka is only 10 kilometers south of the Slovak capital and the village of 2,600 Hungarians and 300 Slovaks has unofficially become part of Bratislava's extended southern suburbs. Dissolving borders inside the European Union and Bratislava's proximity to Austria and Hungary were on Zahor's side. As well, housing prices in nearby Hungarian and Austrian villages are far lower than similar property's on the Slovak side.

"I bought my house in Rajka for some 2 million koruna over a year ago while the same house in Rusovce (a nearby village in Slovakia) would have cost about 5 million koruna at that time," Zahor said, adding that the Rajka property was also a better option than a similarly priced prefabricated apartment in the Communist-era monolithic housing projects on Bratislava's southern periphery, called Petrzalka.

Bratislava, the Slovak capital and largest city with a population of 420,000, is becoming an economic powerhouse of the wider region that now includes parts of Hungary and Austria. The expansion of Bratislava's residential suburbs into the neighboring E.U. countries shows that a central European national capital can turn into a regional generator of new business and job opportunities. In January, Slovakia and Hungary are set to join Austria in the E.U. borderless zone, known as Schengen agreement, whereby travelers don't need to show passports when crossing from one country to the next. Daily commutes from Bratislava to both Austria and Hungary will be seamless.

Buoyed by the growing wealth of Bratislava's middle class - which earns on average of between $13,412 and $19,000 per person annually - their desire to live near the big city and rising property prices in the Slovak suburbs of Bratislava, real-estate in the neighboring parts of Hungary and Austria has become a hot commodity in recent years.

While prices of building plots and existing family homes have risen by 30%-40% per year in parts of Hungary and at a slower pace in Austria closest to the Slovak border - areas traditionally viewed as rural by Budapest and Vienna - they are still often below levels of similar houses in the Slovak suburbs of Bratislava, said Mikulas Ruso, owner of M Reality, a real-estate agency selling houses to Slovaks in Hungary.

"For the price of a four-room apartment in Petrzalka, one can buy a decent 100 or more square-meter house with a garden in Rajka," Ruso said.

On average, one square meter of building land in the Slovak suburbs of Bratislava currently costs EUR104-EUR207, compared with EUR45-EUR60 in Rajka and EUR80-EUR100 in Austria's Wolfsthal and Hainburg villages, Ruso said, adding that two or three years ago one square meter of building plot in Rajka was available for about EUR15.

Elsewhere, in the Austrian village of Wolfsthal, located 60 kilometers east of Vienna and six kilometers southwest of Bratislava, Slovak residents comprise one-fifth of the 780 residents in, Wolfsthal's mayor, Gerhard Schoedinger, said.

The change in the village demographics helped it keep its public kinder garden open, Schoedinger said.

"We didn't have enough (Austrian) kids for the kindergarten," Schoedinger said. "Now this problem doesn't exist."

In Hainburg down the road, 250 of 5,600 residents are now Slovak, city officials said.

Schoedinger, married to a Slovak-Hungarian, said the Austrian region around Wolfsthal has closer daily contacts with the Slovak capital than it does with Vienna. "Bratislava is 10 minutes by car from here," he said, adding that next year the Bratislava city-run public transport authority may extend a bus line to Wolfsthal.

The public transport links from both Austria and Hungary to Bratislava are crucial as most Slovak home owners there commute daily for work.

Bratislava City Hall hasn't confirmed such plans due to cost reasons. "It may be partly some wishful thinking by some regional officials there," said Milan Vajda, a spokesman from Bratislava's mayor's office.

For now, the tax situation has also proved advantageous for many. Slovakia has tax agreements with Hungary and Austria as well as other countries to prevent a double-taxation of incomes. Furthermore, Slovak home owners in Rajka who work and pay income taxes in Slovakia also don't face local Hungarian taxes for public services such as garbage collection, Ruso said, adding that local Hungarian authorities want to close the local tax loophole.

In Austria, all Slovak home owners are required by local laws to move their legal residency from Bratislava and are becoming more closely integrated in the Austrian village, Schoedinger said. Slovaks residing in Wolfsthal continue paying income taxes in Slovakia where most of them work but also pay local taxes in Austria.

The suburban flight, coupled with the areas expansion into neighboring countries worries officials at Bratislava's city hall, as it often loses tax income unless the owners of homes outside the capital keep their tax residency in the city.

"The move to the city's suburbia means less taxes," Vajda said.

At the same time the city has to continue providing services such as adequate public transport and garbage collection for both its residence and daily commuters.

"The daily present population in Bratislava runs between 620,000 and 690,000," Vajda said, adding that the actual number of residents in the Slovak capital dropped to about 420,000 in 2001 from 451,000 in 1991.

"It is clear that like any other city Bratislava has to work hard to attract new residents and prevent losing tax payers," Vajda said, adding that luckily Slovak owners of houses in Hungary have retained their tax-resident status in Bratislava.

-By Leos Rousek, Dow Jones Newswires; +420 221 085 273; leos.rousek@dowjones.com

(END) Dow Jones Newswires

24-08-07 0001GMT