Real estate development project

What it means

A real estate development project is a venture in which a developer buys land, secures permits and financing, builds and then sells or lets flats or premises. A project takes years, and its success depends on land prices, construction costs, interest rates and demand when it is completed.

It is usually carried out through a separate project company that owns only that project. The bank then sees clear assets and liabilities, investors have ring-fenced risk, and when the whole project is sold the company can be sold instead of individual properties.

A key milestone is the building permit. Slovakia's new Building Act from 2025 merged the zoning and building procedures into a single permitting process run by the building authority, and after completion comes occupancy approval.

How it works in practice

In the accounts, flats built for sale are inventory, not fixed assets. During construction they are shown as work in progress and are expensed only when sold. If the developer lets some units, they may be investment property accounted for differently.

For VAT, selling a new building within five years of occupancy approval is generally taxable, while selling an older one may be exempt with an option to tax. For construction work between VAT payers, the domestic reverse charge applies.

The bank funds the project with a loan drawn as construction progresses, often conditional on a certain share of flats being pre-sold. Buyers pay deposits and take out mortgages, so agreements to conclude a future purchase contract and protection of deposits are important.

What to watch out for

Rising construction costs and interest rates can turn a profitable project into a loss-making one. The budget needs a contingency, supplier contracts need clear price clauses and the project needs construction all risks insurance against damage during the build.

Buyers' deposits are at risk if the developer fails. Reputable developers hold them in an escrow account or secure them with a bank guarantee, and buyers should check ownership of the land, the permits and the project company's finances.