| Real
Estate Market in the Czech Republic
The Czech residential real estate market
has continued to stabilize over the past few years and since the
Czech Republic's entrance into the EU has gained momentum towards
a fully westernized model.
Similar to the rise of real estate in Italy,
Spain, Ireland and Portugal when these joined the EU and property
and business values rose in some cases by 500% in a time span
of 8 years.
This is now occurring in the Czech Republic.
Ever since the real estate market opened
after 1989, the development standards have been nearing those
of other Western European countries and friendlier legislative
environment, increase in quality and supply of professional real
estate products and services make the Czech real estate market
very interesting to the foreign home buyer or property investor.
Also, the maturing mortgage market is paving
the way for potential Czech home buyers to purchase rather than
just to rent their homes and apartments.
This mortgage market boom is adding momentum
to the building quality and price range of property, and competition
between the Czech banks offering mortgage financing for apartments
is fueling the residential market even more.
Some historical
background on the Czech real estate market:
The best construction quality development, with exception to the
last 8 to 10 years, was in the pre Second World War period where
building quality was much better then the post war era and, in
fact, pre war real estate is probably the most sought after by
property investors both in and outside of Prague.
After World War II along came the communists
and from the 1950s to the 1990s housing construction was financed,
overseen and controlled by the State.
A cooperative form of housing development
and ownership was introduced in 1959 by the State that required
funding by the individual cooperative members and thus reintroduced
private participation in the development of housing in the Czech
Republic.
In this period (1950 to 1990) about 50%
of the present existing housing was constructed but the housing
developed during these years was for the most part, high-rise
multiple unit buildings of the pre-fabricated sort, also known
as 'panelaky' or panels and panel apartment buildings.
These were quickly assembled out of materials
that were suppose to last for generations but in reality, some
of the components, mainly concrete 'disappeared' during construction
resulting in quickly delapidating constructions not to mention
the ugly landscape these still leave behind today.
The 'lost' concrete was made up for by the
use of more water and hence a lesser quality product ensued.
The size structure of these 'boxes' was
usually quite small and never really met the needs of a family
with children.
But in a regime where everyone had the right
to have a roof above their head, who cared (from the regime's
point of view), if people were living in small concrete units.
Some 2,100,000 of such housing units were
built between 1945 and 1990, which is approximately 58% of the
total number of units occupied as of 1991.
These buildings, including some of the newer
ones, are deteriorating at a rapid pace not only because of the
poor construction quality but also because of a lack of maintenance
or funds for maintenance.
Approximately 43% of Prague's population
lives in these units today and this percentage tends to get much
lower in other Czech towns where the density of population is
noticeably lower.
Today, the panelaky or panel apartment blocks
and the contained apartments mainly house the not so wealthy segment
of the Czech population and are going up for sale at really cheap
prices.
Many foreign investors have found great
deals in buying several top floor apartments in a panel block,
renovating them into larger loft apartments and then either renting
them out or reselling with a substantial profit.
Due to the fact that the concrete walls
are pretty thin and allow one to hear another tenant 4 floors
down snoring at night, the only viable option for the sensible
panel flat buyer is the top floor.
So before the 1989 Velvet Revolution, almost
all real estate belonged to the State and an average newly wed
Czech couple may have had to wait for up to 10 years for their
own apartment in Prague and up to 3 in most other larger towns
throughout the Czech Republic
Today it's a 5 year wait for a State owned
apartment in Prague and much less elsewhere.
The "Velvet Revolution" brought
about major changes in the political and economic life in the
Czech Republic and these changes significantly changed the housing
sector with major State funded housing developments being phased
out completely by 1992 without providing any alternative policies
to make up for it.
Housing expansion, therefore, reverted to
the individual municipalities and the marketplace in general but
at the same time remaining highly regulated by the State.
Since those early years of economic and
political reform, the leasing and sales markets have undergone
a steady metamorphosis which at the moment is mainly to the foreign
investor's advantage.
State owned
flats availability demand and supply:
Now days there are about 350 flats available for every 1,000 inhabitants
which is not far off the mark for other western countries but
it is estimated that 1 out of every 12 flats remain unoccupied
for one reason or another.
The individual holding the rent agreement
finds it in his interest to continue paying a low regulated rent
rather than return the flat to the State and back into commerce.
Such tenants keep the flat empty with the
intent of allowing their children to use the flat sometime in
the future or in some cases it is sub-rented illegally at a price
several times higher than the State controlled price.
Private owned
flats availability demand and supply:
The wait to rent a privately owned apartment is considerably shorter
but since standard market rents are well beyond the incomes of
most Czechs, in reality the wait for a place to call home is much
longer.
A different story for foreign flat renters or buyers.
Prague - the
economic island.
As one might guess, Prague should be considered as an island inside
the Czech Republic where wages are 150% of the average national
wage and unemployment is practically non existent.
This is due to two main factors:
One is the influx of foreign companies with
headquarters or large office concerns in Prague and the massive
foreign work force working and residing in Prague.
After all, Prague is the center of Europe and this is of strategic
value for many international companies.
The second factor is the tourism sector
where 90% of the 2,800.000 tourist who visit the Czech Republic
each year, visit Prague and Prague alone.
This basic scarcity of available apartments
also defines all aspects of the Czech housing market and not only
in Prague - from the rental market through to the sales market.
Both these factors contribute to real estate
prices, both residential and commercial, to being incomparably
high in Prague as to most other Czech towns and regions where
prices are much more sensible.
Elsewhere
in the Czech Republic.
Elsewhere in the Czech Republic the situation
is almost completely inversed.
The building of the panel block apartments
was done mainly in large towns and industrial regions but most
of the rest of the Czech Republic was left to exist with it's
small row houses, detached family houses, farm cooperatives and
lots of land to spare.
This has resulted in very accessible real
estate prices throughout most smaller Czech towns and especially
the villages.
Most of these 'deals' are very old houses
falling to pieces but the the actual deal in itself is that one
buys both the building structure with the option of renovating
or knocking it down to build from scratch, plus the surrounding
allotted land.
This is more profitable than just buying
empty plots of land with building permission because the old houses
and land plots are comparably cheap - and - most important - connected
to the town or village network of sewage, electricity and water
services.
Not to mention road access.
Why is Czech
countryside property so cheap ?
Young Czechs are abandoning the smaller villages opting for better
job opportunities in the big towns so there are many a great real
estate deal to be found in smaller Czech villages as opposed to
town centers.
Even many better off Czech retirees are
buying property in these same villages to make their pensions
stretch out further but at the same time many villas and houses
in the villages remain un-rented and unsold because unfortunately
(or fortunately as in the case of the foreign house buyer) most
Czechs just do not have the money to buy or rent them and for
them it is more viable to move to a major town to pay more rent
but to earn more salary.
So if some Czech retirees can afford to
buy these villas and slowly renovate them, then international
western European countries' home buyers would consider the prices
very affordable.
Here we are in the region of Euro 9.000
to Euro 30.000 with costs of building and renovating materials
being very cheap and the cost of professional labour (bricklayer,
plumber, electrician) ranging around
Euro 3 per hour.
Average general labourer wages in the provinces can be as low
as 2 Euro per hour.
In conclusion,
as with the Prague real estate market, the rest of the Republic's
real estate market ends up being divided into two main segments.
1 ]
The czech investor, property - home buyer
In this cases, in interest to the large
housing developer - there is room and opportunity especially outside
of Prague
2 ]
The foreign, expat investor - property buyer.
In this second case, the foreign investor
would either be looking for renting out or reselling to another
foreign investor, or investing for his own personal needs such
as a retirement home, second home or a holiday home
Overall there is simply not enough quality
housing available in today's Czech Republic and even the reasonable
quality real estate is too expensive for czech home buyers pockets
so for the international, foreign home renter and buyer or property
investor, be it someone looking for a retirement home, or wanting
to buy, renovate and rent out or to resell - the Czech property
market is very favourable indeed.
The Czech market (directed at the Czechs)
is experiencing a slow but steady increase in rental prices while
the expat market is undergoing a decrease in pricing and there
will be an eventual convergence.
This is expected sometime over the next
few years and once it occurs, the marketplace will become
similar to any other western market where locals and foreigners
alike will be able to find housing at the same pricing levels
without regard for nationality, etc.
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