Is the Czech market in residential properties ready for a significant transformation? Savills and LEXXUS are predicting that the trends in “alternative” property segments that we are seeing in Great Britain and elsewhere in Europe will finally reach us, including large investments in housing for families with children, students and senior citizens.
And in expectation of the arrival of such new trends last year Savills and LEXXUS entered into a co-operation partnership. The aim of this co-operation is to combine the long-term specialist knowledge of the Czech residential sector and access to assets, land and development that LEXXUS has and the ability of the international real estate advisory company Savills to make use of sources of international capital that are attempting to invest in the Czech residential sector on a commercial and institutional scale, as well as bringing specialist knowledge and administrative skills concerning capital markets.
Foreign investors are more and more interested in developments concerning large residential and mixed projects in the Czech Republic, in particular in Prague, and are looking for real estate specialists that will meet all their requirements. Savills and LEXXUS are the only international entity active on the Czech market that can offer a comprehensive team of specialists for both the residential and commercial aspects of a project. They are ready to help developers with the planning of wide-ranging mixed-use projects, for example whole districts where commercial and residential space is mixed.
“The Savills–LEXXUS partnership represents a fundamental advantage on the market, where investors now insist that one team deals with both the residential and commercial aspects of development. Modern projects require that facilities, lifestyle and experience are completely linked. These demanding projects cannot afford the risk that information will be lost between multiple teams or that there will be a price to pay for the incomplete harmonisation of work. On the contrary, they need to profit from the fact that experts in the various areas are looking for ways to make them even more attractive,” explained Peter Višňovský, head of the LEXXUS estate agency.
Until now, the development of large areas in Prague has only been successful for a couple of the strongest domestic investors, but, as the market matures, we are also seeing interest from large foreign investors willing to finance and/or develop the most wide-ranging projects, either independently or in the form of co-operation. With regard to the fact that the popularity of both the residential and investment class is rising in Europe, investment know-how in the area of apartment management, which Savills can boast, is therefore becoming more and more important for such investors. We are talking primarily about the management of blocks, the pitfalls of developing projects for rental and the selection of developers/operators – i.e. abilities that are still in their infancy in Central Europe.
TRENDS IN WESTERN
AND CENTRAL EUROPE
The Prague real estate market is maturing, but it is still very young. In terms of investment and planning it pays off to be inspired by western European successes, as well as failures. As many investors can confirm, Prague is often similar to a city where people try to stop time: this is leading to the creation of small, satisfied layers of property owners and, next to them, masses of people that are getting further and further away from ownership - of even a single apartment. A well-known burden is the rigid approvals process, as a consequence of which the situation keeps getting worse.
“Despite the evident improvement, a developer, investor, is still seen more as the enemy – as somebody who wants to increase the value of his assets and invest significant funds in them. Unfortunately, he can do so only in a manner that accepts the opinions of neighbours, politicians and various associations. This way of thinking is changing only very slowly and the evident problems when drafting the new construction bill show that the relevant entities really don’t want to be stripped of their powers,” said Peter Višňovský.
With regard to the fact that, among the markets of Western Europe and the markets of Central and Eastern Europe we have always had a certain form of lateness as far as concerns capital trends and investment focuses, it is probable that here we will see trends that we have already seen in Great Britain and elsewhere in Europe, where we will adapt to specific local trends, the lifecycle and the regulatory framework. Research by Savills shows, for example, that many “alternative” segments in Great Britain have grown to such a degree that they are regarded as traditional.
LACK OF WILL
AND THE PATH TO CHANGE
Whereas local and foreign investors want to invest large sums in Prague, the non-transparent operating environment has caused many of them to move their investment plans to countries with more transparent conditions for development and the ability to build a portfolio. “The biggest problem is that there is a lack of genuine will to change the dismal state - so it can then ‘successfully’ function for several more years, and therefore, in addition to other things, support further increases in property prices,” said Višňovský.
Foreign investors are also put off by the fact that there is still a lack of product in these segments of the Czech real estate market. If more investment opportunities were available to investors, the volumes of trading in such products would markedly rise. Therefore, the Savills-LEXXUS partnership is trying to create this product, on a large scale. They highlight the fact that residential properties to let predominate over construction for sale, which is powered by an investment mentality to obtain income. Everything is about scale, as is shown by a recent transaction, where Round Hill Capital sold the largest privately-held property portfolio in the country for EUR 1.3 bn to Heimstaden Bostad.