Private investors are buying between a quarter and a half of all properties in Prague development projects. The greatest interest is enjoyed by smaller apartments with a layout of one room plus kitchenette and two rooms plus kitchenette in good locations. Demand from investors is pushing the prices of all residential properties up. Prague needs to be compared to Munich, Berlin or Hamburg, where most people live in rental apartments.
Every tightening, even if only forecast, by the Czech National Bank of the conditions for providing mortgages gives rise to expectations that property prices will at least stop rising. The trend in sales in the medium, premium and luxury segments, however, shows that even less available mortgages have not influenced prices that much. This is because the driving force behind sales is investors depositing money. Their appetite for investment apartments is secondarily pushing the prices of all properties up.
On the Prague and suburban market in the last half a year we have offered almost 10 projects in the medium, premium and luxury segments. So there are certainly properties to sell and buy. And private investors are taking advantage of this in pre-sales. Depending on the type of project, before the official start of sales they buy a quarter to a half of all apartments.
The typical investors are financially secure Czechs; foreigners to a lesser extent. They are looking for opportunities in the form of apartments with layouts of one room plus kitchenette or two rooms plus kitchenette up to 50 m2 in attractive locations. In most cases they are looking for an apartment for further long-term rental, a smaller part plan to use the apartments partially or are just buying them for inventories. Usually they buy individual apartments, often repeatedly in different projects.
“The market’s logic tells us that an investor will avoid today’s expensive apartments because property prices will have to start to fall sooner or later. Investors are taking this assumption into consideration. What they expect from buying an apartment is primarily the safe deposit of money and appreciation over ten to twenty years. They assume that in this time there will be at least one stronger market correction. They are betting, however, that Prague will keep getting richer and that increases in housing prices are unavoidable,” explained Karel Bor. LEXXUS Group Chief Executive Officer.
What applies to investment apartments is that the main criterion is not the price per square meter, but the expected return on the investment consisting of rental or future sale. “The recordholder in speed of sales is the luxury Rezidence Churchill project. After two months on the market almost 60% has been sold. But the suburban Zahrady Roztoky V project, with its cheapest houses with prices just under CZK 8 million, was half sold before it was marketed. We are seeing a fall in interest only in the case of young families and millennials, these groups are, more and more frequently, reaching for rentals,” added Karel Bor.
High demand from the luxury and premium segment is influencing the medium and lower parts of the market. When the owners of older apartments see that sale prices are breaking records, they take advantage of the trend. Therefore, today we are seeing apartments in pre-fabricated buildings at prices that, five years ago, were for the upper medium segment.
According to the HPI (House Pricing Index) the prices of Czech properties have risen by a quarter in three years. I don’t expect another such jump. In each quarter you can expect year-on-year growth in the single digits. Unfortunately, we are catching Germany up in property prices much faster than in salaries. And Prague, in particular, needs to be compared to Munich, Berlin or Hamburg, where most people live in rental apartments. They can’t afford their own place to live. I assume that investors can see this trend.
It would seem that Prague’s success is bringing potential buyers of their own homes only negative things. Personally, in today’s boom I see an opportunity to permanently improve the city’s appearance. Developers have the courage to start more expensive projects such as brownfields revitalisations, they are investing in quality architecture and materials. And in the long term those that can’t afford a mortgage now will profit from improvements in the stock of housing.