The Czech Real Estate Market
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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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