Prague property market: trends and forecasts
There are not many cities in Europe that can boast Prague's popularity both as a tourist destination as well as in terms of property investments carried out by foreign individuals and corporations.
It must be because of its strategic location just a few hours' drive from Munich, Vienna and other Eastern European capitals. It must be also thanks to the large number of low-cost direct flights connecting the city with almost every corner of the continent (and beyond). It must probably be also and above all because of Prague's unique and unrivalled atmosphere, making it a genuine emblem of "Mitteleuropa".
The first boom in the real estate market in the Czech Republic took place between 1998 and 2003: during this period average house prices in the country rose by more than 60%, also in anticipation of the country's entry into the EU in 2004. This was followed, though, by years of partial stagnation due to the fact that the Czech Parliament had decided that also EU citizens not residing in the Czech Republic were not allowed to buy property for a transitional period of 7 years.
After a brief upturn (in the years 2006-2008) the impact of the global financial crisis took its toll and average prices fell slightly. Only since 2014 has there been a real recovery and in the following years an average annual growth of 5% with peaks of more than 10% after 2016 was recorded.
And what's Prague's property market like right now? We exchanged a few words on the subject with Mr.Rostislav Petchenko, managing partner of Gartal Development, a company boasting a long-running track record of both new developments and renovation projects of historic buildings in the heart of the city.
Q - What have been the property price trends in Prague over the last 3 years? What is the average price range now in the city centre?
A - For the last 3 years real estate prices in Prague have been growing on average 15% per year. This is due primarily to high demand and lack or shortage of new housing solutions. With regard to apartments in the city center, prices range between 5 to 8 thousand euros / m2. In some projects prices may go up to 9-11 thousand euro/m2.
Q - What one can buy nowadays in Prague (and in which areas) with 100,000, 150,000 and 200,000 Euros respectively?
A - For 100,000 Euros you can buy a studio or one-room flat of up to 25 m2 on the outskirts of Prague. The storage and parking place will cost you about 15,000 EUR additionally.
For 150,000 Euros you can buy a studio or one-room flat (up to 25 m2) in the city center or in districts with well-developed infrastructure (subway station, shopping centers, etc.) or a small (up to 50 m2) two-room apartment farther away from the centre.
For 200,000 Euros you can buy a spacious one-room apartment (35 m2) in the city center or in the districts of Prague 5, 7, 8 with good transport connections and infrastructure. Basically with this budget one could find also a two-room apartment of up to 60 m2 in almost all parts of Prague, except with the center. The above examples are indicative and show a general trend. It may happen that a downtown apartment is cheaper than a similar apartment located farther away from the center. It all depends on infrastructure, transport connections, quality of the renovation and other extra features (balcony, basement, parking, etc).
Q - What are the average rental prices which could be expected for long-term rent of one-, two- and three-room apartments respectively in the center (not luxury)?
A - One-room - 600 euros per month.
Two-room - 750 euros per month
Three-room - 1 000 euros per month
The above mentioned rental rates would be inclusive utility bills.
Q - In which areas of the capital (among the most "underrated" to date) do you expect the most interesting growth in real estate prices in the coming years? Аnd why exactly in these areas?
A - In my opinion, the most promising areas as of today are:
- Globetin, Palmovka (Prague 9) - districts that have been changing their looks in recent years, where empty or obsolete sites and former industrial zones are being redeveloped into new interesting projects;
- Sporzhilov, Chodov, Zabeglice (Prague 4) - areas with lots of green areas and excellent infrastructure, where new residential and commercial projects are gradually being built;
- Nusle (Prague 4) - next to one of Prague's most expensive neighborhoods (Vinohrady), but the housing prices here are still very reasonable.
Q - As far as I know, one of the most popular investment options on the local property market are the so-called "atelier". What are the differences between these properties and "traditional" apartments?
A - "Ateliers" look like ordinary apartments however, due to their not complying with certain technical requirements, they cannot be registered at the Cadastral office as residential premises. As a result, unlike "ordinary" apartments, one can not register his/her domicile in these premises.
Q - Are there any restrictions for foreigners willing to buy real estate in the Czech Republic?
A - There are no restrictions - a foreigner has the right to purchase any real estate on the territory of the Czech Republic.
Q - Do Czech banks finance the purchase of real estate by foreigners or non-residents? If not, are there any alternative financing options available to foreign nationals?
A - Since October 2019, Czech banks can issue loans only to foreigners with a residence permit in the country. Following the introduction of this restriction an alternative financing "product" has emerged, which is today the only way to obtain financing for the purchase of real estate for a non-resident. This is made via a leasing. The leasing company acquires the property chosen by the client and the latter commits to pay it off by monthly installments. The client is entitled to use the property either for his/her own personal purposes or to rent it out to third parties. Once the financial obligations have been fully paid off to the leasing company, the client becomes the sole and full owner. The main advantage of this type of financing is that the leasing company does not require the buyer to have either an income in the Czech Republic or a permanent residence in the country.
Q - What are the typical yield expectations in terms of rental returns for apartments or commercial premises in Prague?
A - Residential property has an average yield of less than 5% per year. In commercial real estate this figure is slightly higher (4-6% per annum), but also the "entry level" of the investment is comparatively higher. Besides, small cheap premises are usually not very profitable and are poorly rented.
Q - What are the additional costs that a buyer should consider when purchasing property in the Czech Republic? When buying from a developer, VAT is usually included in the price or is to be paid additionally?
A - In case of purchase of apartments from developers VAT and other costs (stamp duties, etc.) are already included in the prices.
As far as re-sales are concerned the costs should not exceed 4% of the value of the property and include agent's commissions (in some cases they are included in the price of object), legal fees and checks, stamp duties, etc.
Q - What is the tax rate applicable to rental incomes in the Czech Republic?
A - Income is taxed at the rate of 15% for individuals and 19% for legal entities. Owners are entitled to some deductions in certain cases.
Q - How much could the property tax on an apartment in the centre of Prague cost approximately per year?
A - The property tax in the Czech Republic is very low. For example, for a 50-sqm apartment in Prague the owner should expect to pay up to 2,000 Czech korunas per year (75 EUR).
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