Czech Property Check

Czech Property Check

The International Herald Tribune (IHT) reports that the residential property market in Prague has matured and no longer the attraction of gold field for property investors. The article says that annual returns at 5% are still a little higher than for Western European markets and that the Czech Republic presents some sound investment propositions, especially at the higher end of the property range. This contrasts with the rosier picture painted by Property Secrets in mid-January which forecast growth rates of 20% for Prague and 15% for Brno ( the country’s second city) in 2007.

The RICs report (pdf)on European residential property confirms that the high end of the market is the most promising – note that the Czech republic has had the lowest level of house price inflation among smaller European countries in 2005/6). Mortgage rates are currently at around 3.8% for a one year fixed rate mortgage or 4.45% for a five year fixed rate mortgage.

The country’s interest rates trend is very uncertain with the possibility of further rises to stave off inflation and a further slide against the Euro (read Bloomberg article here). Mortgages are available in Euros or Crowns (Czech Koruna) but, given the exchange rate situation, a local currency mortgage may be a safer commitment. The longstanding legal requirement for foreigners to purchase property by means of a Czech registered company is now being repealed to meet EU requirements.

Specific mention is given by the IHT to developments such as Central Park Praha and River Diamond. Central Park Praha is adjacent to the Parukarka Park (with its views making it a counterpart to London’s Hampstead Heath or Crystal Palace and with a beer garden). Prices in these developments are in the region of 50,000 to 100,000 crowns a square metre (approx. 1,750 to 3,500 Euros a square metre). However, although both developments are in desirable locations ‘River Diamond’ is beside the Vltava – the buildings are strictly modern with no stylistic connection to the baroque or classical gems to be seen in the city centre.

The International Herald Tribune warns readers that rent controls are due to be phased out by 2012 and that this may lead to a wave of property renovations aimed at the higher end of the market with consequent increased supply and lower prices. Sooner still (New year 2008) are planned increases in the VAT on residential property sales on all but the smallest accommodation.

Property Secrets cites this as a reason for optimism on 2007 opportunities with owners rushing to sell but the Czech authorities may be aiming for calmer residential market that suits owner occupiers better than property investors. General considerations for investors in Czech property are the relatively low current levels of home ownership (47%) and the ongoing need for new homes to be built to replace the ageing poor quality housing stock from the communist era.

Demographic projections from the Czech Statistical Office website show a likelihood that the country’s population could begin to fall in less than twenty years and that a decline in new households could set in within 10 years. As far as overseas investors are concerned a liquid market in residential property is really confined to Prague but longer-term there is scope for substantial regional development in tandem with the heavily populated areas of Saxony, Silesia and Southern Poland.