News for April 2024
Description:
▶ Micro-apartments are becoming increasingly popular in the Czech Republic.
▶ Prague is planning to invest tens of billions Czech crowns in the construction of municipal apartments.
▶ Discounts on apartments are coming to the end.
▶ The state is preparing new regulations for Airbnb.
▶ Central Group is starting to sell investment rental apartments with a guaranteed annual income of 5%.
▶ Prices and the level of sales of new apartments in Prague are significantly increasing.
▶ The real estate market is picking up: developers report a 100% increase in sales.
▶ Inflation in the Czech Republic has stabilized at the level of two percent.
Micro-apartments are becoming increasingly popular in the Czech Republic
There’s growing interest in the real estate market towards these so-called micro-dwellings. Developers are offering apartments just a few square meters in size, mainly in major cities within the center where residents don’t spend much time indoors. The interest in renting and buying such apartments is driven by high mortgage rates and economic instability. For example, an approximately 18-square-meter apartment in the Prosek residential complex in Prague sold for 2.5 million crowns and is now rented out for 15 thousand crowns. In the Prosek residential complex, the smallest living unit is around nine square meters, and even this apartment has been sold and rented out. The average size of apartments in the entire building ranges from 14 to 19 square meters.
«85 percent of these apartments are rented by Czech clients, usually managers or students. There’s a waiting list, so if something happens, we’ll find someone interested on the same day,» claim real estate agents. Another similar project is located at the other end of Prague, in Hodov.
Another similar project is located at the other end of Prague, in Hodov. A construction company acquired part of a former hotel and is now completing a project of 250 apartments. Most of them are former hotel rooms, and for larger apartments, architects combined two rooms.
«We have a total of 150 apartments with an area of 22 square meters, and another 100 apartments with an area of 45 square meters,» says Stepan Smrchka, the company’s development director. Investors mainly show interest in these apartments, as do some parents for their children. Two-room apartments are also purchased for personal use.
«At the final stage of construction, we have sold about 60 percent of the apartments,» adds Smrchka. Two-room apartments here are sold for five to six million crowns, while smaller ones go for around four million.
However, some developers do not reduce the size of the apartments. Central Group notes that the average size of studio apartments in their portfolio is less than 35 square meters, which is similar to five years ago.
«From experience, we know that it’s almost impossible to live in an apartment less than 25 square meters without significant compromises. Therefore, we don’t build such apartments and don’t want to,» says Ondrej Stastny, the company’s chief analyst.
Real estate agencies confirm the interest in small apartments. However, they mention that apartments under twenty square meters are not yet common in the market – they are usually converted basements and attics. Therefore, they are not considered entirely as apartments but as residential spaces, although they still qualify for residency. For property to be classified as an apartment, it must be at least 16 square meters.
«As soon as today, we post an apartment up to 30 square meters on advertising portals, we receive an instant influx of calls from potential interested parties, both for sale and rent categories. We often choose from ten applicants,» says realtor Jakub Zizka from RE/MAX Alfa.
The real estate sales server Sreality offered over 470 apartments with an area of 25 square meters in March of this year. Nearly 150 of them had an area of less than 20 square meters. The most expensive apartment with an area of 20 square meters was sold in a new building in Prague (Smichov district) for 5 500 000 crowns. A similar apartment in Brno cost 3 399 000 crowns.
Municipalities are also beginning to adapt to the trend of creating so-called starter apartments for rent. For example, Prague 1 is starting to convert a long-empty and dilapidated residential building into nine new small-sized apartments.
Prague is planning to invest tens of billions Czech crowns in the construction of municipal apartments
The Prague development company (PDS) is preparing to create eight thousand urban apartments for rent. According to PDS director Petr Urbánek, who was allocated 800 thousand square meters of land by the city for this purpose, the first construction work will begin in two years. The projects prepared by the company may receive approval from the construction management by the end of this year. Overall, the municipal developer will be able to start building around 140 apartments in four districts of Prague by 2026. One of the reasons for creating PDS is the housing crisis, which has been a significant political issue in Prague for several years.
In addition to small projects prepared by PDS, the construction of entire new urban quarters is also planned. An example is the Nove Dvory project near to the new metro station area, where municipal rental apartments, offices, educational institutions, and indoor and outdoor sports facilities are planned to be built. Up to five thousand people could live here. According to the city’s plan, workers in so-called preferred professions will receive municipal housing. These include teachers, nurses, firefighters, or police officers. According to a survey conducted by the developer, there are over a hundred thousand employees in these professions currently working in the capital.
«A police officer working in Prague receives the same salary as a police officer working in Ostrava, but they spend much more on housing in the capital. This fact leads to these Prague workers moving to cheaper regions of the Czech Republic. We need to prevent this,» explains the head of PDS. He also expects that in the first year of construction, PDS will invest over a billion crowns in implementing its projects. Over the next ten years, the municipal developer expects total investments in construction amounting to around 48 billion crowns.
According to Alexandra Udženija, the deputy mayor of the capital for social affairs, housing construction, and healthcare, negotiations are currently underway regarding financing options for individual projects.
«At present, the Ministry of Finance, in collaboration with the Ministry of Regional Development, is preparing financial packages for financing rental housing. We are considering the possibility of creating a special financial package for these purposes,» said Alexandra Udženija. According to Petr Glavačka, the deputy mayor of the capital, Prague will not object to involving private investors in the projects.
«The Prague development company will prepare projects as required by the city. Then it can seek partners who would finance the project,» he said.
Discounts on apartments are coming to the end
The real estate market with new apartments in the capital is returning to record levels. In the first quarter of this year, 1600 apartments were sold – several times more than in the same periods over the past two years.
«In 2023, about 650 apartments were sold in the Prague market at this time, and now there are already at least 1600 new apartments. This period resembles the results of 2021, which was a record year,» comments Petr Michalek, the general director of Skanska Residential, the development of the new construction market in Prague. According to him, the growing demand was facilitated by the decrease in the inflation rate and current interest rates, which are at their lowest level since June 2022.
«Customers which are financing real estate with mortgages are returning. In normal years, their share usually amounted to about 80 percent. Over the past two years, it has significantly decreased. But now we are approaching a ratio of approximately 50 to 50,» he describes. This year, construction of residential projects will be active again. Last year, according to the analysis of the Association of Architecture and Development (SAR), residential construction fell by 15 percent.
«Demand from developers for construction companies is growing, and there will be many projects that will be put on the market. Therefore, there will be more work for construction companies,» according to the management of the Skanska development company. This year, they plan to start building apartments in three locations in Prague.
Considering the growing trend of sales of new apartments in Prague, according to the director of Skanska Residential, marketing campaigns launched by most developers in the market in the past two years to attract customers will soon end. They often appeared on the market in the form of free parking, equipped kitchens, or other details in apartment interiors. Clients could save hundreds of thousands of crowns on these bonuses. Now, due to the growing interest in buying new homes, the cost of real estate will also increase.
«The decrease in prices ended last year, and this year we expect a slight increase, about five percent,» predicts Petr Michalek. Opportunities for institutional investors will also decrease.
«During 2022 and 2023, they received very good offers from developers, buying stages or even entire projects. I think that with the return of demand, such opportunities will become less frequent. Developers will prefer end consumers first and foremost,» adds the director of Skanska Residential.
The state is preparing new regulations for Airbnb
Tourists’ interest in accommodation offered on short-term rental platforms like Airbnb is growing. This is confirmed by data from the company Seven Keys, which manages 85 apartments in the center of Prague through the Airbnb platform.
«Thanks to high demand, we even raised prices by about 25 percent. It was also necessary to increase the cleaning fee, which was necessary to do due to rising expenses,» describes the current situation Zuzana Benesova, the founder of Seven Keys.
«In the last two years, in April and May, we reached 80 percent occupancy, which is about one-fifth more than before the crisis. According to already confirmed bookings for spring and summer, we expect the current season to peak after the coronavirus pandemic,» she adds.
Rising rental prices on short-term stay platforms are also shown by published statistics from the company AirDNA, which has long been analyzing the market. Back in April 2022, the average daily accommodation price in Prague was 2500 crowns. This year, in April, the average price has already risen to 3200 crowns.
Due to the increasing flow of tourists, Czech authorities are planning to introduce new regulations regarding short-term rental of housing. The goal of the new regulation is to improve the system for registering hosts renting apartments on a short-term basis, and this will be aided by regulation presented by the European Commission at the end of last year. Each published offer on short-term rental portals will include a registration number for each residential apartment rented on a short-term basis. This number will be issued by the Ministry of Regional Development (MMR) through a specially created electronic system.
«At the same time, online platforms will regularly provide reports on their activities. Thus, the state will obtain data about the location and quantity of short-term rental transactions. Thanks to these amendments, we expect greater market transparency and price alignment in this segment,» explains the MMR press secretary.
The provision of short-term accommodation services is currently regulated by the Building Act. According to its provisions, owners of apartments who want to provide short-term rental services must apply for permission to change the building’s purpose. In other words, the property must not be a “residential building” but must be an “accommodation building”. Attempts by the Czech Republic to regulate the short-term stay platform market are also welcomed by Airbnb itself, which holds the largest market share in the Czech Republic compared to its competitors.
Central Group is starting to sell investment rental apartments with a guaranteed annual income of 5%
The residential real estate developer Central Group is introducing a new real estate and investment product that did not exist on the Czech market before. Sales of investment apartments intended for long-term rental with a guaranteed annual income of 5% are starting in the Harfa Invest project in Prague 9. This is over a period of 2.5 or 5 years after the commissioning, during which Central Group will provide rental for clients. Over 5 years, such an investment can bring a guaranteed income of 25%.
When investing in buying a new apartment in Prague, there are two ways of increasing the invested funds can be expected. Firstly, through rental income, and secondly, through an increase in the property’s value over time. This increase over time usually significantly exceeds rental income. Over the past 10 years, according to statistics, prices for new apartments in Prague have increased by 149%, and some even by 162%, which corresponds to approximately 15% annual profitability. This can be supplemented by potential rental income. Central Group founder Dusan Kunovsky speaks about the company’s new product:
“We fully trust the quality of the apartments we built in our locations and also the long-term growth of the real estate market in Prague. That is why we have created an investment rental apartment program for our clients, based on which we can guarantee a 5% annual return on investment.”
The sale of apartments in the project is associated with subsequent management and rental of the apartment by Central Group, at the client’s choice for 2.5 or 5 years from the completion of construction. At the end of the agreed period from the completion of construction, the client can return the apartment to the company. Currently, approximately one-third of apartments on the Prague market are sold as investments. Entire residential buildings designed and built for rental from the outset have several advantages. It doesn’t matter whether the entire building belongs to one institutional investor or individual apartments belong to different investors, who then entrust one company with management and rental. This whole process works professionally and much more efficiently than individual decisions on management and rental. This applies to both apartment owners and tenants. The creation of investment rental apartments is also beneficial for the state because, unlike individually rented apartments, there can be no leakage of taxes from undeclared rental income in this system.
Prices and the level of sales of new apartments in Prague are significantly increasing
Sales of new apartments in Prague have significantly increased this year, developers sold 1520 of new residential units totally in the first quarter, which is nearly three times more than the same period last year, according to analysis by Ekospol.
«The sales of new apartments in Prague have seen a significant increase at the beginning of the year. Mortgages have finally started to become cheaper, and the number of clients with mortgages is increasing again. Another significant factor driving sales growth is the return of more affordable apartments to the Prague market,» noted Eugen Korec, CEO and Chairman of the Board of Directors at Ekospol.
. During 2023 year, developers sold totally around of 3650 new apartments in Prague, representing a 52 percent increase compared to the previous year. However, it was the second worst year in the history of monitoring the real estate market in the Czech Republic. Expensive and inaccessible mortgages and an unstable economic situation had a particularly strong impact on the housing market in Prague in 2022. At that time, only 2400 new apartments were sold, and it was the lowest figure in the last 20 years. This year, prices for new apartments have started to rise again. Today, the average price increase per square meter of a new apartment compared to last year is +1.3%. Additionally, supply still exceeds demand.
«I expect this year to be characterized by improved affordability of buying the residential properties. Mortgages will continue to become cheaper as the base interest rate decreases. This will stimulate demand for homeownership, which will be more in demand this year, as we can already see. Construction companies can already offer very attractive conditions for large orders with hundreds of apartments, which will also affect the price for the buyer,» believes Eugen Korec.
The real estate market is picking up: developers report a 100% increase in sales
Improving of positive moods in the real estate market and society in the Czech Republic is noticeable. The gradual decrease in the inflation rate, expected reduction in interest rates, acceptance of the “new reality,” and the strong desire of the Czech population to own their own homes are having a positive impact on the market dynamics. While sales volumes have not yet reached the levels we were accustomed to before, since the end of last year, we have seen signs of revitalization in the market.
This is confirmed not only by the increase in the number and volume of new mortgages issued, which from March 2023 to February 2024 reached 136 billion crowns, representing almost an 8% annual growth, but also by the number and volume of transactions in the real estate market. This year, we also observe significant sales growth from many developers, for example, at JRD, sales of individual projects have reached the 100% mark.
«In the first quarter of this year, we noticed an 80% increase in interest in completed projects. For some projects – specifically Vital Kamýk and Císařská vinice – there was even a 100% increase in sales. The significance of demand from those wishing to own their own homes is also growing very positively. In 2023, every 11th potential buyer purchased real estate. This year, on average, it’s every eighth, and for some of our projects, every fourth potential buyer,» commented company representatives.
Thus, it can be said that there is no longer any need to wait better times to purchase real estate. From the current development of real estate prices, it is clear that prices, especially in the primary market, will not decrease. With the gradual stabilization of the inflation rate and the expected reduction in interest rates on mortgages, the market is gradually recovering not only in terms of sales volume but also in terms of prices. The initial shock associated with reduced demand has passed, and gradually, the market will see what is known as pent-up demand. There is also a high probability that in 2024, we should not expect a decrease in real estate prices. On the contrary, prices will moderately increase.
Inflation in the Czech Republic has stabilized at the level of two percent
Year-on-year growth in consumer prices remained at the same mark in March as in February, at two percent. Inflation thus remains at its lowest level since December 2018, according to the latest data from the Czech Statistical Office (CSO).
According to statisticians, the slowdown in year-on-year price growth can mainly be attributed to developments in food and non-alcoholic beverage prices, which decreased by six percent compared to the previous year. Prices for goods overall increased by 0.1 percent in March compared to the previous year, while prices for services increased by 5.4 percent.
Expenditures on own housing increased by 0.9 percent in March compared to the previous year. Prices for apartment rentals also rose up (by 7.1 percent in annual terms), as did goods and services for apartment maintenance (+4.6 percent), water supply (+10.9 percent), electricity (+13.1 percent), and heating and hot water (+3 percent). Meanwhile, prices for natural gas decreased by 5.2 percent, and solid fuels by 4.4 percent. Thus, expenditures on housing and energy remain higher than a year ago. Food prices, which experienced a deepening price decline in March, positively influenced the reduction in inflation. Flour (-27.8 percent), pork (-5.7 percent), yogurt (-7.9 percent), fruits (-2.9 percent), and vegetables (-4.8 percent) experienced the greatest price decreases. According to preliminary data, the Harmonized Index of Consumer Prices (HICP) in the Czech Republic increased by 2.2 percent compared to the previous year in March. This is lower than the average for eurozone countries (+2.4 percent) and neighboring Germany (+2.3 percent) and Slovakia (+2.5 percent).
Thus, inflation has been maintained at the inflation target long-term goal by the central bank for the second consecutive month. This is a signal for central bankers to lower benchmark interest rates even faster, which currently significantly exceed inflation. Lower interest rates will lead to cheaper mortgages and loans, revitalizing the real estate market and the entire Czech economy.