News for February 2024
Description:
▶ The global real estate market is sustained by funds from private investors.
▶ Buildings with zero emissions by 2050 – is the Czech Republic ready for changes?
▶ Real estate purchases are picking up again in the Czech Republic.
▶ The decrease in mortgage rates has increased demand for real estate.
▶ In Ostrava will be built an unusual parking sprace resembling a ramp with a green roof, featuring a playing field on top.
▶ In Prague, a million-dollar business of apartment reconstruction is growing up.
▶ Housing in Prague is set to become more expensive again as the municipality discusses increasing rental fees in municipal apartments.
The global real estate market is sustained by funds from private investors.
According to The Wealth Report by Knight Frank, high-net-worth individuals (HNWI) were the most active buyers in the commercial real estate segment worldwide for the third consecutive year in 2023. They invested a total of $338 billion, constituting 49% of the total investment volume. Despite a relatively low number of transactions globally last year, private capital investments proved to be the most dynamic group of investors. Private investors are more resilient to rising interest rates as they have their own capital and are less dependent on credit financing.
«Private investors are guided not only by financial calculations. Personal preferences, moods, and attitudes toward specific real estate, its history, and architecture play an important role for them. They may invest in interesting trophy assets», explains Zdenka Klapalova, Director of the Czech branch of the consulting firm Knight Frank.
The majority of transactions last year were in the rental housing segment, followed by retail properties, and then offices. Investors from the United States, Canada, and Singapore represented almost half of all global commercial real estate investors in 2023. However, among the top ten global sources of investment, only the United Arab Emirates and Japan increased their investments compared to the previous year – Japan by 156%, and the Emirates even by 349%.
The outlook for this year is positive, with the rental housing segment playing a key role. It can also be assumed that commercial real estate will remain in focus. According to the global survey Knight Frank Attitudes Survey, just under a quarter of respondents intend to invest in this segment, with the highest interest coming from investors in the Middle East (23%) and Asia (21%).
Czech investors were responsible for over 80% of all real estate investments last year. According to the Knight Frank Attitudes Survey in the Czech Republic, 26% of respondents expect a significant increase in their wealth this year, 56% expect a moderate increase, 15% anticipate stagnation, and only 3% foresee a moderate decrease in capital.
«Many successful entrepreneurs are interested in investing in commercial real estate. Acquiring high-quality income-generating real estate ensures long-term capital preservation. We increasingly encounter cases where a successful entrepreneur sells the company they built over many years and invests in real estate that requires minimal effort to manage. Moreover, the market situation is favorable for them», concludes Klapalova.
Buildings with zero emissions by 2050 – is the Czech Republic ready for changes?
The European Union aims to achieve zero emissions from all buildings by 2050. Representatives from the European Union’s member states agreed on several mandatory measures at the end of last year, such as reducing average energy consumption by one-fifth over the next decade. All of this is part of the fourth edition of the Energy Performance of Buildings Directive (EPBD).
«The directive sets goals and key stages, but the implementation depends on the Czech Republic. We can create a truly functional building renovation strategy that benefits both citizens and the state. The national level should not miss this opportunity, as is unfortunately often the case when European directives are implemented into Czech legislation», says Michal Chejka, an energy conservation consultant.
One of the major challenges for Czech construction in achieving these goals is the reconstruction of existing structures. According to a recent study by the Zateplujeme Česko association, around 75% of private houses built before 1980 need renovation.
«We need to focus on reconstructions, eliminate legislative barriers, and provide professional assistance», says Petr Przhihystal from Lomax company.
The first legislative changes will affect new buildings by 2030. Requirements for building energy efficiency will also impact the materials used, with wooden constructions being the most likely option capable of capturing carbon dioxide.
«Wood is essentially the only renewable building material currently available that can be used for the exterior shell of a building and roof,” claims Miroslav Veselý, CEO of Senzomatic», a company specializing in home humidity monitoring solutions.
The new European directive on building energy efficiency has sparked mixed feelings, such as among representatives of the Czech Chamber of Authorized Engineers and Technicians in Construction (ČKAIT). In their opinion, the proposed goals are too ambitious and unattainable under Czech conditions.
«Before implementation in practice, physical laws, technical possibilities, production capacities, local climatic conditions, and the economic side must always be taken into account. An overly activist approach should be diluted with common sense. Zero emissions are just a beautiful formulation that is practically impossible to achieve», says ČKAIT Chairman Robert Shpalek.
Nevertheless, Czechs are showing increasing interest in environmentally responsible solutions. About 20% of people are preparing to invest in their homes, such as transitioning to more efficient heating methods or installing solar panels. This comes from a survey conducted by Ipsos for the UCED company.
Real estate purchases are picking up again in the Czech Republic.
The real estate market in the Czech Republic is coming back to life. Sales of new buildings in the last quarter of the previous year almost doubled compared to the previous year, while sales of old apartments increased by 49 percent. According to experts from the Czech Banking Association, after a sharp decline in the entire market in the second half of 2022, this is more of a return to «normal».
«At the end of 2023, we returned to the activity that was at the end of 2020», says Milan Roček, the head of Dataligence company.
The revival of the real estate market, according to Jakub Seidler, Chief Economist of the Czech Banking Association, was supported by several factors such as a slight decrease in real estate prices and a slight reduction in mortgage rates. It was the decrease in property prices that helped soften the gap between property prices and family incomes within the country. He also mentions the role played by pent-up demand from the previous period. In terms of real estate price development in the European Union, the Czech Republic remains one of the countries with the highest long-term growth dynamics. Over the last ten years, property prices within the country have risen by 125 percent, while the EU average was only 55 percent. According to Milan Roček from Dataligence, property price growth will continue this year.
«The real estate market will be slightly more active this year, but I don’t think we should expect very rapid property price growth. I anticipate an increase within a few percent», he shares his forecast.
The decrease in mortgage rates has increased demand for real estate.
The ongoing reduction in mortgage interest rates is leading to increased affordability of private housing. Mortgage rates may continue to decrease, considering the expected further reduction in the Czech National Bank’s key interest rates, as explained by Petr Zamechnik, the chief editor of EMA data.
«Although low January inflation suggests that the Czech National Bank (ČNB) may accelerate the rate cut, as of today, the rate reduction remains restrained. Additionally, we observe whether there will be any delay in rate cuts from major foreign central banks (ECB, FED), which also limits us in achieving faster rates», he added.
In Ostrava will be built an unusual parking space resembling a ramp with a green roof, featuring a playing field on top.
Construction is expected to begin in 2025, with a project cost of 397 million Czech crowns. The parking facility will accommodate 600 cars and incorporates a multifunctional playing area on the roof. Additionally, the parking structure will be equipped with fast-charging stations and charging points for electric bicycles and cars.
Designed by the architectural studio Projektstudio EUCZ and architects David Kotка and Andrej Yashkov, the garage will serve two other interesting projects in Ostrava: a new concert hall, an extension to the House of Culture in Ostrava, and the Moravian-Silesian Scientific Library, known as the “black cube.” The parking building will include two underground and eight above-ground levels.
«It is expected that the construction of the parking facility will be completed within 93 weeks», stated the Ostrava press service.
«The building’s foundation consists of monolithic reinforced concrete with an irregular contour. The parking structure forms a long ramp, with parking spaces arranged around it. This ramp includes both horizontal and inclined parking spaces, maximizing the usage of parking space».
In Prague, a million-dollar business of apartment reconstruction is growing up.
According to real estate agents, approximately two-fifths of apartments in the Czech real estate market require at least basic reconstruction. Many buyers are undeterred by this and opt to purchase an older, and therefore slightly more affordable, apartment with the intention of renovating it themselves. However, a shortage of professionals and expensive building materials in recent years have slowed down this process. Companies have seized this opportunity and decided to mass-reconstruct old apartments.
«Nova et Vetera», a startup founded by former business development director in a construction company Vitězslav Pelc and former real estate manager Aldar Tsibyktarov, saw this potential. They secured not only a bank loan from UniCredit Bank but also funding from the Orbit Capital fund, specializing in financing fast-growing startups. Just last year, Nova et Vetera managed to renovate and sell 107 apartments in Prague and Brno, with a turnover of approximately three-quarters of a billion Czech crowns. This year, the young entrepreneurs aim to sell around 150 apartments and achieve a turnover of one billion.
«For old apartments, we primarily look on publicly accessible portals and avoid properties with bankruptcy, enforcement, or auction status», explains former hockey player Pelc. He emphasizes that location and the overall condition of the building are also crucial parameters.
«We always install completely new wiring, often address heating issues, equip apartments with new kitchen furniture, plumbing, and lay new floors», describes Pelc the reconstruction process.
The average price of apartments they sold last year was 7.1 million crowns, mostly three-room and two-room apartments. The company’s margin is around 15 percent.
«Even if we could significantly increase the margin in the current market, it is more important for us to sell the apartment quickly, see a satisfied customer, and use the money again for the next apartment than to inflate the price and try to sell as high as possible», describes 30-year-old entrepreneur Aldar Tsibyktarov.
The startup received a total of 125 million crowns from the bank and the fund last year. According to Martin Poncer, the head of the Bezrealitky portal, there are approximately 50-70 thousand non-residential apartments in Prague alone, of which around 20-30 thousand remain vacant due to their poor technical condition. Since 2021, material and construction work prices have significantly increased, and with rising inflation, renovations often dragged on and became more expensive. That’s why there is room in the market for companies engaged in mass reconstructions. According to the founders of the company, they can renovate an apartment in 56 days, thanks to hired professionals, their own designers, and efficiently organized logistics. They usually sell the finished apartment within two weeks.
Housing in Prague is set to become more expensive again as the municipality discusses increasing rental fees in municipal apartments.
The era of the pandemic, high energy prices, and food costs is fading into the past, and Prague is ceasing to restrain the growth of rent in city apartments. In many municipal apartments, people pay very low rent based on old agreements, and the city is slowly approaching market prices. In most cases, rent increases by about ten percent, and in some places, even by a fifth. Out of approximately thirty thousand municipal apartments, seven thousand belong directly to the Prague municipality, whose leadership is currently discussing changes to rental fees. Several options are currently under discussion.
«There is a possibility not to raise the rent at all or to increase it by half of the inflation rate. Or, if we acknowledge that the economic situation is already favorable, we can move to an increase in line with the inflationary conditions described in lease agreements»,says Prague’s deputy mayor for housing and social issues, Alexandra Udženija. A decision is expected to be made within two or three months.
In recent years, the municipality, like some municipal districts, has often not increased rental payments as rapidly as it could have according to inflation. For example, Prague 2 has not increased rental payments in its apartments for several years.
«This year, we considered the constantly rising prices of construction works and the need for financing repairs and reconstructions of residential and non-residential funds», says Andrea Zulova, a representative of the administration, according to whom the increase should be ten percent.
In Prague 1, the municipality also decided to increase the rent in all municipal apartments where tenants signed a contract with an inflation clause, mostly resulting in a 6.5 percent increase. Other municipal districts, such as Prague 4, 7, 10, or 13, are also increasing rental payments, while in other parts of Prague, this is still under discussion. Prague also continues the reconstruction of old municipal apartments. Due to high repair costs, they cannot return empty apartments to the housing stock as quickly as before. “While in 2021, the costs for one renovated apartment were 341,156 crowns excluding VAT, last year it was already 462,436 crowns,” says Udženija. Last year, only 132 municipal apartments were renovated, which is less than the 202 apartments the previous year.