Starting from the beginning

Ok, I'm new to this blogging thing but I am a fan of collecting data and instead of hording it, I thought it would be better to share it and compare notes with other folks interested in property in Central Europe.

I'm based in Prague.  I've been in the real estate business since 1981 when I got started as a commercial investment Broker for what was then Coldwell Banker Commercial Real Estate Services (nowadays known as CBRichard Ellis).  I went from agent to institutional asset manager for the FDIC (Federal Deposit Insurance Corporation), then RTC (Resolution Trust Corporation then out of government work to Mutual Benefit Life.

In 1995 I made a major jump!  The Atlanta office of MBL was closing and instead of moving to Newark, New Jersey I decided to take my pay and travel.  I came to Prague which was to be a hub for me to travel and see more of Europe.  I ended up meeting another American, of Czech decent, Roman Mica who was operating a small residential real estate agency.  Roman got roped into the business by all of the expats looking for housing.  Because he spoke Czech he offered to help - and the business grew.

The Cliff Notes version is that while I originally planned to help Roman for a year it's been 15 years in which I've specialized in the residential sector.

 The last few years has presented all of us with major changes in the landscape.     

2009  brought about disbelief more than anything - or maybe it was avoidance.  If I ignore it, it will go away!  People in Central Europe didn't think that the crisis taking its toll in the US, the UK and Ireland would ever come their way.  But, as someone said, shit rolls down hill.  The US was at the top of the heap with the UK and Ireland not far below.  The Czech Republic was at the bottom somewhere so it just took a little longer for the crap to hit them.  Strangely, it didn't come down as hard as many thought.

RESIDENTIAL MARKET OVERVIEW – PAST AND PRESENT 

Starting in the mid 2000s, the post-revolution growth throughout the region turned into a tsunami of a boom as it became progressively easier to borrow money and as more and more locals saw their way into home ownership. This cheap money contributed to a flood of fresh investment throughout Eastern Europe's property segment.  Many governments in the region, however, failed to counter growing signs of a debt-fueled bubble.  This eventually made itself know locally in the form of higher-than-affordable housing.  It also became problematic in some areas, albeit not so much in the Czech Republic, because of mortgages made in foreign currencies such as Swiss Francs or Swedish Crowns.

Locally, 2008 started off riding the wave of 2007’s high sales volumes which were the best in Czech property history.  The year started with a bang but ended with a thud and from the last quarter of 2008 the global downturn began being felt throughout Europe.  Unfortunately, it is becoming more apparent as we moved into 2010 that there will be continued bad news coming down the road even though most agree that the Czech economy is still relatively strong when put up against Hungary and Latvia, for example. That said, exports, which make up approximately 70% of GDP, deteriorated and uncertainties persist throughout the  European financial markets.

 

The Czech Republic, like almost all of its neighbors to the east, experienced a real estate boom over the last several years with 2007 being, for all intents and purposes, the winding up of the big bang. This dynamic progress in housing development was catalyzed over the years by the improving economic situation of citizens and higher demands on living and housing.   One key factor for the positive growth in housing development was a very favorable mortgage market. 

Prague has always been at the center of the booming Czech market although a shift to other regional cities is now more evident.  Prices on flats in Prague grew over 11% on a citywide average during 2008, keeping up with 2007’s impressive 15% growth.  In 2008 as in 2007, the growth within Prague was situated more outside of the central districts as new flat developments continue to spring up all along the landscape. These areas wowed market watchers with, in some cases, up to 20% increases while the more established central districts posted modest increases closer to 10%.  As the crisis hit the US and UK, within the third and fourth quarters of 2008, locals began to watch and wait.  The slowdown in uptake became more evident when sale numbers were posted in early 2009. It is estimated that prices of new residential projects throughout the Czech Republic are expected to continue to stagnate, at best, while old apartments and new apartments in secondary locations will see up to a 15 percent decline in prices.  It is our opinion that overall values will remain relatively stable in the center of Prague.  Price declines in outer areas of the city and beyond will, more than likely, level off although poor locations will feel the heat. Panelak apartments will feel more of the crunch with prices falling up to as much as 20%, depending on location.