This is pretty cool!

Thanks to our friends at Bezrealitky.cz, there's this very nice and self-explanatory price map of Prague and its surrounding areas.  These prices appear to be based on the hundreds, if not thousands, of For Sale By Owner listings within the Bezrealitky pages.  

I think it's a great tool to see where pricing is within the city.  Not many new developments are shown, although there is one high-price "bubble" in the middle of Zizkov which I would tend to think is Central Park Praha.  You be the judge and please feel free to comment on whether or not you feel this map correctly portrays the pricing in Prague.       

News and Information

I've added some links to the side that I will update more regularly.  These links will be of current events including news from various markets around the world which I hope will be of interest to everyone.  If you find something that you'd like to share, please let me know. I'll give credit for any article I receive.

When exactly is a good time to buy?

It's really a hard call to actually RECOMMEND to anyone that now might be a good time to buy.  Really depends (1) on the market you're considering and (2) what price level you're looking to get into.  And though it hurts my overall sales business, I am almost feeling better about recommending renting for the following reasons.

Using the Owning versus Renting School of Thought

In many cases, annual rents (not including service charges and utilities) are typically 2.5% to 3% of the purchase price while mortgage rates are 4 to 5%, so it could cost almost twice as much to borrow the money as it does to borrow the house. So then why buy when it's more advantageous to rent - at least until prices come down to an affordable level?

Let's face it; renting is a cash business that proves what people can really pay based on their salary, not how much they can borrow. Salaries and rents in and around Prague prove definitively that high property prices have to come down more before sales will get back to "normal".

If you're considering buying either as an investment or to occupy, here's something I found that I think is a very good way to judge whether or not owning works for you (or if you're better off renting). 

annual rent / purchase price = 3% means do not buy

annual rent / purchase price = 6% means borderline

annual rent / purchase price = 9% means ok to buy

So let's use a typical new development in Prague to test this.  Average prices are hovering around 55,000 CZK per meter.  Using a 60 sq meter flat as an example and a rent of 13,500 per month we arrive at a Rent/Price indicator of 4.5%.  A luxury flat in a somewhat desirable location fares worse.  120 square meters, priced at 80,000 CZK per meter commands only about 30,000 CZK per month.  That equates to an indicator of 3.7%.  Hardly encouraging when thinking about buying.

The same 60 sq meter flat priced at 45,000 per meter and renting for even slightly less will bring you closer to the 6% borderline indicating that this flat could be worthwhile owning.

Two more things to consider if you're thinking about buying. First is that there are a lot of empty new flats out there.  Developers cannot compete with existing (second hand) sales and will have to reduce prices because they must sell to keep their businesses going. They need the money now. They simply have too many empty flats that they cannot sell at current prices. 

 Second, in my opinion, when interest rates go up, prices will come down. Those with cash in hand will win out as they will have leverage with the developers who will need that cash.  

It was the best of times; It was the worst of times

I'm using the opening line from Charles Dickens' "A Tale of Two Cities" only because I am thinking of the differences a few years have made in the property market in Prague - perhaps everywhere nowadays.

Once robust, the market seemed to see no bounds.  Businesses started on a few Crowns because leasing and sales were booming and immediately generating cash flow which kept business owners in a lifestyle which they immediately became accustomed.  Business plans were not even a requirement for many.  Why?  They all knew what they were doing.  Hire a few girls for leasing flats in the center and houses around the International School and they'd be swimming in it.  Talk a few developers into letting your company represent their projects; help with designing the layouts that the buying public would like; implementing the right marketing campaign, etc, etc.  Every Tom, Dick and Honza got into the real estate agency business or worst, property development, it seems.  Every bank got on the mortgage band wagon.  And no one at any point thought about what might happen if a market correction occurred.  

And it did.  We went through a downturn that people tried to ignore at first.  Not one developer or seller recognized that pricing was high - too high, in fact, for the target group they should have been concentrating on - the locals - now that the foreign investors pulled out.

So the foreign owners are now wondering what to do.  Should I stay or should I go?  What kind of money can I get if I sell today?  What? A loss?  Ok, I'll just hang on for another year or so!  Yeah, buddy!  You don't realize it but that same development you're in still has a dozen flats to sell and they've been marked down 20%.  You're behind the eight ball.  You'll be competing with new product for at least another two years THEN another project down the street which will be coming out of the ground at lower prices. Plus the biggest hurt is that your rents don't cover your nut.  No one explained to you that local renters won't pay expat prices and that the expat market has more or less dried up.

It's called long term investment for a reason.  Hang in there.  The market will recover.  Never to the peeks (or volumes) we saw but it will level out; prices will normalize and rents will eventually improve.

But in the meantime.... will we see properties selling for below replacement costs as being seen in other parts of the world?  Will there be significant foreclosures hitting the market?

I believe that all of this is merely waiting in the wings.  Banks are holding out.  They do have developments that they continue to feed and developers they continue to support but they won't continue.  I think it will make itself known in 2011.  The so called vultures are hovering above.  These guys will come in and make deals - if they're not already meeting behind closed doors cutting deals - and we will see projects change hands and inventory being sold at lower prices.

Is it time to consider other markets?

FLORIDA IS ATTRACTING EUROPEANS INVESTORS AT A HEIGHTENED PACE

Here's something worth considering.  What about buying in the USA?  More and more Europeans are looking west and buying in Florida.  Property prices are at all time lows and most investors have confidence in a recovery.  The US ALWAYS recovers and when it does property values follow suit.  It is not a short term "flip" scenario this time around, but if you're considering any long-term investment, property in the US is worth considering.  

The article below gives a few solid examples - from Florida to Las Vegas - for investing in the US.

MIAMI – Oct. 5, 2010 – The Viceroy, a swanky condominium complex in downtown Miami, gives the impression that the United States is in another real estate boom. The sales office is strangely exuberant. Buyers gush about the glam condos – designed by hipster tastemaker Kelly Wearstler – and their hotel-like amenities: poolside libations, daily housekeeping and room service food stirred up by a celebrity chef.

Since January, 262 of the Viceroy’s 372 units have sold. But there’s a twist: Almost 90 percent of the buyers are foreigners. And they all paid cash.

The Viceroy’s story is playing out across Miami. Individual investors from as far as Argentina, Canada, Colombia, France, Israel, Italy, Norway and Venezuela are swarming the city’s sales offices to get in on what they see as one of the greatest real estate fire sales in the history of the United States.

At one time, these people would have invested in the U.S. stock market. Now they see the opportunity of a lifetime in the nation’s debilitated housing market. The idea is to rent out the properties and then sell them once the economy turns around.

The math is seductive: Prices at the Viceroy are roughly 52 percent off the 2007 peak. Units once sold for as much $670 a square foot. Today the average price is $319.

“I have never seen such a high concentration of foreign nationals acquiring real estate,” says Peter Zalewski, who has been in real estate for 15 years and founded Condo Vultures, a consulting and brokerage firm. “Eighty percent of the sales in downtown Miami are foreign-based. This is unprecedented.”

Miami is hardly the only hot spot for buyers from outside the United States. Real estate brokers say they’ve seen a surge in Washington, New York, Las Vegas, Los Angeles and San Francisco. In Seattle, Asians are buying property sight unseen, says Joe Brazen of Brazen Sotheby’s International. In New York, 25 percent of buyers at the Armani-designed 20 Pine building, near the World Trade Center site, are from overseas.

“It’s a positive in a sea of negatives,” says Jonathan Miller, chief executive of Miller Samuel, a real estate consulting firm in New York.

This year in Phoenix, for the first time, there have been more buyers from Canada than from California, according to real estate data outfit Information Market. With the Canadian dollar approaching parity with its U.S. counterpart, the opportunity was simply irresistible to Jim Chuong, a 38-year-old Novartis sales manager from Toronto.

Chuong, whose house in Canada is already paid off, used to invest in U.S. stocks. Now he’s investing in Phoenix condos, paying $50 a square foot for units that would cost $500 a square foot in Toronto.

“It’s ridiculous is what it is,” Chuong says.

For foreigners with cash, the deals can make them money from day one. Chuong buys two-bedroom condos for less than $40,000 in low-crime areas. He only picks up units that already have renters. After paying association fees and taxes, he walks away with $300 a month, pre-tax, on each. The deals are now easy to do, thanks to the cottage industry of companies that has grown up to manage virtually everything for foreign buyers, down to badgering renters for the monthly check.

For the international investor class, the United States’ bloated inventory of homes, high unemployment and weak currency make for an unusually attractive buyer’s market.

“Never before have all these things come together like this,” says Patrick O’Neill, chief executive officer of the Hong Kong-based O’Neill Group, which helps Chinese invest in international real estate. O’Neill says Chinese buying in places like New York is on track to double this year.

“Unless you want to go to Baghdad,” O’Neill says, “the United States is the best you can get.”

The trend is showing up in the statistics. In a National Association of Realtors report released in July, 28 percent of brokers reported they had worked with at least one international client, up from 23 percent a year earlier. Among those, 18 percent had completed at least one sale, compared with 12 percent in the 2009 report.

“I was going to invest in the stock market, but I decided to invest in real estate instead,” says Diego Garcia, a Mexico City native on assignment in New York City with Pfizer Inc., where he is a regional finance director. Garcia paid $850,000 for a Manhattan one-bedroom in a gleaming new high-rise that he plans to live in for now. “I’m a conservative guy,” Garcia says, “and this was more conservative.”

That’s not to say there aren’t steep risks. An economic jolt could easily throw the whole plan into disarray. The housing market is far from a recovery. In many places, prices continue to fall. What happens if currency values reverse and a foreign owner needs a quick sale? Or a renter bolts in the middle of the night, leaving an empty unit and no cash flow?

It’s not as if foreign buying can be counted on for a housing market turnaround. Overseas buyers represent a mere 7 percent or so of today’s total. Yet in some cities, such as Miami and Washington, the foreign sales are helping to stabilize the markets.

In past downturns, buying a property in the U.S. was the prestigious purview of the wealthy, but today the market is within reach of the swelling ranks of the global upper-middle class.

Colombians, who often call Miami the most beautiful city in their country, have always been drawn to Florida. The difference now is the upside-down economics. It is cheaper to buy in Miami than in Bogota, and you can fly between the two cities for $59 each way.

“Muchos muchos muchos muchos opportunity,” says Elsa de Blaschke, who owns a construction company with her husband in Barranquilla, Colombia, and is hunting for an investment property to buy in Miami. De Blaschke chose not to invest the capital at home because she says Florida offers a better chance of a bigger return.

“The international buyer pool is better than we have ever seen it before,” says Phillip White, president of Sotheby’s International, based in New York.

To match demand, U.S. brokerages are hiring agents who can speak foreign languages and are pouring more resources into marketing overseas.

In October, agents from 11 Sotheby’s International branches will descend on Hong Kong’s convention center to regale wealthy buyers there with slick visuals on showcase properties. In Toronto, agents from Florida Home Finders play to crowds of 800 every other Sunday at a Holiday Inn banquet hall. Jenny Huertas, Condo Vultures’ international sales director, throws seminars for potential clients across South America.

“Their jaws drop. They can’t believe it,” Huertas says. “They think these deals are too good to be true.”

Copyright © 2010 The Associated Press;  Michelle Conlin, AP real estate writer.

For Information on Properties FOR SALE in Florida CLICK HERE

And now a word from our sponsors

Welcome to TVO Europe

TVO Europe Property Services, an affiliate of TVO Groupe North America (http://www.tvogroupe.com/), operates throughout Central and Eastern Europe providing Property & Facility Management and real estate related services for Developers, Investors and Residential Home Owners’ Associations. The company is headquartered in Prague, Czech Republic.

Current operating countries are: Czech Republic, Hungary, Poland and Slovakia.  TVO manages approximately 500,000 sq meters of commercial office and industrial space as well as residential properties throughout the region on behalf of individual investors, investment funds and other institutional investors.

For individual & private residential investors, TVO offers a wide range of services designed to allow the property owner as much or as little day-to-day involvement as desired. 

These services include:

PROPERTY MANAGEMENT – LETTING SERVICES – PORTFOLIO ASSESSMENT – VALUE ESTIMATIONS & SALES ASSISTANCE

 

 Our team of real estate professionals is available to answer any question you might have regarding your investments in Central Europe.  Feel free to contact us at info@tvoeurope.com for more information.

Kulovy Blesk

"The Biggest Event in the History of Migration!" 

I bring up this great 1978 Czech movie because it is somewhat of a reflection of what someone at the recent CEDEM conference said is happening in the market.

A young man or woman bought a small studio or one bedroom flat a few years ago and after a year got married, then had a child and might be on their way towards having their second child.  They can't really afford to sell and buy a larger flat - maybe their salary has gone down or they just fear losing their job.  So they swap flats with someone - someone who has a larger flat but can easily move into a smaller flat.  Maybe mom and dad live in a larger panelak flat for example.  The young family moves in, does minor work to bring up the standard and the parents move into the newer, albeit smaller, flat.

And so goes the inventiveness of Czechs.  They are known for being clever and resourceful. They may have uncovered a way to move around without paying more than the cost of two men and a van and a new Ikea kitchen.

H&M and Flats in Prague

Ok, we've all seen them.  You know, the H&M suits that are made by the zillions by underage workers somewhere east of here.  They're made for the teens and 20 somethings who have not yet developed a waistline - and they're usually a grad's first interview suit. 

But I digress.  The reason why I bring up the H&M suits is because you can find them everywhere.  Kind of like the projects in and around Prague - well, most of the former Eastern bloc cities which have undergone voluminous development.  Once you've seen one flat you've pretty much seen them all.

A LITTLE HISTORY

The Panelaky were built between 1959 to 1995 to accommodate the postwar housing shortage and to provide large quantities of housing at lower costs, in large part because of mass production, to the masses.  They also wanted to instill some "collectivist nature" in the people, I guess - everyone is equal and everything is for the common good.  Regardless if you were in Prague, Brno or Bratislava (even East Berlin or Warsaw) you saw the same designs over and over.

In the early days of the new development euphoria, local "architects" seemed to know only one design - "the box".  Much like the panelaks, it was very utilitarian.  You walked in the front door, sometimes face to face with the water heater (ok, sometimes it was over the tub or kitchen sink).  You walked through a door to face more doors - the kitchen was behind one, the living room another, then the bedroom, the ubiquitous separate toilet behind yet another, then the bathroom.  All leading from wasted space called the corridor.  The walls were white, the floor was laminate something or other, the plaster "finish" was usually uneven.

We progressed into the mid 90s with a move from something + 1 to something + kk - the kitchen corner.  The kitchen space became a part of the living space, not relegated to a separate room.  Water heaters made their way into closets.  Bathrooms were not as utilitarian.  It was, to coin a phrase, one giant leap for mankind!

It brings me to the point of this rank - that developers have not REALLY progressed much past the standard issue from, say, ten years ago.  The exterior designs have advanced and today we're seeing landscaping being added to the mix but more or less what we still see are those damn single needle tailored, massed produced, H&M suits. 

So what to do to separate the men from the boys?  Offer, like in Poland, shell and core units where the buyer designs his/her own interior - complete with client change headaches? Or completely finish them out?

Developers are throwing anything and everything at the wall and hoping something sticks.  Offering free design service, shell and core to those more adventurous, kitchens included and other so called perks. Nothing seems to be getting buyers in the door - not even the lowest mortgage rates in history.

Could we be moving more towards the German model?  That is, renting instead of owning?  It's certainly cheap to rent nowadays.  Could a rent to own scheme then work?  The developer (and the lender) would at least have some cash flow and the development would be "living".

I would like to hear some views on this.

P.S.  Back to those H&M suits.  If one of those twenty something grads comes into your office wearing one, hire him.  He's trying!

"You can't do today's job with yesterday's methods and be in business tomorrow."

It seems that almost every day some real estate developer or banker or agent is in the media trying to get us to believe that the market has turned and good days are just around the corner. They say prices are going back up 2-3% from last year but seem to forget that prices went down 15-20% from 2007 levels. Every one of them claims to be busy – a new development here, another phase there - so why do they seem so hard up. They may be busy, but are they making any money. A look at the market shows that the most important statistic for any developer (or agent for that matter) just sucks....liquidity.  No transactions = no money.

Years ago my parent’s dog had to have his leg taken off because of cancer.  If they didn’t take that step their beloved pet would have most certainly died. He sulked for a few days but then just seemed to decide that he was now a three legged dog and was going to make the best of it. He reset his thinking to the new reality and got on with doing what dogs do! (He lived a bit longer by the way...)

Of course if he was a "Developer Dog" he wouldn't have done this. Instead he would have looked at his stump everyday and excitedly barked..."look, it's growing back", "it's growing back"!  If we could speak pooch that would have been OK for a few days but after it not actually growing back we would have had no choice but to ignore him or put him out in the backyard.

Since it’s not legal in most places to chain the developers to the fence, we have to try and hope they can get this message metaphorically.  Stop looking at the last 10 years to forecast the future.  It ain't gonna work that way anymore, folks! Stop telling us that the old price is the right price.  We know it isn't.  Instead, adjust to the new reality and tell us what is really going to happen. Don't tell us prices haven't gone down if virtually nobody is selling anything.  Step up to the plate boys! We don't need promoters any more than we need pay phones or typewriters. We need experts not bullshitters.

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.

Mortgage Rates Stay Put - For The Time Being....

Czech Central Banker Janacek Sees No `Immediate' Need for Rate Increase
By Peter Laca - (©Bloomberg) Sep 8, 2010

Czech central bank board member Kamil Janacek said he sees no “immediate” need to raise interest rates after two colleagues suggested policy makers may consider increases in coming months.

“Monetary policy is set appropriately at this moment,” Janacek, who joined the board in July, said yesterday during an interview in his Prague office. “There certainly isn’t a need to raise interest rates immediately.”

The Ceska Narodni Banka has left its benchmark two-week interest rate at a record-low 0.75 percent, below the European Central Bank’s main rate of 1 percent, since a quarter-point cut on May 6. The central bank lowered the rate by 3 percentage points over the previous two years as the country suffered through its worst recession since the end of communism in 1989.

Board member Eva Zamrazilova said a rate increase should be discussed as soon as possible because low borrowing costs create a “bad allocation of capital,” according to an Aug. 24 interview in the newspaper Lidove Noviny.

Robert Holman, another of the seven policy makers, told Tyden magazine on Aug. 30 that bank will probably raise the main interest rate to 1 percent at the end of this year or at the beginning of 2011.

The Czech economy, where exports account for about 70 percent, last year emerged from the worst recession in two decades. Gross domestic product expanded an annual 2.4 percent in the three months through June, the fastest rate in eight quarters, the statistics office said today.

The annual inflation rate rose to 1.9 percent in July, the highest in 16 months, as the cost of food, tobacco and housing increased.

‘Accommodative’ Policy

Janacek, 67, declined to comment on the timing of the next Czech policy change.

“I don’t have a problem with an accommodative monetary- policy approach, which means changing rates more frequently,” he said. “We have to analyze the situation at a given moment and react in a flexible way that fits the economy best, while keeping the inflation objective in mind.”

The economy “can’t live with rates that are lower than the ECB’s rates for a long time,” Janacek said, and “a period of three or five years would be too long in this respect.”

Signals from the Czech Republic’s main trading partners, mainly Germany, suggest the economy may grow faster next year than the 1.8 percent forecast by the central bank, Janacek said. The economy shrank 4.1 percent in 2009.

German Growth

While some have forecast a slowdown in Germany, where the economy expanded at the fastest rate in two decades during the second quarter, Janacek said he expects growth in Asia and South America to drive demand for European exports.

“Some colleagues in Germany, who have been known for having skeptical forecasts in the past, are now quite optimistic about the state and the outlook for German economy,” he said. “This would be very positive news for the Czech economy.”

Increasing domestic demand may also provide a boost to the Czech economy, Janacek said. Household consumption declined during the recession as the unemployment rate rose to 9.9 percent in February. The rate fell to 8.6 percent in August, data released today by the Labor Ministry showed.

Household consumption grew 0.8 percent in the second quarter, the statistics office said, while new-car registrations rose 6.6 percent from a year earlier in the first eight months of the year, according to the Car Importers Association.

“Car production and car sales are cyclically very sensitive,” Janacek said. “This could be an indication that households may be starting to spend more.”

Commenting on the koruna exchange rate, Janacek said the currency has stabilized “very close to levels that were expected” by the central bank, after gaining 3.7 percent against the euro in July. The koruna traded at 24.721 to the euro as of 12:08 p.m. in Prague.


Follow Me on Facebook

What's in store for rentals?

Gross returns on rental income on Prague apartments has been averaging about 4% for over the last few years.  Smaller apartments typically generated higher yields, up to 5% for 40-sq. m units.  A typical apartment with 120 sq. m has a yield of around 3%.   Both depend on location and amenities. (The average selling price of a typical apartment was 60,000 CZK per sq meter. 

info@tvoeurope.com

There is good news – at least for some.  The rental market in Prague and some regional cities is doing fairly well and agents are reporting brisk business.  The Prague expat market has softened significantly however, but there has been a marked increase in local rental activity, albeit at the lower end of the price spectrum.  Czechs once looking at buying are now taking a wait and see position (market conditions and job worries) and renting.  Rental prices in this category has seen some compression as a result strict demands.  

info@tvoeurope.com

This "local" market is concentrated on the smaller flats usually along the perimeter of the city center, and almost never in the center itself – those areas typically predominated by foreign renters.  That said, even expats are now having reduced budgets; no more relocation packages and moving out of the center and out to the so called suburbs.  Expect rents to remain relatively stable in Czech Republic with little growth even in Prague.

Investors today, mostly domestic buyers, are looking more to a real return on their investment and less at the potential value upside that ownership might bring.  That is to say, if the rent doesn't support a mortgage, there's no sense in buying. On an all cash transaction, however, if the owner can see a 3% or better return, he can take the risk as it's getting him more than money sitting in the bank. 

Follow Me on Facebook 

Mortgage numbers aren't showing signs of growth

Mortgages fall 3% to CZK 38.5bn at end-June yr/yr

ČTK | 2 August 2010

 

Prague, July 30 (CTK) - Czech banks provided Kc38.5bn worth of mortgage loans to households in H1 of the year, an annual drop of 3 percent, and Q2 mortgages stood at Kc22.51bn, up 2.2 percent on the year, the Local Development Ministry said Friday.

The volume of mortgage loans to households, businesses and municipalities posted a year-on-year increase of 13 percent to Kc53.6bn at end-June owing above all to mortgages to entrepreneurs that saw almost a double increase to Kc14.9bn annually.

Mortgage banks provided 23,617 loans in Jan to June this year, 270 fewer year-on-year.

Mortgages to households totalled Kc73.85bn last year, 39 percent less annually. 

The mortgage market has been falling since 2008.
A CTK poll among bankers has shown that they expect gradual revival of the market depending on growth in consumer demand. "For the market to revive markedly, it is necessary that people are willing again to make debts. This is not happening for now, people can see no positive economic signals," Tomas Halla of Ceska sporitelna said earlier.

"Mortgages may start rising gradually in the second half of the year at the earliest, revival of interest is foreseen for next year," Halla said.

Komercni banka's Monika Truchlikova said that revival of the real estate market will be of key importance for the mortgage market development. "Given the current development we expect the second half to see the ongoing moderate annual growth in the volume of new mortgages, in the order of units of percent," said Truchlikova.

Copyright 2009 by the Czech News Agency (ČTK). All rights reserved.


Follow Me on Facebook

"Flat prices rose too high..."

Czech National Bank says flat prices rose too high and should fall

15-06-2010 11:46 | Chris Johnstone

A new report by the Czech National Bank warns that flats in the Czech Republic are overpriced in spite of recent falls and prices could slide still further. The report says rent and wage rises failed to keep pace with that price explosion, which started to put flats out of reach of ordinary earners.

The Czech National Bank decided to put the spotlight on the sharp surge in flat prices between 2002 and 2003 and the latest flat price fever between 2007 and 2008. The analysis forms part of a bigger study covering the financial stability of the country which is to be released on Friday. The bank points out that real estate bubbles have the capacity to disrupt the whole economy.

The findings should be welcomed by those pondering a flat purchase but make sobering reading for existing investors in bricks and mortar. Basically, the bank says that Czech flats are still too expensive and prices should probably drop further.

Prices in Prague, the country’s second city Brno, Liberec and other main cities are out of sync with economic fundamentals, according to the bank.

The national bank’s conclusions are based on two main pillars. The first is that the cost of renting flats has seriously trailed the expense of owning them. Figures from real estate companies show that it would take 27 years for rental income from a Prague flat to cover the initial purchase price. In comparison, in the Germany city of Stuttgart, the time frame would be just 19 years.

The second factor is that purchase prices as a multiple of earnings increased so much in the Czech Republic that flats started to become unaffordable for anyone earning anything like average wages.

The Institute for Regional Information is a Brno-based data collection and processing company which has been following Czech real estate prices for many years. Director Milada Kadlecová agrees with the bank’s conclusions that flat prices were exaggerated and should fall.

“Flat prices almost doubled from 2006. It is currently more advantageous to rent than buy. Nonetheless, the wave is over and prices have fallen since the end of 2008 by almost 14 percent. And we expect that they could fall by that amount again.”
 

That, she says, is the top of the range for price cuts, with 10 percent the least that flat prices could still fall over the next year or so.

She adds that expectations of spending cuts by an incoming coalition government and continued relatively high unemployment will also put a damper on the local real estate market.

If, as they say in the West, you're not suppose to spend more than about 30% of your monthly income on a mortgage payment, that means that the average buyer in Prague (assuming an 80,000 CZK monthly gross salary for a typical working couple) shouldn't be spending more than about 24,000 CZK per month.  Nowadays a 65 sq meter flat can be priced at 3.5 million.  That means that with 30% cash down (equity) and a 4.5% interest (amortized over 20 years) you'll have a 15,800 CZK monthly payment. How do the banks take HOA dues, taxes (ok, they're low here), utilities and insurance into consideration? Then there's the extraordinary spending - cars, holidays, etc.  


Follow Me on Facebook 

NEWS: 14,000 resi units built in the first half of the year.

Are developers reading? This was in the news recently. There's been a drop in units built. It does not say anything about the units sold however and from everything coming out of the mouths of agents, sales of new homes have dropped significantly. But the developers are still looking to add units to the market.

Over 14,000 flats built in H1, drop of 23%

ČTK |  7 September 2010 

Prague, Sept 6 (CTK) - A total of 14,296 dwellings started to be built in the Czech Republic in the first half of this year, 23 percent down year-on-year, the Czech Statistical Office (CSU) said yesterday.

The number of completed dwellings dropped by 6 percent to 16,120.

In Jan-July, 16,737 dwellings started to be built, a year-on-year decrease of 26 percent. The number of completed dwellings in the same period dropped by 8 percent to 17,970 units.   

In Prague, 1,410 dwellings started to be built in H1, down by 46 percent year-on-year. The number of completed dwellings in Prague fell by 17 percent year-on-year to 3,308 in H1.

H1 2010         H1 2009

No. of dwellings started         14,296             18,457

No. of dwellings completed   16,120             17,084

Source: CSU

Copyright 2009 by the Czech News Agency (ČTK). All rights reserved.