The price of apartments in Prague will double in 10 years, says the chief developer Finep
The rise in the price of flats in Prague was largely caused by the state, says Pardubický. In addition, according to him, the arrival of corporations that will invest heavily in rental housing in the metropolis will dampen prices in the coming years.
On what basis are you convinced that it will double in Prague during the next future prices?
There are simple statistics behind this. At every major Prague conference, people ask four questions: 1. How many of you work in Prague? (mostly everyone) 2. How many of you live in Prague? (usually around 75 percent) 3. How many of you were born in Prague? (usually about half) 4. How many of you have parents who were born in Prague? (usually a quarter). In other words, the reason is moving to big cities, within the Czech Republic especially to Prague.
Where is the price ceiling for Prague real estate located?
I don’t believe in price caps too much. When I joined Finep in 2007, it was written that apartment prices in Prague had tripled in a decade. Now, after about ten years, you will read that prices have doubled. This means that in those twenty years, the prices of flats in Prague have multiplied sixfold. In addition to migration, the influence of the public sector is also a key factor, influencing prices even more than supply and demand over the last ten years.
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What measures do you have in mind?
Apartment prices increased changes in VAT one-off. Furthermore, there are permanent changes in technical standards, the impact is greatly underestimated. Over the last ten years, these changes have made Prague flats more expensive by 4.5 thousand crowns per square meter.
How did you come up with this number?
This follows from an analysis of the factors that influence price growth. I suspect it was published last year by the Chamber of Commerce. The influence of technical standards includes, for example, requirements for acoustics or heat availability. However, it must be added that this is not something that clients would ask for. My personal opinion is that behind these standards is mainly lobbying of suppliers of various materials. Another factor is the Prague building regulations, which define, for example, the level of lighting. The current construction in Vinohrady or Dejvice does not suit these visitors, yet they are two popular districts of Prague.
Is the youngest family still the most common client who buys apartments from you?
It is still the strongest segment of our clients, families under the age of about 40 make up half. I would divide the remaining 50 percent as follows: 30% investors and 20% other type of buyers.
You estimate that the so-called institutional investors, an attack by various funds and companies, will take the Prague market in the coming years and start trading in rental apartments on a large scale. Do you have personal experience with these investors?
Over the past year, I have dealt with various funds at least once a week. a few years ago, it was on the order of one to two funds a year. It turns out that free liquidity in the market is. Of course, the big question is interest rates and what return these funds will be willing to invest.
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When it comes to real estate, don’t investment funds primarily go to offices or warehouses?
Yes, funds traditionally trade with this type of real estate. Investment in rental housing is a novelty in the Czech Republic and other post-communist countries. The attractiveness of residential funds has two reasons. First, the collection of rent is very stable and predictable. And another factor is that apartments show a steady rise in prices in the long run. Some investment funds, especially in the United States, are willing to accept very low rental income for apartments precisely because they speculate on rising real estate prices.
However, the growth of apartment prices in the Czech Republic is slowing down, now the offices and warehouses are becoming more expensive …
I do not agree with that. I believe that there may be some price correction, but the question is, with what time horizon do you look at the market. If we hypothetically go back to 2008, we can talk about the fact that the market can be reached and prices will fall. In 2009 and 2010, they actually fell by 10-15 percent. But when we look at the whole decade, prices have risen by 100 percent.
So when will Prague expect a boom in rental housing, which will be provided by large investment funds?
Most institutional investors are just mapping the market and want to enter it. If you want to have an effective tenement house, it must already be designed this way. Even with regard to the length of the permitting process in Prague, which lasts seven to 10 years, I expect that within five years, half of the new buildings will go into the hands of institutional owners.
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What changes will this bring to Prague?
The price of housing will continue to rise. In individual projects, more flats will be built at once, abroad there are units of 300 to 1000 flats. Rental housing with an owner’s rival is primarily services, you need “meat” to get people.
Praguers who already own the property are generally very reluctant to build in its vicinity. Therefore, I can’t imagine too much that a project of a thousand flats will be created here.
In today’s realities, probably no one can imagine it. I think that in the coming years, the portfolio will gradually grow by 50 to 100 apartments. And I think it’s good to look at market change with a perspective of about 20 years and resist the trend. By 2030, Prague alone expects 160,000 people, perhaps more, to come to the city. And these people will have to live somewhere.
But you have provided yourself in the past, if the Czech Republic is fighting demand from abroad on the real estate market, it is wrong. Do you also evaluate the arrival of these investors negatively?
It is a response to current prices. The moment when a traditional Czech family does not have money for an apartment, they will have to go for it. And that investor will be either a private individual or an institution. Institutions appear to be prevalent in the coming years. My comment on rolling by foreign investors went elsewhere. When we joined the EU, we opened the market not only to the EU countries, but to the whole world. We let a very rich segment into the team, which bought cheap flats for it at the expense of our young families.
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However, many clients in Prague would be satisfied with second-category apartments. You yourself claim that the young generation in particular often did not even prefer a “necker” to sleep in order to spend money on experiences. Why is this type of apartment in the metropolis not being built?
Because politicians have not found the courage to admit that there are people who earn more and people who earn less. We have only one regulation that we have to build by. We hear from the city districts that they would welcome projects aimed at young people who do not have a car. However, we still have to build the parking spaces there according to the regulations. So today it is practically impossible to build, as you called the “second category”. I would call it an apartment with trimmed functionality. Abroad, it is common for the temporary crisis and the unavailability of housing to address modern trends, such as co-living (shared housing, note Red.). We experienced it here after World War II, and I think we will get there again in the coming decades. And that regulations and building regulations will also be adjusted so that very cheap housing can be built.
At what time are building permits for housing projects issued in Prague now?
The number of building permits has been declining every year since 2010 and less than 2,000 flats per year have been permitted in the last two years. I recently came across a comment in the media that in 2019 the developers started the construction of the highest number of flats since 2008 and that this signals a change in the trend. However, this is not true, as these apartments under construction benefited from historically issued building permits, which only accumulated over time. The following years will be burdened by the low number of building permits issued from 2018 and 2019.
Source: CZSO
What was the longest permitting process you experienced in Prague?
The market average is around ten years, our longest permitting process lasted about seven years.
Are you still not going to expand outside of Prague?
We are currently considering expansion to Central Bohemia, because we will see hundreds of thousands of people who will not be able to live in the capital.
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Nevertheless, he has long been of the opinion that the metropolis should be concentrated instead of growing into the surrounding landscape, which entails the need for high-rise construction. When will I see skyscrapers in Prague? Similar projects are already appearing in your competition.
We are not crazy enough to plan skyscrapers in the current permitting process environment. On the other hand, Prague has to grow where there is transport, where there are public facilities, services … That is, mainly where there are metro stations. And building family houses on the subway is nonsense. Prague has to grow in height in these transport hubs, where there is a large population movement. Even according to a study by the Institute of Capital Planning and Development, the population density of Prague is several times lower than comparable metropolises such as Berlin, Barcelona, Hamburg and Vienna.