Rents in Prague are returning to the state before the pandemic. But often you don’t even pay a mortgage from them
Once with the rise in owner-occupied housing prices over the past year and a half, it has actually done nothing and apartment prices in the capital have continued to rise rapidly, regardless of the surrounding events, with market movements being more turbulent in rents during the pandemic.
With the outflow of tourists, thousands of apartments for short-term rentals entered the market, and Prague rental prices fell by more than four percent last year.
This year, however, the decline has slowed and now rents are starting to return to pre-pandemic values. However, the rate of increase in the price of flats is not enough, so it will continue to be the case that buying flats in Prague for the purpose of earning money from rental income does not make much sense.
According to a current analysis by Deloitte, commissioned by the Prague City Hall, rental prices in the capital fell by 2.8 percent in the first half of the year. The average rent in Prague is now around 279 crowns per square meter.
The trend in the development of rental prices in Prague affected not only the outflow of tourists, but also distance learning at universities whose students in Prague did not need accommodation. It was these factors that were special to the capital, and rents in metropolises therefore fell more markedly than in the regions.
“Which in Prague interest in buying real estate has accelerated over the last year and prices have been growing, in the case of rents it was different. Between 2014 and 2019, average rental prices in Prague grew by 7.4 percent year on year. However, with the onset of the coronavirus pandemic, the situation changed and rents began to fall in price, “as a result, Deloitte real estate expert Petr Hána. “The situation in Prague started to change only at the end of this summer, when the average rental price bounced off the bottom and started to grow,” he adds.
And yet it fell due to the entire market, according to available data, it cannot be said that rental housing would be cheaper for Praguers as a result. The fall in prices was mainly driven by the premium segment, ie flats that mostly Praguers cannot reach.
“On the contrary, the number of people who are trying to get a studio apartment or the cheapest 3 + 1 has increased. So if someone is looking for rental housing primarily by price, they certainly did not feel that it was becoming cheaper, “said Hendrik Meyer, head of the Bezrealitka portal and CEO of European Housing Services.
This is also confirmed by the data available to the municipality. In terms of market segments, the analysis showed a larger decline in rental prices for more expensive apartments and in the city center. Conversely, in some localities, especially housing estates, rents have not fallen or even started to grow slightly in the last two half-years.
“I have one favorite example – rentals in the locality I usually can not guess according to the prices of beer in the area. And the pint on the Old Town Square was at its modern low, it continues to be accepted in housing estates, it has become more expensive, “adds Meyer.
The four Prague cadastres, where the average rents per square meter are currently the highest, are Josefov with 355 crowns per meter per month, Malá Strana with 334 crowns, Hradčany is available for rent 323 crowns per meter and Vyšehrad with 319 crowns who overtook Vinohrady.
According to analysts, rents in the metropolis can now be expected to rise again. “The rental market seems to be rapidly returning to pre-Skid values quickly and will continue to grow in line with and in line with the general rise in apartment prices,” says Hána. According to the Prague City Hall, greater pressure on the rental housing market can also be expected in the autumn, especially in connection with the return of tens of thousands of university students to full-time teaching.
“And yet further developments may again require short-term leases. However, we do not expect rents in Prague to fall. Rather, we expect a gradual increase in prices. Those who are currently looking for rental housing in Prague still have a very good opportunity to conclude a rental agreement on cost-effective conditions, “says Michal Pich from the real estate server RealityČechy.cz. In addition, the increase in mortgages, as banks are gradually raising interest rates, will also speak to the interest in rental apartments.
According to Meyer, however, it is also necessary to separate rents and the price of rental housing. “Both will grow. Rents are rather slower by the end of the year, however, the price of rental housing, which includes services and energy, will jump. I’m afraid it will be a shock to many, and what’s worse – it just won’t change. Next year will have to take year zero for several years of internal migration, when especially in Prague, but also in Brno, the individual strata of the population will change a lot, “he predicts.
The situation around the rental market also affects the attractiveness of the apartment as an investment. Real estate still remains a safe deposit of money and makes investment sense in the long run. But short-term investments with the aim of earning rent do not pay off much in Prague now. And the following month may not be different.
“Such a traditional investment apartment is really passé today. If inflation were zero, it could bring up to two percent, this is how an investor is in the red. If we wanted to get around six percent in revenues, as was the case in the past, we would have to pay an average of around 550 crowns per meter for Prague rent. For an older 70-meter apartment, the owner would like 42,000 just for rent. This is, of course, science fiction, “to solve Meyer’s situation.
And if we wanted to stay on today’s rental routes, and still be able to repay the mortgage and still earn, the square meter of an older apartment would have to cost around 55 thousand crowns per meter. Which, of course, is also beyond reality. Second-hand flats in Prague are now sold at prices exceeding 110,000 crowns per square meter.
The return on Prague apartments is therefore between 35 and 40 years on current trips. And in order for the annual yield to currently deal with at least inflation, the purchase price per meter and the subsequent rental price per meter must be around 1: 200.
“Today we are at the level of 1: 420, ie more than twice the required values. In short, real estate prices would have to fall by half or rents would double. And we still wouldn’t get into the golden years of so-called investment flats, when sometime around 2010 we managed to buy with an annual yield of around eight percent, “adds Vladimír Zuzák, director of Maxima Reality. With the current feet of Prague, in many cases it would be a problem to pay a possible mortgage from renting an apartment.
Relying on the interest on their invested money thus gradually ceases to work in the residential segment. “But the apartments are interesting in terms of rising prices for the property itself. Investors can speculate that the price will increase by five to ten percent a year and it is more interesting there, “adds developer Marcel Soural, owner of the Trigema group, which has been monitoring the market for a long time through its own real estate aggregator Flat Zone.