Investisng into real estate in Prague - which areas promise the highest returns?

Are you considering  purchase of a commercial property, or are you planning to buy an apartment or a house for as a source of rental income? The situation on the real estate market is very favorable nowadays: in the last 3 years alone, the price of flats in Prague has increased by 40%. Which localities in the metropolis are particularly tempting for investors? Find out in our article.

Investing into Real estate in Prague is worth it. Prices are rising faster than the European average.

Real estate prices in the Czech Republic have been rising very fast. In fact, from the last quarter of 2016 to the end of the third quarter of 2017, the increase in house and home prices rose faster than anywhere else across the European Union. In the middle of last year, growth was up to 3 times higher than the EU average. This year, prices are rising at a slightly slower rate: in the first quarter of 2018, Eurostat reported a growth decrease from from 8.4% at the end of last year to 7.7%; these figures mean that our market ‚fell‘ from 1st place, to the 10th fastest growing in the EU.  

The 5 main factors responsible for the rise in the price of real estate

According to the Center for Economic Analysis and Market Analysis (CETA), there are five main factors influencing the rise of real estate prices in the metropolis:

• increasing demand for housing in Prague due to the increase in the number of people living here,

• the inadequate real estate supply caused by blocked development projects,

• accessible and cheap mortgages,

• economic growth and

• inflation.

The second point in particular is causing a housing shortage and the rise in prices. Compared to the state of affairs ten years ago, the construction of new flats has significantly decreased. For example, the Czech Statistical Office has on record that between the beginning of the year 2018 and the end of July, new construction began on only 1,161 residential dwellings. This is 70% less than in 2008. The main cause of this decrease in construction is the complicated beureaucratic process surrounding building approval. For the sake of comparison, in Belgium, the process of authorizing  new development takes on average 6 months; in Prague it takes 7 years. This is one of the reasons why out of the last 4 years, it is this year that there are the fewest available new apartments.

As a result, real estate prices in the metropolis are naturally increasing. The price of new flats in Prague have grown by 24% in the first half of 2018. For the first time, prices have reached the milestone of 90,000 CZK per sqare meter. The price of older properties is increasing at only a slightly lower rate. Although the growth of prices is now slowing down, it is not expected to stop completely. It appears that even an increase in interest rates set by the Czech National Bank won’t cause a decline in real estate prices. The conclusion is that it is clearly still worthwhile to Invest in real estate in Prague.  Let’s look at which areas offer the greatest returns.

When investing in real estate, if looking for the area that will best guarantee the preservation of its value, then look to the city center; for the fastest return on one’s investment, look to surrounding areas.

  "The historical parts of Prague are a very lucrative, and, in the long run, safe bet. Not only Czechs, but a large percentage of foreign clients plan on investing in real estate in this area, "says Richard Vítek, team leader of the commercial department of Engel & Völkers. "If we want to consider other parts of the metropolis, areas such as Holešovice, Smíchov, Libeň, Žižkov and Karlín are particularly promising. In the future, they are likely to be among the most prestigious locations in Prague, making buying there now a good inestment, and well worth it."

If you buy a rental income investment property in the center of Prague, you will get a return your investment in an average of 20-30 years. For residential real estate, return on investment and monthly income in itself are both slightly lower than in the case of commercial real estate, but it is also worthwhile. The foundation of a good investment is the right choice of location and the particular piece of real estate itself. At Engel & Völkers, we can help you with the choice of both - we'll be happy to discuss where you want to invest, or we'll recommend a location that's right for you depending on your specific situation. You can let us know what you plan to do with your real estate,  and we’ll take care of all the rest.

Closing tip: Are you planning the sale of a piece of commercial real estate?  Read here about 3 common mistakes that cause people to lose money during the sale of their commercial property.