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The record rise in rent prices last year also affected the area of the most expensive real estate on the Czech market. According to the Rent Index of the real estate agency Svoboda & Williams in Prague, rent in the premium segment has risen by almost a quarter year-on-year, Prokop Svoboda, owner of the real estate agency Svoboda & Williams, described the situation in the program Agenda Byznys SZ.
For small apartments 1+kk to 2+1 in the center of Prague, the price even increased by forty percent to an average of CZK 31,030. The Prague-wide average rental price then reached a rental price of CZK 39,800.
One of the properties that is still unfinished, but already belongs to the highest level of the rental market, is the Fragment project in Prague’s Karlín, where a 3+kk apartment is offered for rent in the range of CZK 40,000 to 70,000 per month.
This apartment building, supported by a 24-meter steel sculpture by David Černý, has attracted attention since its inception. On the one hand, it is the investor’s first project that will offer purely rental housing, and also, of course, because of the atypical appearance of the building.
However, according to Prokop Svoboda, there is a lot of interest in the project. The real estate company obtained exclusivity for the project from the project investor Marcel Soural and his company Trigema.
“We were used to entering into future purchase agreements for residential housing projects, but we had never entered into a future reservation agreement for rental housing. This is a really new situation,” describes the owner of the company in an interview for Seznam Zprávy.
However, according to Svoboda, such a situation will not continue. The real estate analysis shows that rent prices in Prague and Brno are beginning to collide with economic reality. The decline has already been seen, for example, in the case of multinational corporations, which have started to limit the posting of foreign employees, to whom they have to pay for accommodation, in order to reduce costs before the expected recession.
According to him, lower interest is also influenced by weakened real purchasing power. “So it can be expected that the inflated bubble around rental housing will undergo a correction in the coming year,” Prokop Svoboda estimates the development of the next months.
We are currently sitting in one of the model apartments of the Fragment rental housing project in Prague’s Karlín, where the real estate agency Svoboda & Williams has obtained exclusivity for rental housing contract agreements. The project is still under construction and the first tenants are due to move in in March. Are you already interested in rentals?
We have interested parties, it is a completely new and unusual situation for us. We were used to entering into future purchase contracts for residential housing projects, but we had never entered into future rental housing reservations. This is a really new situation. The fact that today’s tenants are willing to go into this form of pre-letting speaks volumes about the situation in which the entire rental market is now.
Rental housing experienced a huge growth in demand in the case of apartments whose price is around the market average. What happened last year to the most luxurious and premium properties you have in your portfolio?
There, the trend that we have been following for the last decade, when Czechs are discovering the magic of rental housing, continues. Of course, this is greatly helped by the current difficult times, which accelerate the overall interest in rental housing. At a time when you don’t have a very clear outlook and you don’t know how your work, your business will develop, many people prefer renting to buying real estate.
How has this shift in demand from buying to renting reflected in your portfolio?
We have experienced a fairly significant decline after the purchase of residential real estate. The market is really very stagnant, at the same time the demand for rental housing has grown, which in turn has fundamentally increased the price of rent.
In the case of older apartments, it is often said that the demand for rental housing increased because mortgages were simply not available. If we are talking about premium real estate, the average monthly rent is around 39,000 crowns per month (according to the market report of the real estate company) and the net salary of the average Prague citizen is about 38,000 crowns. How do these factors play together?
It is about the standard for which one wants to spend or which one wants to indulge. If we were to discuss the sale of a similar apartment, such as the one here in the Fragment project, we would reach a financial level that would be difficult for an interested party to reach. Therefore, he will prefer the form of rental housing. In addition to the economic aspect, it is also about the very comfort and flexibility that rent brings. More and more often, we meet tenants who are not at a stage in their life when they would necessarily need to think about buying their own home. It’s an easy choice for them.
What do you expect from the rental market this year? Last year saw a huge boom in demand and price growth, what does the market expect now?
We need to pour ourselves some clean wine, look at the economic reality and prepare for some cooling of the market. They make our inputs and living costs more expensive. In all areas, people are starting to save, and this will also happen in the area of rental housing. But the market works in phases and this sobering must be taken into account. After some correction to come, but I expect further growth.
Will this reduction in demand also affect prices?
It will, it’s very likely. If we look at the real estate market in a broader context, the price correction is already happening today. And apparently there is already a correction in rental housing as well. The more premium segment seems to be more resilient so far, according to the data we analyze quarterly. Even here, however, we cannot rule out a drop in prices.
Why do you think this is the case, why should premium properties and their rents be more resilient?
It is a segment that is relatively unavailable in the market. If we are looking for premium rental housing with parameters such as the Fragment project, we will hardly find it in Prague. We are not only talking about the standard of equipment, architecture or design, but also about the technological equipment and services that the project offers. There are very few such apartments on the market and this is also the reason why it is easier for this segment to maintain the price.
Does the same also apply to premium properties for sale?
We read newspapers and watch various analyzes and predictions that real estate prices are falling and will continue to fall. We compare this data with our sample of properties. It really speaks of stagnation so far. When we talk about the data for the last six months, we even see a slight increase of 0.6 percent here. Of course, it is necessary to take into account a certain inertia. Some transactions take a long time, which slightly distorts the final numbers.
In any case, there is a battle of nerves going on in the market right now. On the one hand, I see the owners’ reluctance to discount, and on the other, I see the buyers’ desire for at least a small discount and a certain degree of opportunism. Now the question is which of these camps will win the fight. I cannot yet estimate whether the price correction, which we can already see in older properties, will also affect the premium segment.
According to the estimates of mortgage experts, the real estate market could partially recover already at the end of this year, perhaps at the beginning of next. And that’s precisely because of a possible drop in interest rates, i.e. a discount on mortgages. Would such a situation lead to further increases in real estate prices?
The interest rate is absolutely key. The moment interest rates start to fall, the mood of the real estate market will improve, with this, of course, the availability of loans and mortgages will increase and the market will start moving again. If inflation can be brought under control, at that point it is quite likely that central banks will move quickly to cut interest rates. This can accelerate demand for real estate. And given that we live in an inflationary environment and the central banks of the world continue to borrow and print money, it is very likely that real estate prices will continue to rise as well.
Svoboda & Williams and market competition
- In a European comparison, the Czech Republic has an above-average number of real estate agents. According to data published by Eurostat in 2017, there are around 909 people per real estate agent in the Czech Republic, the European average is roughly 1,653 people.
- In 2021, according to data from the Ministry of Regional Development, there were less than 12,000 real estate brokers operating on the domestic market.
- At the same time, deals totaling 690 billion crowns were executed.
- Of this, real estate brokers’ fees could reach up to CZK 13 billion, according to the calculation of the Chytrý makléř institute, which annually processes market analysis based on data from the ministry.
- The largest representatives of real estate agencies in the Czech Republic include Re/max, M&M reality or Maxima Reality.
- In addition to the Svoboda & Williams offices, the real estate company Lexxus Norton, Y&T Luxury Property or Sotheby’s International Realty also deals with the premium segment, i.e. the most expensive luxury real estate on the market.
Is there a ceiling above which the average price of real estate in the Czech Republic cannot rise, because the Czech Republic will no longer be willing to buy it?
We always have to look at purchasing power and the economic reality of the market. If people can’t afford it, they will hardly be able to accept higher prices. If, on the other hand, the company is economically sound, then prices will probably continue to rise both with inflation and as the company gets richer, perhaps.
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