8 trends in residential real estate in the Czech Republic worth following in 2016

The real estate market in the Czech Republic is divided into two types. The first type includes the cities of Prague and Brno where real estate sales for residential units has been on the upswing for the past five years. The second portion is composed of the rest of the cities in the Czech Republic, where the real estate market is rather limited and different from the markets in Prague and Brno. In this article we will focus on the trends typical of the Prague real estate market since these trends will eventually impact on the real estate situation in the entire Czech Republic.

1. The demand for expensive apartments is rising

In 2015 a third (33%) of the Prague apartments were purchased at prices ranging between 50 to 60 Czech Koruna per square meter (VAT included). According to Marcel Sorrel, CEO of the Real Estate Enterprise Trigama, in the final quarter of 2015, the portion of apartments purchased for 60 to 70 thousand Koruna per square meter (VAT included) as a portion of the real estate transactions grew as well. 

On the other hand, the sales of low cost apartments continues to decline. The reason for this is that the prices of apartments of all types (including smaller apartments) are on the rise in Prague. Therefore, the number of apartments sold for less than 40 thousand Koruna per square meter declines every year.

2. The rise in the sale of new apartments in Prague continues

In 2015, a total of 6,500 new apartments were sold in Prague (a rise of 6% in comparison to 2014). 

According to the forecast of the leading residential real estate companies, (we refer you to section 4), in 2016 a rise of 10% in the sale of new apartments in Prague is expected in comparison to the previous year, from 6,500 to 7,200 new apartments. The leading Real Estate Enterprise EKOSPOL, estimates that the number of new apartments that will be sold this year will be even higher- 8,000. The company presents demographic data supporting its projection. According to the data of the Czech Bureau of statistics, the number of people who have moved to live in Prague has grown in 2015 by 10% in comparison (most foreigners who have moved to Prague in 2014 are Ukrainians, Slovaks and Russians).

3. Changes and delays regarding the approval of projects in Prague, which may at some future point lead to a rise in prices for all apartments.

The supply of new apartments in Prague has gradually declined in 2015. This decline derives from a 9% drop in building permits granted to real estate enterprises in Prague in 2015 compared to 2014. 

On the other hand, the growth in demand for residential real estate in the Czech Republic is growing, primarily due to the low mortgage rates in 2015. 

This decline in the supply of new departments on the one hand, and the increasing demand on the other hand, is creating a very strong pressure to raise the prices of all apartments in Prague in the future.

4. Prague 9 and Prague 10 are becoming extremely desirable residential areas.

Most new apartments offered for sale in 2015 were in the Prague 9 zone (19.5% of all new apartments). Following Prague 9 at second place was Prague 10, where 18.8% of new apartments offered for sale last year were located. It is also interesting that nearly a third of the apartments sold in Prague in 2015 were in Prague 10. 

Those unfamiliar with the city may think that, Prague 9 and Prague 10 may be considered zones far from the center of the city and not of interest for investment purposes. 

However, those who know the city also know that Prague 9 and Prague 10 are large quarters and include both neighborhoods that are far from center of the city as well as attractive neighborhoods relatively close to the center (such as Vršovice and Malšice in Prague 10 and Vysočany in Prague 9).

5. The real estate stars remain the same.

Apartments classified as kk+2 and kk+3 (to familiarize yourselves with the Czech term “kk” examine our article the meaning of the Czech real estate term “kk”) are still the preferred option for most buyers. The price of apartments fitting this classification ranged in 2015 between 50 to 60 thousand Czech Koruna for square meter. 

Prague is home to nearly 170 real estate enterprises. However, only five of them possess a dominant presence in the field of development of residential apartments in Prague- these are the Real Estate Enterprises Central Group, EKOSPOL, Finep, Skanska and Daramis. These “Big 5” are responsible for half of all of new construction in Prague.

6. Purchasing a (good) apartment is still a profitable form of investment

In 2015, the interest rates on mortgages reached the lowest rate ever, thereby enabling many people to afford purchasing an apartment (for residence or for investment). Following an unprecedented low in interest rates on mortgages in 2015, a certain rise in interest rates is expected in 2016. According to the Czech consultancy group Fincentrum the rise will occur because of new legislation regarding consumer credit and VAT on land, expected to come into effect in 2016 (read more in the article- upcoming changes to the purchase tax for real estate in the Czech Republic – 2016). However, thanks to fierce competition in the Czech mortgage market, the projected rise in interest rates will probably be minor. A more significant rise is expected in 2017.

7. More Czech investors in the real estate market

Evžen Korec, of the EKOSPOL Real Estate Enterprise firm, also says that people who had been previously hesitant to purchase an apartment are now doing so. They no longer fear falling into debt because of the mortgage. Due to the positive expectations of the future state of the Czech economy, people are now prepared to take on higher mortgages instead of using their savings to buy a new apartment. 

Ondřej Diblík,, an analyst for the leading real estate agency Lexus, also mentions that the number of Czech citizens who have lost their faith in the Czech pension system is growing. This lack of trust is growing due to the harm caused by the government to the central pillar of the Czech pension system and it is no longer clear what the pension payments of the next generations will be. Many Czech citizens are therefore seeking alternative forms of conservative investments. Rather than placing their money in pension funds

8. Is there any hint of future supervision of Czech real estate agents finally on the horizon?

One of the primary ills of the Czech real estate system in the Czech Republic is the ability of virtually any individual to become a real estate agent, with no defined course of studies and with virtually no supervision. New legislation regarding the supervision of real estate brokerage services is now being prepared. 

The aim of the law is to increase protection for property owners by setting down clearly defined rules to regulate the activities of real estate agents, who are currently acting absent any supervision whatsoever.

According to data provided by the Czech news agency, the absolute number of real estate agents in the Czech Republic in 4th highest in the entire European Union. There are currently 15,300 real estate agents in the Czech Republic- one agent for every 688 citizens. In our article the four most expensive mistakes of foreign investors in the Czech Republic we explained that currently all it takes to become a real estate agent is “2 minutes and about one thousand Koruna’s”. There is no test, no training and no defined rules regulating this field. 

25% of all respondents to a survey held last year by the Czech Association to Develop the Real Estate Market (AREMD), which attempts to highlight the most important trends in the Czech real estate industry, say this law will strongly effect the real estate brokerage market in the Czech Republic.

The final draft of the new legislation shall be submitted this year for the approval of the government and the new legislation is expected to come into effect in 2017. 

More information regarding real estate in the Czech Republic