How Does the Czech Republic Real Estate Market Look Like?

The real estate market in the Czech Republic enjoys a great deal of macroeconomic economic stability and is therefore of interest to many investors. Before you is a short review of the Czech Republic Real Estate market and answers to many of the questions that are of interest to potential investors, including possible obstacles for investment, financing conditions, and more.

The economic situation in the Czech Republic on the macro level is a source of pride to the citizens of the Czech Republic. Over the past few years the economy of the Czech Republic has grown each year by around 3% and the expectation is that this trend will persist for years to come. The Czech Koruna, which is the local currency, remains stable, though on April 2017, the pegging of the currency to the Euro has been canceled. In addition, from 2016 onwards, the Czech Republic has enjoyed the lowest unemployment rate in all of Europe. 

Real Estate in the Czech Republic 

The real estate market in the Czech Republic is affected by the macro economic situation in the country. The proof thereof is the extent of the real estate transactions in the first half of 2017 has broken all records and reached a total of 2.1 billion Euro. The projection is that this situation will last thanks to the low interest rates, high employment rates, and high capitalization rates in luxury real estate assets, so that investment in real estate becomes particularly worthwhile in comparison to other investment options. 

Residential Real Estate 

The primary bottleneck in the field of real estate in the Czech Republic is the low availability of residential real estate, particularly in the most desired neighborhoods of Prague. Even though the demand for residential real estate has steadily risen over the years, the number of new construction projects remains low. The primary reason for the gap between supply and demand is the long approval process required for new construction in the Czech Republic. For example, the number of new constructed projects in 2016 was lower by 15% than the number of construction permits.

Commercial Real Estate 

The Czech Real Estate Market is flourishing in the field of commercial real estate (offices and malls) as well. For example, the office catchment in Prague is over 90% (The highest rate since 2008) and the malls continue to be a highly desired real estate target of acquisition. Nonetheless, the number of new construction projects in the field of commercial real estate remains low, and the demand four outstrips the supply. 

Bank financing and mortgages in the Czech Republic 

According to the KPMGProperty Lending Barometer, Real estate financing has remained stable over the past few years. The findings of the survey are that the rate of high risk loans in the field of real estate in the Czech Republic is no higher than that of Germany and Scandinavia. 

Furthermore, the banks in the Czech Republic enable taking out loans in foreign currency, particularly in Euros . Furthermore, the survey finds that the Czech banks ask for rates of up to 70% LTV and enable a debt ratio of at least 1.2%. They also provide generous loans to remunerative real estate properties, for example 2.22-2.68 percent for offices, 2.26 – 2.6% for other commercial real estate and 2.4 – 2.73 percent for logistical real estate. 

Who Invests in Real Estate in the Czech Republic. 

Most investors in real estate in the Czech Republic are foreign investors (around 70%), with German investors retaining their high representation. A significant rise in other European, as well as American and Asian investors is also notable. Many Israeli companies are also active in the field of Real Estate in the Czech Republic (particularly in the field of constructing apartments and projects) that realize the potential of real estate assets purchased prior to the economic crisis of 2008. 

Are you thinking of purchasing a real estate asset in Prague? Contact us.

Source: KPMG