Investment in real estate in Eastern Europe: Prague is safe, Bucharest is risky

Prague, Capital of the Czech Republic, is one of the most fascinating cities for real estate investment. The city is currently enjoying a real estate boom that is driven by the growth of the Czech economy. In 2015 the construction of some 4500 housing units in Prague was completed- this represents an astonishing growth of 12% in comparison to 2014. The average price per square meter in the capital has risen in 2015 to 54.1 thousand Koruna in comparison to 50.5 thousand Korunas per square meters in 2014. This is a trend which is projected to continue in the upcoming years, and which is also apparent in the powerful mortgage market in the capital. An additional tailwind for the ongoing rise in real estate prices in the capital is the zero interest environment prevalent over much of Europe. This environment is projected to continue for years to come given the desire of the E.U members (of which the Czech Republic is part) to encourage the growth of their economies and to lift at least some of the Euro block countries out of the recession which they are facing. The low interest rate results in cheap credit (mortgage) to purchase residential property and brings about a growth in the number of residential properties sold in Prague- in the first half of 2014, 2768 housing units were sold whereas in the second half of 2012 each six month period saw the sale of around 2500 housing units.

Unlike other European states facing recession and structural weaknesses to the economy necessitating reform, such as Spain and Italy, in 2015 the economy of the Czech Republic grew by a sharp rate of 4%, following a milder but still respectable, 2% growth in 2012. This growth is driven by an increase in private consumption and investment by the European Union in the Czech Republic. It is estimated that a rise in salaries and company profits, and growing exports will continue to drive economic growth for years to come. According to the OECD projections, in 2016, the Czech economy is projected to grow at a rate of 2.3% and in 2017; it is project to grow at a rate of 2.4%. This growth is paralleled by extremely low unemployment levels- in 2015; the unemployment rate was only 5%.

At a time when European capitals that were, until recently, considered attractive for real estate investment such as London face internal crises and political tumult (such as the Brexit) which introduce an element of instability into the real estate market, the Czech Republic is solidly rooted in the European Union and shows consistent signs of growth and stability.

Amongst the East European States of which the Czech Republic is a member, it seems that Prague is a superior target for investment in comparison to capitals such as Bucharest Rumania, or Budapest Hungary. It is true that these too are cities which have experienced strong growth in the past few years, but on the other hand, these are also cities that are much larger than Prague, and which contain diverse populations, which makes investment in them far more complex and requires a meticulous investigation of which neighborhoods are worth investing in. In Budapest, for example, there are great gaps between areas and neighborhoods and many neighborhoods that suffer from economic malaise border areas with stronger economic activity. It is often hard to distinguish between the stronger and weaker neighborhoods, and therefore a strong chance exists for falling for a real estate deal, which seems more attractive than it actually is due to location in weak neighborhoods. Bucharest in particular, unlike Prague, is also not considered to be a particularly popular destination for overseas tourists.

Another advantage for Prague in regards to real estate investment is the relatively regulation free environment, unlike cities such as Berlin in which a strict set of tenant protection rules may harm the return on your investment.

Do you want to hear more about real estate investment in Prague? Contact us and we will be pleased to be of assistance.