Prague property market: trends and forecasts

There are not many cities in Europe that can boast Prague's popularity both as a tourist destination as well as in terms of property investments carried out by foreign individuals and corporations.

It must be because of its strategic location just a few hours' drive from Munich, Vienna and other Eastern European capitals. It must be also thanks to the large number of low-cost direct flights connecting the city with almost every corner of the continent (and beyond). It must probably be also and above all because of Prague's unique and unrivalled atmosphere, making it a genuine emblem of "Mitteleuropa".

The first boom in the real estate market in the Czech Republic took place between 1998 and 2003: during this period average house prices in the country rose by more than 60%, also in anticipation of the country's entry into the EU in 2004. This was followed, though, by years of partial stagnation due to the fact that the Czech Parliament had decided that also EU citizens not residing in the Czech Republic were not allowed to buy property for a transitional period of 7 years.

After a brief upturn (in the years 2006-2008) the impact of the global financial crisis took its toll and average prices fell slightly. Only since 2014 has there been a real recovery and in the following years an average annual growth of 5% with peaks of more than 10% after 2016 was recorded.

And what's Prague's property market like right now? We exchanged a few words on the subject with Mr.Rostislav Petchenko, managing partner of Gartal Development, a company boasting a long-running track record of both new developments and renovation projects of historic buildings in the heart of the city.

Q -  What have been the property price trends in Prague over the last 3 years? What is the average price range now in the city centre?
A - For the last 3 years real estate prices in Prague have been growing on average 15% per year. This is due primarily to high demand and lack or shortage of new housing solutions. With regard to apartments in the city center, prices range between 5 to 8 thousand euros / m2. In some projects prices may go up to 9-11 thousand euro/m2.

Q - What one can buy nowadays in Prague (and in which areas) with 100,000, 150,000 and 200,000 Euros respectively?
A  - For 100,000 Euros you can buy a studio or one-room flat of up to 25 m2 on the outskirts of Prague. The storage and parking place will cost you about 15,000 EUR additionally.
For 150,000 Euros you can buy a studio or one-room flat (up to 25 m2) in the city center or in districts with well-developed infrastructure (subway station, shopping centers, etc.) or a small (up to 50 m2) two-room apartment farther away from the centre.
For 200,000 Euros you can buy a spacious one-room apartment (35 m2) in the city center or in the districts of Prague 5, 7, 8 with good transport connections and infrastructure. Basically with this budget one could find also a two-room apartment of up to 60 m2 in almost all parts of Prague, except with the center. The above examples are indicative and show a general trend. It may happen that a downtown apartment is cheaper than a similar apartment located farther away from the center. It all depends on infrastructure, transport connections, quality of the renovation and other extra features (balcony, basement, parking, etc).

Q - What are the average rental prices which could be expected for long-term rent of one-, two-  and three-room apartments respectively in the center (not luxury)?
A - One-room - 600 euros per month.
Two-room - 750 euros per month
Three-room - 1 000 euros per month
The above mentioned rental rates would be inclusive utility bills. 

Q -  In which areas of the capital (among the most "underrated" to date) do you expect the most interesting growth in real estate prices in the coming years? Аnd why exactly in these areas?
A - In my opinion, the most promising areas as of today are:
- Globetin, Palmovka (Prague 9) - districts that have been changing their looks in recent years, where empty or obsolete sites and former industrial zones are being redeveloped into new interesting projects;
- Sporzhilov, Chodov, Zabeglice (Prague 4) - areas with lots of green areas and excellent infrastructure, where new residential and commercial projects are gradually being built;
- Nusle (Prague 4) - next to one of Prague's most expensive neighborhoods (Vinohrady), but the housing prices here are still very reasonable. 

Q - As far as I know, one of the most popular investment options on the local property market are the so-called "atelier". What are the differences between these properties and "traditional" apartments?
A - "Ateliers" look like ordinary apartments however, due to their not complying with certain technical requirements, they cannot be registered at the Cadastral office as residential premises. As a result, unlike "ordinary" apartments, one can not register his/her domicile in these premises.

Q -  Are there any restrictions for foreigners willing to buy real estate in the Czech Republic?
A - There are no restrictions - a foreigner has the right to purchase any real estate on the territory of the Czech Republic. 

Q - Do Czech banks finance the purchase of real estate by foreigners or non-residents? If not, are there any alternative financing options available to foreign nationals?
A - Since October 2019, Czech banks can issue loans only to foreigners with a residence permit in the country. Following the introduction of this restriction an alternative financing "product" has emerged, which is today the only way to obtain financing for the purchase of real estate for a non-resident. This is made via a leasing. The leasing company acquires the property chosen by the client and the latter commits to pay it off by monthly installments. The client is entitled to use the property either for his/her own personal purposes or to rent it out to third parties. Once the financial obligations have been fully paid off to the leasing company, the client becomes the sole and full owner. The main advantage of this type of financing is that the leasing company does not require the buyer to have either an income in the Czech Republic or a permanent residence in the country. 

Q - What are the typical yield expectations in terms of rental returns for apartments or commercial premises in Prague?
A - Residential property has an average yield of less than 5% per year. In commercial real estate this figure is slightly higher (4-6% per annum), but also the "entry level" of the investment is comparatively higher. Besides, small cheap premises are usually not very profitable and are poorly rented.

Q - What are the additional costs that a buyer should consider when purchasing property in the Czech Republic? When buying from a developer, VAT is usually included in the price or is to be paid additionally?
A - In case of purchase of apartments from developers VAT and other costs (stamp duties, etc.) are already included in the prices.
As far as re-sales are concerned the costs should not exceed 4% of the value of the property and include agent's commissions (in some cases they are included in the price of object), legal fees and checks, stamp duties, etc. 

Q - What is the tax rate applicable to rental incomes in the Czech Republic?
A - Income is taxed at the rate of 15% for individuals and 19% for legal entities. Owners are entitled to some deductions in certain cases. 

Q -  How much could the property tax on an apartment in the centre of Prague cost approximately per year?
A - The property tax in the Czech Republic is very low. For example, for a 50-sqm apartment in Prague the owner should expect to pay up to 2,000 Czech korunas per year (75 EUR).

 

Alessandro Alessio
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Buying heritage listed properties in Italy: pros and cons



As everybody knows, Italy boasts  a sumptuous and varied artistic and architectural  heritage and every city on the peninsula is dotted with a myriad of buildings that are genuine works of art of the highest historical and cultural value, often  reflecting the very identity of the places where they stand.

We have exchanged a few words with architect Gianluca Paron, head of an architectural studio located in Trieste, and asked him what should be expected by those domestic and international investors who dream of owning a «piece of history» of the Belpaese.

Q - Gianluca, first of all, when did the first heritage building protection acts  come into force in Italy?

A - In the Peninsula the concept of «monument» has been known since Roman times, but the first attempts to set forth proper norms regarding their protection were carried out only in the Papal States during the Renaissance. Following the issuing by the Pope of several bulls on the subject, on April 7, 1820, the so-called Pacca Decree («Editto Pacca») was passed, which served as a milestone from which the relevant legislation of that time and of later centuries stemmed. The Editto Pacca among other things imposed the extension of the protection measures to different types of objects, set forth regulations for archaeological excavations and exports, established the principle of cataloguing and provided for restrictions on private property by establishing specific monitoring authorities.

Q - Since when has a proper law for the protection of heritage listed buildings been in force in Italy in Italia?

A – After 1860 the Italian State continued to refer to the Editto Pacca, in particular for the regulation of the art market. The first attempts at protection legislation were made in 1872, but it was not until 1902 that the first law, n. 185/1902, was passed. However, it was only in 1909, with the Rosadi law, n.364/1909, that for the first time the protection of objects of the cultural heritage was introduced. The law’s fundamental principles included: the inalienability of state property and public property, protection obligations for private owners of listed properties, the introduction of the first refusal right for the State in the case of alienation of privately owned liste property and the establishment of the Superintendencies as local offices of the State controlling the territory. In 1939 the main laws of the Italian State on the protection of  listed properties were issued (the so-called «Bottai law»): n.1089/1939 for the protection of objects of historical and artistic interest and n.1497/1939 which aims at the safeguard of natural beauties. For completeness’ sake it’s worth adding that only in 1999, with the Law Decree n. 490/1999, all the legislation on the objects of the cultural heritage was reorganized in a single set (Testo Unico). Eventually in 2004 a new Code of Cultural Heritage was approved by the Council of Ministers of Italy and is still in force today.

Q - What are the most typical obligations to which must adhere the owners of heritage listed buildings?

A - Basically there are two types. The first relates to «man-made»  assets, e.g. buildings, blocks of buildings, historic mansions, etc. which are protected because of their history, their architectural uniqueness or even for the materials they were built with, as they are regarded as identifying the culture, history or art of our country and, therefore, must be carefully saved from destruction, decay or alterations.

The second case relates to environmental restrictions aiming at  the preservation of a specific landscape, which is considered of great value. The relevant regulations are contained in Part III of the Code of Cultural Heritage, and very often are applied to very large portions of territory.

Q - Are there still regional grants in place for the restoration of cultural heritage properties? Is it possible or realistic for the owners of these properties to get access to this sort of funding programmes?

A - The «Code of Cultural and Landscape Heritage» dating from January 2004 states that public and private entities are obliged to guarantee the conservation of the listed objects in their ownership and to bear the costs linked with their maintenance. The protection regulations give the regional authorities the right to partly funding the expenses incurred by the owner for the restoration of the assets of architectural interest. This is set forth by articles no. 35, 36 and 37 of Law Decree 42/2004. I personally always advise to try applying for them, even though this sort of requests often are left unheeded due to the local authorities’ lacking funds for these purposes.

Q - Many investors like the idea of converting old buildings,  historical mansions or castles into boutique-hotels, apart-hotels or similar. Is the procedure for the change of use of a heritage listed property more complex than for unlisted buildings? Or does that depend primarily on the local planning regulations, provided that the elements subject to the protection obligations are duly preserved?

A - The rehabilitation of a listed asset in a bad state of repair, if carried out by a private entity, usually is aimed at bringing  new life  to the property in view of its best possible use. This is clear also to the controlling authorities, as a consequence they usually take into due consideration the proposed changes of use provided that the protection of the property is guaranteed and the prescribed constraints are respected. In any case, the proposed change of use must also be compatible with the provisions of the municipal master plan. If this is not possible, the owner has in any case the possibility to submit a detailed plan with a variation request.

Q - Do owners of listed properties enjoy other incentives or tax relief?

A - While owning a listed property gives access to several benefits, including discounted tax rates and the possibility of free rental contracts, on the other hand, the imposed restrictions do not confer significant advantages. Still the tax advantages currently in force are varied and very appealing and include, but are not limited to: reduced rates applicable to the income tax, tax bonuses calculated on the amount of expenses borne by the owner, discounts on registration duties, mortgage and cadastral taxes, inheritance and donation taxes, municipal property tax, etc. 

Q - What’s the typical timeframe for obtaining permits for the rehabilitation or change of use for properties of the cultural heritage?

A - The release or denial of permits for the conversion of listed properties  often depend on the Superintendency officials’ subjective judgments.
In certain cases the applicant is required to make additions or amendments to the project. Usually, once the project has been submitted to the relevant authority, the process does not exceed 2-3 months. On the other hand one should take into account also the urban planning concessions to be released by the municipality, whose timeframe depends on the extent of the project. In some case it could be possible to start the works  straight away, while in other a period of up to 4-5 months should be expected.

 

Alessandro Alessio
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Regens Magazine - Issue 01 / May 2020

Available online the 1st issue of "Regens magazine", our new editorial project, featuring:

- property listings in Russia;
- market updates and insights about Russian real estate;
- an interview about "Mortgage loans for foreign nationals in Russia";
- international property listings;
- insight on "Purchasing heritage building properties in Italy: pros and cons".

For reading the online version please click > here


Sponsorship and advertising opportunities available.
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