Letting Czech property a busy task in September 2008 especially to foreigners

We have had an incredibly busy month renting out property for clients in the Czech Republic.

September is traditionally a busy rental month when people come back from their summer holidays and students are hunting for accommodation - and September 2008 has proved no exception.

Demand for renting property in Prague and the Czech Republic still remains healthy.

I have even managed to increase rents recently on some of my properties which are in better locations - perhaps a sign that prices in the Czech rental market will see some more growth in the future (especially given inflation and wages are rising around 7-8% per annum).

Overall, I still think the rental market will be fairly static for another year and in areas which are suffering from oversupply prices will soften. That said the Czech rental market is still in good condition.

At Property Investment International we have rental/lease contracts in both Czech and English to cater for the range of nationalities in Prague.

Recently, we seem to have been using around 80% of our rental contracts in English.

As well as tenants from England and the United States our recent range of nationalities have included Norwegian, Swedish, Finnish, Turkish, Saudia Arabian, Korean, Russian, Slovak, Greek and Spanish to name but a few.

Which just goes to show how the Czech Republic (and Prague in particular) still seems to draw a huge range of people, from students and tourists to international business men.

All of which can only have a positive affect on the Czech property market and the Czech economy.

Next month Property Investment International will also be launching a new redesigned website for our local real estate agency brand, which will further help us facilitate lettings and resales in the Czech Republic and keep our hardworking team even busier :).

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czech property news september

A taster of some Czech property news in September:

Erste: Czech Republic is safe real estate harbour

The bank group Erste in its survey of Central European real estate companies stated the Czech Republic along with other Central and Eastern European countries is still a safe place for property investments. In contradiction to countries of a former Soviet Union and Western European countries, the commercial property market in the region will slow down but not stop.

Interest in luxury apartments still growing

According to the Czech News Agency, interest in the luxurious apartment segment is still strong and growing. The real estate company Engel & Volkers announced a 21% increase of interest in the expensive flats segment. Also, the development company Satpo Development revealed that for the first eight months of this year they have recorded an increase of residential units sold in range of several tens of percents.

Crisis pushes down demand of new flats

The real estate crisis which has already reduced demand for overpriced prefab flats, is now affecting the market for some new flats. In order to boost stagnant sales, developers with inferior projects have started to offer discounts or financial bonuses to buy equipment. The companies offer discounts ranging from CZK 50,000 to CZK 150,000 on kitchen equipment, or a free parking space in a garage, worth up to CZK 300,000. Customers are more demanding and selective in what they will accept. They consider the price, quality, location, architectural concept and other such factors. Overpriced, low-quality projects of poor architecture design can be found in some less desirable locations, and the times when customers would buy almost anything are gone.

Mortgage market update

The first half of the year showed a 20% y-o-y decrease in total amount of total mortgage loans in the Czech Republic. After the record years 2006 and 2007 when people borrowed 100 billion CZK and then 140 billion CZK, a the expected decrease in mortgage volumes has taken hold. However this year’s 60 billion CZK loans show the actual demand for an own flat is still strong. Moreover thanks to the recent cut in interest rates the volume of mortgages is slowly increasing. All told, a total volume of 125billion CZK in mortgages is expected for this year.

Basic interest rates of central banks

Japan	0,75%
USA	2,00%
Czech Republic	3,50%
EU	4,25%
Slovakia	4,25%
UK	5,00%
Poland	6,00%
Hungary	8,50%

Spending decrease threatens panel houses

A decrease in spending budgeted for the support of high-rise apartment houses (paneláks) might cause the development of new social ghettos. Well-off people will be able to move out from there soon and lower income people will take their place, said Vít Vaníček, the head of the Union of Czech and Moravian Housing Cooperatives (SČMBD). A program for paneláks run by the State Fund for Housing Development (SFRB) will soon have no money left in its budget, according to fund director Jan Wagner. This year, the Czech government approved only Kč 1.5 billion for the program, which is about a third of last year’s amount.

Beroun: residential complex with over 600 flats

The development group Crestyl is readying for construction of a new residential complex called Berounske strane. The project will bring to the market around 621 flats and will have a total size of about 48,000m². The first phase should be finished in 2010. The number of inhabitants in Beroun increased in the last three years by 1,000 people and local municipality expect that in the following five years the total population should increase by another 5,000 people.

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Croatia property buying to get easier

The Croatian government is set to lift the current restrictions on the EU citizens buying property in Croatia on 1st February 2009.

Currently most buyers/investors have to set up a Croatian company to buy property in Croatia. However, from next year EU nationals will be able to own Croatian property in their own name (apart from some rural land).

How will this affect the Croatian property market?

Croatia is primarily a second home destination and does not attract as many second home buyers as the likes of, for example, Spain or France.

This is primarily due to:
- access being more difficult (ie flights),
- weather not as good, particularly in the winter,
- property prices that are already high and
- until very recently the complete lack of mortgage finance available for foreigners.

The lifting of restrictions is likely to see some increased interest in the Croatian property market though (relatively) high prices and poor mortgages still remain very large barriers to a flood of foreign investors in to the Croatian property market.

Mortgages in Croatia

Until recently it was not practically possible to obtain a mortgage in Croatia as a foreigner.

There are signs now that some mortgage products are becoming available, though not with very attractive conditions (eg 50-60% LTV, 7%+ interest rate, and only 15 year terms). As they are not used to dealing with foreigners investors can further expect a long complicated and difficult process to be able to obtain a mortgage in Croatia.

Croatian property market predictions

Over the next year I see the Croatian property market, on the whole, continuing to stagnate.

With the prospect of EU membership in, potentially, 1-2 years time things in medium term should be looking up for the property market in Croatia.

However, for the moment I see no real reason to invest in property in Croatia when there are far better and safer markets elsewhere in Europe, unless of course you wish to buy a holiday home then the decision making process is somewhat different.

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Is the Slovakia property market boom over

Despite strong economic performance the Slovakian property market showed little growth between 2005-2006, primarily due to an oversupply of property on the market.

The oversupply situation began to recitify towards the end of 2006, resulting in 2007 seeing a 24% average growth across Slovakia.

This property price boom has continued in Slovakia well in 2008. The latest property price data below shows some remarkable growth figures:

Latest Slovakia property price data

	Aug 2007	Aug 2008			Price Growth
BA I	€ 2,485	€ 2,837			14.19%
BA II	€ 1,800	€ 2,087			15.98%
BA V	€ 1,894	€ 1,972			4.13%
Kosice	€ 1,047	€ 1,312			25.33%
Nitra	€ 972	€ 1,265			30.17%
Trnava	€ 1,081	€ 1,450			34.21%
Zilina	€ 1,022	€ 1,223			19.63%
Presov	€ 788	€ 1,081			37.19%

Can this Slovakian property boom continue?

Well the simple answer is that it has already started to slow down.

Affordability is starting to be stretched and properties are certainly becoming more difficult to sell.

I see this slowing trend continuing, despite the continued strong economic performance and Euro entry next year.

Much of the expected price growth due to Euro entry has already been priced into the market I believe.

The Slovakia market is still smaller and less well developed than in the Czech Republic, thus growth is more liable to spurts rather than a reliable steady growth. That said I think growth in Slovakia will now show lower and steadier growth than it has in the past couple of years.

As always, but especially in Bratislava, beware of the huge amount of property in the pipeline that should be built over the next 2-3 years.

Conclusion

The market is still well positioned medium to long term, however, if you haven't already invested in the Slovakian property market i would recommend giving it some space to consolidate otherwise there is a big danger you will be buying at the top of the market - not a good idea.

Given the choice I'd still rather invest in the Czech Republic, where the economic fundamentals are just as good if not better, rental yields are higher and mortgage finance is much better and easier to obtain.

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Poland property market review update

With last week's announcement that Poland plans to bring forward their entry in the Euro currency to 2011 I thought it was worth reviewing quickly the state of the Polish property market.

The Polish property market between 2004 and 2007 was generally recognised as one of the highest growth property markets in Europe (50%+ per annum in some parts).

The combination of low prices, high affordability and good economic climate etc etc that drove this huge price growth is now well known.

As with many property markets that boom such large price growth is usually very unsustainable and often accompanied media hype and unsuspecting buyer piling into the market just as prices reach their zenith.

And so is the case in Poland.

Towards the end of 2007 prices in many of the major cities slowed and moving into 2008 started to go into reverse gear, a trend which has continued month on month throughout the year (between 1.5% and 4.5% in August alone).

Prices simply grew too much compared with wage growth leaving affordability too low, thus demand has weakened substantially and sellers/developers are now having to price their properties more realistically (and often accept much lower than the asking price).

Average prices now stand around 8,000 PLN/sqm across the major cities in Poland.

The list below shows the average price of a new build development in August 2008 for each of the major Polish cities in PLN/sqm:
Katowice 7,060
Kraków 8,464
Łódz 5,798
Poznan 9,063
Warsaw 9,070
Wrocław 8,065
Tri-City 6,656
Average 8,091

My view is that these prices will, on average, soften further until the near the end of the year, which is no bad thing and will allow necessary consolidation in the market and allow the market to find its level.

The many of the fundamentals that drove the market between 2004-2007 are still in place.

Thus, once the Polish market has gone through its period of consolidation and whilst demand is still relatively weak (but prices more reasonable) buying opportunities for a mid-long term investment strategy will abound.

With the economy still growing well, wages rising, investment high, infrastructure improving, skills increasing, expected Euro adoption, Euro 2012 football championships, property supply still lower than what is needed in the country (further hampered by archaic plans laws) etc I see the medium term outlook to be quite rosy.

In a few months time it could well be the time to get back into the Polish property market and pick up some real bargins.

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Is the Czech property market like the UK back in 2003

The Czech property market has performed very well over the last couple of years.

There have been reports recently that this growth period is coming to an end.

My view is that yes property price growth is slowing after the heady growth of 2007, but that property price growth in the Czech Republic will still remain healthy over the next couple of years.

It reminds me a lot of the UK property market back in 2003, after a period of good growth every one said that it could not continue much longer and then was the time to get out.

What followed was a sustained period of excellent property price growth for around the next 3-4 years all over the country, making many people very rich in the process. Those who sold sold in 2003 missed out indeed.

The parrallels are similar today in the Czech Republic.

Price growth has been good and has slowed a little (relatively), but I believe there are still good fundamentals to the market.

Unemployment is still low, the economy continues to expand well (unlike in western Europe), prices are still affordable for many and interest rates on mortgages have come down again in the last 2 weeks, 100% LTV (and more) is still available around 5-5.5% interest rate.

Many Czech banks have reported that after the summer period demand for mortgages has increased yet again, and i see this trend continue over the coming years as household debt is still extremely small compared with western European levels.

Overall I still believe strongly in the fundamentals of the Czech property market (similarly in Poland too) and that the next few years will still provide investors with a liquid investment market with good solid growth, good rents and good mortgage finance.

I ponder the question a lot whether I should cash in my gains from the last few years in the Czech Republic, but I fear this would be foolish and I will continue to buy properties in the Czech Republic when I find ones at the right price in the right location.

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German property top investment location

I recently read a report on the German property market by Invista Real Estate Investment Management in which they rate Germany as the top real estate investment market in Europe (closely followed by France and Italy).

I have to say the report was a complete load of rubbish.

The German property market (and coincidently the French and Italian property markets) is the one of the last places i'd put my property investment cash!

There are a number of very good reasons for this ...

1. Economically Germany still has a lot of problems. Growth is very slow, unemployment very high and there is a complete lack of confidence.
2. Taxes and regulation are very high and burdensome.
3. Property prices have been in decline since the mid 90's and in the last 4 years have stablised but have shown very little growth at all (maximum 5% in the best regions). There is little sign that prices will increase much over the next few years either.
4. Mortgage finance is appalling, especially for foreign investors. German banks are very conservative. LTV's are only around 50%, have high fees and are inflexible. This significantly reduces investors returns.
5. Buying costs are extreme. Often buying costs add a huge 12-13% on top of the purchase price of a property. Sales costs aren't small either. This means your property has to grow at least 13% before you get your money back (then the German government will still take a large slice of the profit). This makes the German property market very illiquid - not good - and increases investors risk substantially.
6. Whilst the rental market is billed as very good yields are still only around 4% these days, and as a landlord the laws are very much in favour of the tenants (who know their rights!).

I could go on but I think you get the point.

No price growth, huge buying costs, no confidence, high tax, high regulation, poor finance - I couldn't think of a much worse market to invest in!

Unfortunately this report is typical of such funds who try to apply stock market investment theory in the real estate market.

My advice is don't buy property in Germany.

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czech property news

Some recent Czech property news items:

More banks lower mortgage rates

ČSOB, Hypoteční banka, mBank and Raiffeisenbank in the last week lowered their mortgage interest rates by 0.3-0.4 percentage points, following a similar move last week by Komerční banka and Česká spořitelna. Bawag will reduce its rates today. For 20-year mortgages worth CZK 1.8 million, the cuts will reduce the monthly payment by CZK 300-500 a month.

Demand for mortgages on the rise

The country's leading mortgage provider, Hypoteční banka, reported loan volume of CZK 8 billion in July and August, an 11% increase year-on-year. Raiffeisen said that its own summer mortgage lending was up y/y by about 20%, and UniCredit reported 30% higher mortgage lending. Mortgage brokers and most banks confirm the rising demand for housing loans, as the year started out slowly but could end quite well.

Flat price not to decrease

According to the real estate company RE/MAX a reduction in flat prices is not expected within the next few months. As the economic situation is stabilised and the mortgage rates are lower once again, there is no reason for a slump.

Regulated flat rents in Prague could double

Regulated rents in Prague could increase on average by almost 46% next year. According to the Prague municipals it is expected that the rents in the higher standard flats will rise by 11 – 30 CZK/m² and the rents in the lower standard flats by 16 – 30 CZK/m². The rents for the flats owned by the city will then on average increase to 48 – 95 CZK/m².

CSO reports 25% y-o-y increase of flat prices

Average flat prices rose by 25.4% year-on-year in the second quarter of 2008. Prague prices grew more slowly at 19%, while the increase in some regions topped 31%, the Czech Statistical Office said. Prague inhabitants who want to buy a flat must prepare on average CZK8,500 more for one square meter than one year ago.

HSBC to enter Czech mortgage market

British bank HSBC plans to enter the Czech mortgage market next year, providing housing loans to individuals. This new product should be part of the expansion of HSBC on the local banking market. Currently more than 15 financial institutions operate on the Czech mortgage market.

RPG RE to invest CZK 17bn in reconstruction of flats

RPG Real Estate will spend CZK 17 billion on the reconstruction of more than 44,000 flats located in the northern Moravian towns of Ostrava, Orlová, Havířov, Karviná and Opava. The decision is opposed by a majority of the tenants who prefer to buy the flats and finance the reconstruction on their own.

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Cambodia property market

Early this year I had the good fortune to spend some time in Cambodia, and inevitably couldn't resist taking a look at the property market there.

The Cambodian economy is still recovering from the fallout of the Khmer Rouge conflict, but it is recovering fast and my view is the place will look completely different in just a few short years.

Many of Cambodia's roads are dirt roads which turn to mud in the wet season, even between major towns. However, this is now changing and roads are being built apace.

Since being in Cambodia I have noticed that the Cambodia government is taking steps to make both easier and safer for foreigners and foreign entities to invest in the country with the aim of attracting considerable foreign investment, and not just in real estate.

It is also expected that the Cambodian government will soon make it possible for foreigners to buy real estate in their own names without the need to set up a company as it currently stands.

Without going into the economic details in this blog, we believe that all the signs are pointing to surefire growth period to come in the Cambodian property market.

Many international property developers have already made their way on to the scene recently in light of the changing regulations.

Particularly recently I have started to see property developments promoted not just in the capital Phenom Pehn but on the coast, in locations such as Kep.

I think there there is undoubtedly a lot of potential, but investors must be aware that the market is still very new and immature and will change a lot of the coming years - so it is not without its risks.

Given property price growth in many of SE Asia's property markets has either slowed considerably or are in reverse gear, Cambodia may be a place to look for those interested in investing in the region and can handle a little more risk and uncertainty.

The Cambodian property market is certaintly a market to keep a close eye on.

I'd be interested to hear from anyone who has experience of the market and what their thoughts are?

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Prague 10% rental yield

Last month I let a garage space that I own in Prague 5.

I managed to get a rent of 2,500 CZK / mth, with a years contract.

Given that a typical garage space costs around 300-400,000 CZK, this gives an approximate rental yield of 7.5 - 10%.

This is far higher than the yield from an apartment in Prague (typically around 5% currently).

I'm not suggesting going round buying a lot of parking spaces in Prague (though it might be good idea) as they are a little more difficult to rent than apartments and demand varies from location to location, building to building. Also there is a lot of hassle involved in renting each space for a small amount of money, so its not the most scalable strategy (unless you buy a parking building).

That said with the growth of car ownership in Central and Eastern Europe the trend will be for increased demand and higher prices of parking spaces, especially in the major cities, such as Prague.

Overall, I would always recommend buying a car parking / garage space when buying an off-plan apartment in Prague. Increasingly, more and more tenants ask for them and they certainly help resell an apartment more quickly.

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