Authors: Václav Audes, Lukáš Syrový
Over the last ten years, increasing numbers of people have acquired real estate as a form of investment. As a matter of fact, immovables are a reasonable asset to invest in to protect one’s property from devaluation by inflation. This remains true now, at the time of economic crisis caused by the coronavirus pandemic; however, thorough consideration should be given to what type of immovable property to invest your money in. Our real estate market experts explain which properties continue to provide a suitable investment opportunity for protecting one’s wealth.
Attractive income can be generated not only from residential properties, but also from logistics-related immovables and investments in real estate funds.
Interest in immovables designated for housing has been confirmed by the amount of loans provided. The mortgage market is pushing historic records. In September 2020, banks provided mortgages worth more than CZK 22 billion, which is CZK 7 billion more than in September 2019. The number of provided mortgages keeps growing too – in September, there were 1,000 more than in August. Overall, Czechs contracted housing mortgages worth CZK 172 billion during the first nine months of 2020, more than for the same period in the record-breaking years 2016 and 2017, when the amount of mortgages sold eventually reached CZK 226 billion for the whole year.
This shows that Czechs are not afraid of investing in housing properties even in uncertain times. This is also due to the fact that the prices of mortgages keep going down, with interest rates around 2%. Other factors encouraging investment in housing are that the Czech National Bank has alleviated lending rules, and that the real estate acquisition tax has been abolished.
Despite the first and second waves of the coronavirus crisis, demand for high-quality residential housing in the Czech Republic remains stable. This is particularly true in Prague, where demand still exceeds supply. In the autumn of 2020, the average price per sq. m remains above CZK 100,000, 9% more than last year. We also expect that the prices of residential properties in Prague will keep growing.
Outside of Prague, the prices have not been increasing so fast, but still the real estate bubble has not popped as a result of the pandemic, and prices remain stable, particularly for high-quality properties. Thus, flats can provide an ideal opportunity for private and corporate investors alike to invest their money and secure stable revenues regardless of the currently unfavourable economic situation.
On the other hand, the coronavirus has strongly affected the rental housing market. The most dramatic decline in rent has taken place in Prague – by up to 20%. The market has been flooded by thousands of empty flats that had been offered by the owners for short-term rentals via Airbnb; this, of course, has pushed rents down in general.
We nonetheless believe that this is just a temporary phenomenon. Because increasing numbers of people will not be able to buy their own homes due to the crisis, it is reasonable to expect growing demand for medium-priced rental housing in the following months, at or around CZK 25,000 per month. Indeed, some large developers have responded to this projection and are designing residential projects for long-term rentals.
The logistics segment has been consistently growing in the Czech Republic over recent years. This year is no exception. Due to the pandemic, resellers have been quick to leave brick and mortar shops, moving to the online environment. In March, for example, the e-commerce segment grew by 40%, while similar developments can be expected with the second wave of the pandemic. Based on recent estimates, the turnovers of Czech e-shops even could exceed CZK 200 billion. These fast-growing businesses are naturally interested in whole logistic parks.
Hence, logistic facilities and industrial parks are extraordinarily attractive for investors as a result of the pandemic shock. At HAVEL & PARTNERS, we advise clients what to invest in, including specialised real estate investment funds, which are becoming more and more popular with investors.
Real estate funds, or real estate investment funds, besides offering investment opportunities in the amount of millions of Czech crowns, currently make it possible to invest thousands, or merely hundreds of crowns in immovable properties. It is nonetheless advisable to find out what type of property the fund invests in – residential or office space; this has an impact on the return on investment, and potential risks.
In addition to traditional real estate funds, real estate investment start-ups have been recently emerging. The latter primarily target young investors. Thus, some companies now enable small investors to participate in providing loans to developers for the construction of real estate projects (crowdfunding), or companies that use the deposited money to buy flats and subsequently pay out shares in rental revenues to investors.
Prudence is currently recommended when investing in real estate in the office space market, which is about to undergo certain changes in connection with the present situation. This is why many investors are now waiting. The office space vacancy rate has been around 5% for several years and is expected to somewhat increase after the pandemic. Therefore, numerous companies are very pragmatically contemplating reducing the size of the office space they are using under lease or subletting those parts they will be unable to fully use.
Consequently, we are now engaging in complex negotiations to agree on new lease terms and conditions for existing office spaces. These renegotiations relate to both the leased floorage and the rent. Despite the anticipated changes, we nonetheless believe that the construction of new office buildings will continue at a similar pace.
The retail market has been severely affected by the coronavirus wave. The transition of customers from brick and mortar shops to virtual e-shops has gained strong dynamics and this trend may further develop with the second wave of the coronavirus pandemic. In this context, it is reasonable to expect that new retail space will not be added at a fast pace, but instead that some shopping malls will be consolidated and possibly sold. Of key importance here will be the customers’ satisfaction with the brands and stores the shopping malls will be able to offer, as well as the quality of the blend of goods and services offered.
