Foreigners no longer big players in Prague’s property market

After years of growth, the real estate market in the Czech capital has seen a slow but steady decline, with decreasing prices and many more new listings having turned Prague property into a buyer’s market. One factor behind the change is waning interest from foreigners to invest into real estate in the Czech capital. However, some parts of Prague have become more attractive for Czechs and foreigners alike, while others remain popular primarily with foreign clients.

Photo: archive of Radio Prague
According to last year’s population census, 10 percent of Prague’s population is made up of foreigners. The majority of them are short-term labourers from Ukraine and Slovakia who are unlikely to buy real estate. But members of other expat communities – Russian, Vietnamese, or from other EU countries and the US – were until recently important players on the Prague real estate market.

Charles Recknagel is an American citizen who has lived in Prague since 1995, and recently bought an apartment in the district of Dejvice, in Prague 6.

“My concern was to find a place that I could live in and sell fairly easily. I was looking at the high end; that meant finding a place in a location that would be attractive for people like me ten years from now, a place that would hold its value.”

Charles Recknagel first looked to buy a flat in Prague even before the property prices crash of 2008. Apartments across the country now cost 17 percent less on average than five years ago although in Prague, the drop was much less dramatic.

“Before that time, the prices were climbing and became unaffordable when combined with the falling dollar. So I began again about two years ago when the prices collapsed world-wide, and the crown began to gain a little strength against the dollar again. I looked intensively for about a year but since I was interested in this several times over the past decade, I knew what area I wanted to look at, and I knew how to go about doing it.”

The wait paid off for Charles Recknagel, and other buyers who are now taking advantage of the low prices. But after a slight increase last year, the sales of both new and second-hand apartments is stagnating: in the first quarter of this year, 15 percent fewer flats were sold compared to the same period last year. At the same time, the supply rises, making Prague real estate a buyers’ market. Petr Čech runs the website Reality Mix which collects property listings from agencies across the country, and is one of the most popular property search engines.

Photo: Jiří Němec,  Radio Prague International
“This time last year, our website offered around 151,000 properties. Today, we have 170,000 properties on offer, and it’s not because we would have more agencies advertising on our site but because there are some 20,000 more flats on sale and for rent. There are also many apartments that are sold without being offered on our website; there are for instance many re-possessed apartments that are sold in auctions.”

Compared to 2005, the average price of second-hand flats in Prague has grown by 25 percent. But last year, the prices fell by 4.6 percent, and experts believe the decline will continue. Petr Čech again.

“Since January 2010, the prices have been steadily going down. In 2010, we saw a more significant drop than last year but our statistics register the decrease even now. Given all the circumstances, I don’t expect the trend to reverse and prices to go up any time soon.”

One of the factors behind this development is the flight of foreign investors. In the rich years leading up to the crash of 2008, foreign investment groups would buy dozens of new apartments at a time, and acquire attractive second-hand flats in prime locations. But this boom is gone, and not likely to come back. Martin Fojtík runs the agency Home Sweet Home which specializes in foreign clients.

“Investment groups from Ireland or the UK would buy a lot of property, mainly in new projects. That’s something we don’t see any more. Today, it’s mostly individuals who buy places in Prague 1, 2 and 3, Russian clients in Prague 5 and Prague 13, and so on. But it’s not what it used to be when a firm came and said, we want 15 apartments and we want you to rent them out for us, which used to happen quite often.”

Monika Dubová works for Simproperty, a real estate and property management agency active in the Czech Republic, Slovakia, Poland and Bulgaria.

Photo: European Commission
“The interest of foreign buyers is much lower than four and a half years ago when we started. Even owners who now own property are more willing to sell and focus on different markets.”

So are real estate markets in other central and Eastern European countries more dynamic, compared to Prague?

“I can compare Prague with the markets in Slovakia, Bulgaria and so on, and the prices went down even in those countries. But people expected the opposite and now, with the prices and rents going down, the investments are not as good and people are now willing to sell there, too.”

With most investors gone, the foreign-focused agencies now work mostly for Czechs. Martin Fojtík from Home Sweet Home again.

“Recently, over the last two or three years, we have seen a declining trend. Buyers have increasingly higher demands but that doesn’t mean real estate gets sold to foreigners. In 2008 and 2009, some 70 percent of our business was with foreigners, now 70 percent of our clients are Czech. At the same time, the structure of our foreign clientele has changed. They are now mostly Russian and Italian who are based in Prague but also the English and Irish.”

Blažena Polehávorá is the owner and manager of Happy House Rentals, another Prague-based real estate agency focusing on foreigners but whose clients are now mostly Czechs.

“Foreigners are definitely less interested in buying than a few years ago. They still buy but I can say that most of our clients for purchases are now Czech. I think that the boom that we saw in the 10 or 15 years after the fall of communism is gone, and I also think that most foreigners who live in Prague have already bought property.”

Photo: Jiří Němec
During the years of massive foreign investment into Prague real estate, the market became friendlier for foreign buyers. For one, ownership records are now online which narrows the risk of fraud. Banks are more willing to provide mortgages – whose volume is up – and agents specializing in foreign clientele work with reliable contractors who renovate older, second-hand apartments. Charles Recknagle, a happy owner of a flat in Prague 6, says the process was relatively easy.

“Everybody involved – the real estate agent, the seller – was very open. Also the whole process of confirming who the owner of the building was a huge bugaboo for anyone but particularly for foreigners buying property in the Czech Republic because there was this fear 10, 15 years ago that you might end up buying something that is not owned by the seller. But I was pleasantly surprised that now all this is on line, so that kind of openness and transparency made buying property quite easy.”

Prague 6, located north of the historic Prague Castle, easily accessible by metro and with the city’s largest park, Stromovka, remains one of the most popular areas to buy property, with Czechs and foreigners alike. Petr Čech from Reality Mix explains.

“Our statistics suggest that Prague 6 is the safest area to invest in. In all other areas, prices go down and will go down in the future. However, Prague has seen the lowest price decrease, compared to the rest of the Czech Republic. Other cities and towns have registered much sharper drops.”

The historic centre – Prague 1 and Prague 2, along with Vinohrady, a pleasant residential area to the east of the centre, are also in high demand, and experts don’t expect any sharp price drops there, either.

Photo: Kristýna Maková
“In Prague, people are still interested in Prague 1, some parts of Prague 2 and Prague 3, as well as Prague 6. These are the areas most frequently explored at our foreign-language websites, most often in Russian, followed by English and German. But we also know that for example, parts of Prague 5 around the Anděl shopping district are popular with French clients which has to do with the fact that a French lyceum is located there.”

Among the upcoming parts of Prague is Holešovice in Prague 7, with many large, spacious apartments as well as new construction activity. Another attractive area is Vršovice, in Prague 10, which has the air of Vinohrady but worse transport connections which makes it more affordable.