Buy to rent: an investment option with social downsides

Property as an investment not as a place to live: the phenomenon of buy to rent, and other variations along the same theme, has long been a facet of richer, more developed, real estate markets such as Britain and France. But it now appears to be taking on in the Czech Republic as well.

Photo: Kristýna Maková

It’s perhaps not so much of a surprise that this is so with current Czech mortgage rates. In December they fell to an all time low of around 2.37 percent. And with the prices of flats and houses picking up in most parts of the country after largely stagnating or even falling since 2010, there is the prospect of earning twice over – from renting out the properties and from their accumulating value.

One of the managers of one of Prague’s biggest real estate agencies, Maxima Reality, is reported in Thursday’s edition of the business daily Hospodářské Noviny saying that investment properties make up an average 15% of the flats it is now selling. In some real estate developments that percentage can rise to as high as 30%. The most sought after flats, it’s said, are fairly small so-called two-plus,two, that is two rooms as well as the mandatory kitchen and toilet.

Banks have jumped on the rolling bandwagon as well. Last year, one of the country’s biggest banks, Česká Špořitelna launched its own special buy to rent mortgages covering everything from flats to houses and even country cottages. An index is even being put together by a real estate company which tracks the returns on various investments based on data provided by the investors themselves.

Although the flight to bricks and motor and away from bonds, shares, funds, and other investment alternatives is supported by some fairly high profile Czech analysts, there are clearly risks. One is that interest rates have already bottomed out and that the only way – to borrow from the pop song, is up. Most agree though that the climb will be a leisurely incline rather than a championship ski slope. Also, the returns on flats in high priced locations, such as Prague, might not be that high when the purchase prices is taken into account.

There is also a social aspect to the buy to rent phenomenon. In Britain, for example the trend has helped increase the price of smaller flats in some big cities, meaning that they are even further out of reach for those on below average earnings. It seems to have widened the gap between the haves and have-nots.

In the French case, the phenomenon of buying up and renting out flats for a week or so to visitors in Paris over the various internet sites, such as airbnb, has become so widespread that the city council is looking for ways to clamp down on it. The rents that can be paid by visitors far outweigh anything that the locals can afford. Also, the string of visitors often cause noise and disruption, they are, literally, here today and gone tomorrow and have no stake in the community.