Is purchasing an apartment in Prague is still a profitable form of investment?
Rentals and prices of new apartments in Prague are still growing. There are several reasons that are mutually connected. The economy in the Czech Republic experiences a growing trend, but the availability of own housing is deteriorating due to the worsened mortgage conditions by the Czech National Bank. Especially young families and individuals are forced to stay in rental housing due to the current situation. Another negative factor is the fact that housing construction in Prague is stagnant. The average prices of newly built apartments exceeded 90,000 CZK per square meter last year, over the past two years the price increase is almost 40%. Older flats are still lacking in Prague, so their value is up to two-thirds more expensive than they are in other regions. At the same time, a relatively high number of people moves to Prague, multinational companies relocate their employees, and the combination of all these factors leads to the fact that people remain in rental housing – that raises the demand and leads to higher prices of rents.
Apartment 4+kt in Devonská Street, Prague 5 – Hlubočepy
Existing owners have the ideal conditions to obtain a suitable tenant for relatively high rents. Assuming the owner owns a quality property in an attractive location and sets a reasonable price, he can expect a large number of candidates and then choose the most appropriate one. Those who consider investing in real estate for subsequent rentals cannot expect extremely high returns (due to rising purchase prices), but they are still well-stored resources. Influence of profit can, of course, be rised by high standard equipment of the flat, which makes it possible to require higher rent, but it is necessary to take all costs into account. Currently, Prague expected return is min. 3% and the main condition is surely the location. The highest prices for rent are in the historical center, in Prague 1 and Prague 2, but popular locations are also Prague 7 – Holešovice, Prague 6, the villa area in Prague 5 or Prague 8 – Karlín. The demand for rent in Prague is about 60% Czechs and 40% foreigners. The biggest interest is usually for flats 2+kt/2+1 and, in general, small-size apartments.
An alternative and very popular option in the above-mentioned locations is short-term rent, which is economically more profitable and has been experiencing a boom in recent years. Due to the high price of apartments, for example, in Prague 1 it is not worth paying an apartment as an investment for classic long-term rent. Higher yields, however, also entail higher costs not only for routine maintenance but also for the service provided, which many owners considering this variant are unaware of. There is quite a lot of duty to do. In addition to the payment of taxes during the annual earnings (which is more than 30 000 CZK), it is for example an obligation to report the guests from countries outside the EU foreign to the police, draining local taxes (spa or recreational fee and accommodation capacity) and the operator must have a given the purpose of owning a trade. In some months, the operator must also expect lower occupancy (January, February, November). Therefore, it is necessary to carefully consider what kind of rental is in the given situation and for the property most advantageous, whether to invest in short-term rent or prefer a long-term – reliable and stable paying tenant.
Do you need an advice on your investment or are you looking for or offering a rental in Prague? Contact our residential lease and relocation specialist in – Ing. Zdeněk Jemelík: +420 720 310 300 | zdenek.jemelik@luxent.cz.
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