Low interest rates and friendly tax laws have sent the market soaring in Prague. Now the city is trying to bolster inventory to temper the surge.
A Top-Floor Pad in Prague’s Art Nouveau Corridor
$2.45 MILLION (51.4 MILLION CZECH KORUNA)
This two-bedroom apartment is on the fifth floor of a landmark building on Parizska Street, a historic strip of Art Nouveau design and high-end shopping in central Prague. The 1,260-square-foot home, built in 1907 and renovated in 2012, comes fully furnished with mostly custom-made pieces.
“This home is special due its unique location,” said Jan Kolar, the broker of Czech Republic Sotheby’s International Realty, which has the listing, adding that it “stands out thanks to its mixture of architecture of Art Nouveau and historicism, and its dominant tower in the front which no visitor of Parizska Street can miss.”
The work done in 2012 was a complete reconstruction, Mr. Kolar said, including “everything from creating the current layout, new floors, new bathrooms, new pipes, new electric wiring, to custom-made built-in furniture, kitchen, wall paint, wallpaper, decorative ceilings,” he said.
The entry hall, with a half bath, is at the center of the apartment. The living room, dining room and open kitchen are at the front, with Macassar ebony floors and large original windows (also restored in 2012) overlooking the street. A wood-framed sliding glass door separates the dining area from the living room, which has built-in bookshelves. The kitchen has quartz countertops and appliances by Miele, as well as a door leading out to a balcony.
A small hallway with a closet leads to the two bedrooms, both with en suite baths. The smaller bedroom has a balcony.
Several updates modernized the apartment while preserving its historic appeal: The entry hall has Venetian wall paint, and the crystal chandeliers are by the Czech brand Preciosa.
Parizska Street runs through the heart of Prague, the Czech Republic’s capital city, from Old Town Square to the Vltava River. Boutique shops and restaurants line the thoroughfare, and historic sites are all around, including the 14th-century Charles Bridge, the 15th-century Prague Astronomical Clock, and the city’s Jewish quarter. Václav Havel Airport Prague is a 20- to 30-minute drive.
Prokop Svoboda, the co-founder and managing partner of Svoboda & Williams, the exclusive Christie’s affiliate for the Czech Republic and Slovakia, described Prague’s real estate market as resilient during the pandemic thanks to a combination of factors, including low interest rates, the repeal of a property acquisition tax, and reduced housing supply.
“The coronavirus crisis slowed down growth in many economic sectors, but the Prague real estate market proved resistant to it throughout the entire year,” he said.
Prices in Prague, as in the rest of the country, grew steadily between 2010 and 2019, according to the Czech Statistical Office, with more accelerated growth beginning in 2016. By 2020, prices had grown 51 percent over their 2010 levels, far outpacing wage growth. According to a 2020 study by the financial consultancy Deloitte, Czech buyers must pay 11.4 times the average annual salary to purchase a 750-square-foot home, the highest rate in Europe.
Peter Yusufi, the general manager of Czech Republic and Slovakia Sotheby’s International Realty, said buyers in Prague, as elsewhere, view real estate as “a safe bet in light of global fears of inflation” and currency devaluation. This, along with greater demand for second homes and investors scooping up “large portfolios of rental units,” has led to heightened demand for real estate during the pandemic.
The living room, dining room and kitchen have Macassar ebony floors and large windows overlooking the street. A wood-framed sliding glass door separates the dining room from the living room.
The repeal of the property transfer tax last year, prompted by the pandemic, further spurred buying. Previously, buyers paid a 4 percent tax on the purchase price.
Meanwhile, mortgage rates fell under 2 percent, according to a fourth-quarter investment report by Colliers, leading to a record number of approved mortgages during 2020, even as prices continued to rise. Now those rates are starting to climb again: “Some banks have begun to marginally increase interest rates on new mortgages in hopes of slowing down demand given the record high prices,” Mr. Yusufi said.
Mr. Svoboda said a chronically slow building-permit process is behind the low supply. “In average, it takes almost 10 years for real estate developers to get a building permit,” he said. “The effort to streamline and speed it up has been halted due to the coronavirus crisis, and developers launched the construction of only 3,246 apartments last year — a year-on-year decrease of 40 percent.”
A new law aims to speed up the construction process, but “many experts agree that the new Building Act is definitely not flawless, so it remains to be seen how it will affect the construction process,” he said.
Still, buyers are opting to invest in real estate rather than park their cash in savings accounts.
“The demand is so high that projects are sold out even before they go public,” said Pavel Parizek, a managing director of CZECH POINT 101, a real estate agency that specializes in investment properties, adding that his company “has a list of investors who want to buy, and we give them the properties before we advertise them.”
The open kitchen has quartz countertops and appliances by Miele.
There are other factors keeping supply low and prices high. For one, the pandemic left many of Prague’s 13,000 short-term apartments empty without tourists to fill them, said Filip Sejvl, the owner and managing partner of Philip & Frank, a luxury real estate agency in Prague. Many of these units were converted to long-term rentals, which drove rental prices down by around 15 to 20 percent, and in some cases by as much as 50 percent.
Even then, owners held on to their rental properties. “They are waiting for the tourists to come back,” Mr. Sejvl said.
Based on data from the Czech Statistical Office and Deloitte, Mr. Sejvl estimated the average price of a new apartment in Prague was 114,000 koruna a square meter ($505 a square foot) in January 2020, and 123,000 koruna a square meter ($545 a square foot) in April 2021.
The priciest area is the central district, Prague 1, much of which is a UNESCO World Heritage Site. Homes there average about 203,000 koruna a square meter ($900 a square foot). Just south in Prague 2, the average is 169,000 koruna a square meter ($750 a square foot), Mr. Sejvl said.
Popular areas outside the capital, where buyers hunt for second homes, include the town of Cesky Krumlov, the city of Karlovy Vary, which is known for its mineral hot springs, and the ski resort town of Spindleruv Mlyn, Mr. Yusufi said.
Who Buys in Prague
Mr. Svoboda said that in 2020, 78 percent of buyers with his company were Czechs, with the remaining 22 percent comprising mostly Slovaks, Russians and Italians.
Mr. Sejvl said buyers mostly come from the bordering countries of Slovakia, Germany and Austria, as well as from Italy, Holland, France and Britain. Outside the European Union, they come from Russia, Ukraine, the United States, Israel and Vietnam. About half of his company’s buyers are foreigners.
Mr. Yusufi said that, historically, Prague has served as a destination market for buyers from Russia, China and Vietnam. “Now we are seeing the second generation of Vietnamese immigrants who have been born and educated in the Czech Republic enter the real estate market,” he said. “These buyers have significant buying power and have proven to be savvy investors.”
Several updates modernized the apartment while preserving its historic appeal: The entry hall has Venetian wallpaper, and the crystal chandeliers are by the Czech brand Preciosa.Credit...Czech Republic Sotheby’s International Realty
Monika Rutland, a managing partner of Rutland & Partners, a Prague law firm, said properties are sold in Czech koruna, but may be quoted in euros for the luxury market. (The Czech Republic joined the European Union in 2004 and is required to eventually adopt the euro as its official currency.)
Foreigners can purchase real estate in the Czech Republic without restrictions, but it is harder for nonresidents to get a mortgage. “The banks introduced stricter rules and, basically, if you do not have residency and employment income in the Czech Republic, it is almost impossible to obtain a local mortgage,” she said.