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Czech Republic: reasonable investment in a growing market

The Czech Republic is a more affordable alternative to Austria and Germany: there are no territorial restrictions for foreign buyers, as in Austria, and real estate is cheaper than in Germany.

The volume of investments in the local market is growing rapidly: according to CBRE, in 2016, 3.7 billion euros were invested in Czech real estate – 86% more than in 2015. According to analysts, in 2017 the volume of investment will again exceed 3 billion.

Why does the Czech Republic attract investors? In this article we look at the main advantages of the local real estate market.

Stable economy
According to Eurostat, in the past ten years, the Czech Republic’s GDP grew by an average of 0.9 percentage points faster than the EU as a whole. In 2016, the Czech economy grew by 2.4% ahead of such economic giants as Germany (1.9%), the United Kingdom (1.8%) and the USA (1.6%).

The unemployment rate in the Czech Republic is one of the lowest in the EU. According to Eurostat, in June 2017 the number of unemployed in the Czech Republic decreased to 2.9%, which is less than in Germany (3.8%) or Austria (5.2%).

The unemployment rate in the Czech Republic
According to the Czech Statistical Office, in 2016 the inflation rate in the Czech Republic was only 0.7%. By July 2017, it had risen to 1.7%, which is slightly above the EU average of 1.3%.

Cheap mortgage
In the Czech Republic one of the lowest mortgage rates in Europe. According to the real estate agency Mona Real Estate, a partner of Tranio in the Czech Republic, loans in Czech banks cost from 1.5% per annum for residents and from 2% for foreigners.

According to Fincentrum, over the past ten years, the average mortgage rate in the Czech Republic has more than doubled: from 4.5% in 2007 to 2% in 2017.

Mortgage rates in the Czech Republic
In the Czech Republic, foreigners can get a mortgage loan in the amount of 50-60% of the property value. The maximum loan period for individuals is up to the applicant’s retirement age (70 years), for legal entities – up to 20 years.

Rising real estate prices
According to official data, since 2012, property prices in the Czech Republic have been growing annually by an average of 5%, and in Prague, the most expensive market in the country, by 7%. At the same time, housing in the capital of the Czech Republic is 2.0-2.5 times cheaper than in the most expensive real estate markets of Germany and Austria: in Munich and Vienna. In the regions of the Czech Republic, housing prices are even lower: about 1,5 thousand euros / m² in Karlovy Vary, 800 euros / m² in Ostrava and less than 600 euros / m² in Usti nad Labem.

Prices for residential real estate in the cities of Austria, Germany and the Czech Republic
High rental demand
Over the past ten years, the population of the Czech Republic has grown a little more than 2%, but the number of foreigners – by 25%.

From June 11, 2017, Ukrainians can enter the EU without a visa. Now in the Czech Republic there is a large influx of citizens of this country, especially in Prague. The law allows Ukrainians to stay in Europe for 90 days in the first half of the year without the right to work. But they get a job illegally, and they need housing. This increases the already high demand for rent, especially in low-cost panel houses.

In the long-term rental market in Prague, apartments with quality repairs with three bedrooms or more are in high demand: such housing is leased by companies for contract employees who come to Prague from abroad. The cost of this property starts from 150 thousand euros.

Small apartments are suitable for short-term rental to tourists: the Czech capital is among the twenty most popular tourist destinations in Europe according to Mastercard. Small apartments in the secondary market cost from 70 thousand euros.

According to Natalia Ahrimena, by the middle of 2017 all apartments that will be commissioned in 2019 have already been sold. The minimum price for new housing in the Czech capital is 90 thousand euros.

Forecast
According to the calculations of the Trading Economics Information Center, by 2020 inflation in the Czech Republic will grow to about 2.6%. At the beginning of August 2017, the National Bank of the Czech Republic for the first time after the 2008 crisis raised the base rate from 0.05 to 0.25%. In connection with the projected inflation growth, Colliers analysts believe that in the near future, the bank will raise the base rate at least once more.

Due to the increase in the base rate, mortgage loans will slightly rise in price. As a result, the demand for housing in the Czech Republic may decrease, but the price collapse should not be expected: such measures will cool the market, preventing overheating and the formation of a “bubble”.

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