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July 7th, 2008
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Foreign invasion

International investors snatching up Czech real estate

By Curtis M. Wong
For The Prague Post
March 19th, 2008 issue

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CERES Group says housing projects like Nad Rokytkou in Prague 9 are being eyed by foreign investors interested in Czech properties.
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Odeon Residence
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Palmovka
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With the cost of living in the Czech Republic on the rise, Prague’s reputation as the budget capital of Central Europe has slipped in recent years. Still, developers say, the city and its outlying regions remain a beacon for foreign real estate investors eager to snap up prime local property for a fraction of the cost in their native countries.
Real estate experts say that while U.S. investment has fallen, partly due to the weak dollar, investors from the United Kingdom and Ireland — as well as other West European countries like the Netherlands — continue to seek out the best deals in the Czech Republic. And, while it’s far from a new trend, it’s one that shows little sign of slowing down in the coming years. The main reason: location, location, location, local real estate agents say.
“Initial interest [from foreign investors] actually started some time ago, [and] it significantly increased with the Czech Republic’s accession into the European Union in 2004,” says Greg Gibb, investment director at CERES Group, the country’s first residential agency catering to nonresident investors. “At that time, we saw many investors coming principally to Prague, as they saw it as a stable platform to the rest of Central and Eastern Europe. Prague still remains popular.”
While foreign investment remains heavily concentrated in the Czech capital, many of the country’s regional cities are finally getting significant attention from developers and investors, too, including Brno, Plzeň, Ostrava and Most.
Gibb describes the majority of international investors as falling into two distinct categories — those whose experience with the Prague real estate market have left them “secure” about making property investments elsewhere in the country, and those who are chasing capital cities further east, in Poland, Bulgaria and Romania. The former group, Gibb says, are often pleasantly surprised with what they find in the regional areas.
“Prague, which was the principal focus of international investments, continues to remain strong in comparison to many of [our investor’s] home markets,” Gibb says. “However, investors seeking higher growth and yields — more in line with the Prague market a few years ago — will look at alternative opportunities within the Central and Eastern European region. … Regional locations are becoming more popular with international investors, as they offer not only potential strong capital growth but also good yields.”
Stuart Bloomfield, associate director at CB Richard Ellis, agrees. The regional cities have started to attract mostly private investors from abroad, who find themselves able to get the best value for their money outside of the Czech capital, Bloomfield observes.  
“Of course, Prague is No. 1 in the consciousness of most foreign investors,” says Bloomfield, himself a UK national. “However, if you went to Brno, you’d find that you’d be able to get a lot more for your euro than you would here. People who invest in property abroad are quite shrewd, and they often look at property as a very personal investment. [Value] is attractive to individuals because they really want to see long-term returns.”
Of course, that doesn’t mean Prague’s real estate market is past its prime. Although there’s been a saturation of administrative and retail property investments, the residential demand continues to hold steady, the experts say.
“There’s definitely still an under-supply on the residential side here in Prague,” Bloomfield says. “There’s a strong desire among foreign investors to own property, either for an attractive second home or rental purposes, especially. Investors like brick and mortar because it’s solid and, for many of them, Prague is still a fairly safe bet because you’ll always see a good return.”
While he doesn’t deny that property prices are increasing, Bloomfield says that it’s at a “healthy” rate, and one that’s in tune with the rest of the Czech economy.
Gibb agrees, adding that the Czech Republic’s market is still emerging compared with that of most West European countries but with rapidly increasing quality. The luxury property market in Prague 1 and 2, he says, is likely to experience the greatest amount of growth as the supply is far outstripped by current demand, with wealthier investors moving in.
“The principal benefits of Czech real estate are strong growth in an emerging market, within a country with a very strong economy,” Gibb says.
Perhaps the biggest surprise in the Czech real estate market has been the overall failure of the rental market to sustain the same levels of growth as the property market. However, real estate officials say rentals may be responsible for a second wave of foreign investments in the Czech Republic.
“While capital values have grown significantly during the last few years, the rental market … has not kept in tune,” Gibb says. “This has ultimately pushed down the yields to the levels that we currently experience. We believe that the rental market will finally ‘wake up’ in the next 12 to 18 months ... and perhaps start a second wave of international and even local investment.”

Curtis M. Wong can be reached at specialsection@praguepost.com


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