You can also listen to the interview in the audio version.
After two years of high interest rates and therefore expensive mortgages, the demand for investment in new apartments is growing again. However, according to Tomáš Pardubický, CEO of Finep, the market is still dominated by a long-term problem – there are not enough apartments.
Excess demand has made residential real estate in the capital a luxury commodity that not everyone can afford. This will drive the construction of owner-occupied housing from the capital to central Bohemia.
“I think it will go beyond the borders of the capital quite fundamentally. It will therefore be a decision whether the household wants to live in inner Prague, but not in its own, or whether it will live in its own, but on the outskirts of the capital or even beyond it,” says the head of the development company in an interview.
Finep is already responding to this trend and is preparing five thousand rental apartments. He also wants to continue building cooperative housing.
The real estate market is picking up again after two years from the perspective of older apartments. What are you watching in the case of new buildings in Prague?
The market for new buildings is currently behaving very similarly to the market for older apartments and is experiencing a major renaissance after two years, which corresponds to the drop in interest rates.
We are monitoring the growth in demand, for example, at our latest project in Rezidenc u Šárka in Prague 6, which we put up for sale a week ago. In the housing project, where there are 60 apartments, we already have 200 non-binding reservations.
Despite the last two years being affected by expensive credit financing, this is a long-term trend. It is still true that the market is fundamentally influenced by the excess of demand over supply.
The demand is growing again and the supply, just like in recent years, is not enough. Will apartment prices rise again?
Apartment prices never stop. We live in an inflationary environment where the natural rate of inflation is not zero. But the question is how quickly the price will rise. When apartments become a luxury commodity because too few are being built, they will grow faster.
Over the past 30 years, it is still true in rough figures that the price of apartments in Prague has doubled during each decade. I am convinced that a similar development will continue and in ten years the price of apartments will be tens of percent higher than today.
But if we look at the issue of the real estate price ceiling through the lens of the last two years, when high interest rates seeped into monthly mortgage payments in the low thousands of crowns, sales fell dramatically across the entire market. Isn’t this a sign that prices are starting to reach the maximum of Czech purchasing power?
But the loan and its interest rate are not the only deciding factor of where the price limit for the purchase of real estate is located. Wage growth also plays a vital role. The growth of the average in recent years was of course lower than the growth of apartments in Prague. But if we look at the top 25 percent of people with the highest incomes, we are already seeing growth there – the same or even slightly higher than housing prices.
Another fact is that a substantial group of investors finance a property by selling another property that they have inherited, for example. These are the factors that currently affect the availability of housing.
Where we really hit a ceiling during the last two years were investors who wanted to finance the purchase of an apartment with a mortgage loan. The disposable resources that they could afford to invest in housing from their monthly income due to high interest rates were simply not enough anymore.
Finep
- Finep is a Czech development company that was founded in 1995. It currently operates primarily on the Prague market.
- In 2006, the company expanded its scope beyond the borders of the Czech Republic to Slovakia, and since 2013 it has also been implementing projects in Mongolia.
- In recent years, the developer has also been building rental apartments in addition to owner-occupied housing projects and is also focusing on cooperative housing projects.
- Finep belongs to the Finep Holding group, which is the largest developer group in the Czech Republic with a capital of four billion crowns.
- However, other large development companies are also currently operating in the capital. The biggest players on the market include, for example, Central Group, Skanska, Trigema or Penta.
In this context, Finep prepared two projects of cooperative apartment buildings, where the monthly installment of the cooperative was supposed to partially absorb the pressure of currently high interest rates. Has it turned out that this is the alternative that today’s investors are looking for?
On the contrary, we observed huge interest in this type of investment. Co-operative and rental housing de facto balanced out the decrease in buyers with a mortgage loan.
So are you planning more cooperative housing projects?
Definitely yes. In each of our upcoming locations, we are preparing all three types of ownership structure that we want to offer. So we will build a third of owner-occupied housing, a third of cooperative housing and a third of rental housing.
Do you expect that rental and cooperative housing in particular could play a leading role in Prague construction in the future, given the poor availability of owner-occupied housing in the capital?
I think it will be one of the main trends. We see that it is already happening in all Western countries. It will of course depend on the pace of construction. This will determine how strong this trend will actually be in the end.
However, the interest in owning real estate will probably not weaken too much. Will owner-occupied housing be built more in the regions?
When I’m free from catastrophic scenarios, another war or a major victory for the left or another pandemic. If we continue the way we are going today, three major scenarios will occur. The share of rental housing in new buildings will increase significantly. Willingness to share in sustainability and the cost of living in an apartment building with low energy consumption will increase.
And the third scenario will concern the construction of owner-occupied housing. I think it will reach beyond the borders of the capital quite fundamentally. It will therefore be a decision whether the household wants to live in inner Prague, but not in its own, or whether it will live in its own, but on the outskirts of the capital or beyond.
Which locations will you choose within this trend?
We already have two pilot projects in Central Bohemia, specifically in Kralupy nad Vltavou and Kladno. We chose both projects at a public transport hub, within walking distance of the train station with good access to the capital. With regard to the availability of housing, properties outside of Prague obviously have the advantage of being sold at Central Bohemian prices.
Last January, Finep reported on plans for the construction of rental housing. You are preparing five thousand apartments for 25 billion crowns. How has construction progressed over the last year or so?
Since then, we have completed transactions with 11 apartment buildings, which we sold to professional long-term investors, such as Heimstaden, Zeitgeist, Česká spořitelna’s Dosupné vyvyní, Mint or the Prague Archbishopric.
We have already sold houses, with some already completed and some still under construction.
Are you considering owning and operating some rental apartment buildings?
We are not considering it yet. We promote the slogan that everyone should stick to their hoof. We can draw, permit and build apartments. And there are professional players who manage hundreds of thousands of apartments and have great experience. For now, we are just observing how they are doing.
What do you expect the composition of institutional investors to be on the Prague market? Will it be domestic or, on the contrary, foreign investors?
Personally, I am very much fighting for Czech pension funds to get involved in Czech rental housing. I see a huge charm and opportunity in it. Whoever pays rent to the Czech pension fund, on the other hand, creates a benefit for the Czech pensioner, who has income from the Czech pension fund. I would like to see the system within our economy close in thought. It would be a win for everyone involved.
And why do you think this option doesn’t work yet?
Czech pension funds do not yet have as simple a position as foreign funds, mainly due to legislative restrictions. This is also why it is mainly foreign pension funds that invest in the Czech Republic through various companies. In this way, Czechs value the pension deposits of people from various countries around the world.
Is the Czech real estate market particularly interesting for foreign investors?
If the Prague housing market is characterized by something, it is clearly high stability. The coronavirus pandemic took place, we are still feeling the consequences of the war in Ukraine, and yet – if you look at the price level of rent and apartment prices – the development can be well predicted.
Take a look: Seznam Zprávy compiled a ranking of the 100 most valuable Czech companies. By clicking on a row in the table or on the interactive graphic, it is possible to find out more details about the located company.
2024-03-31 08:56:46
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