As residential prices rise in Prague, the circle of Czechs who can afford them is getting progressively smaller. On the other hand, there seems no end to the line of Czechs buying flats as an investment. Who are they? And how dependent have developers become on customers focused on their expected ROI, rather than the brand of their future dishwasher? Those were my questions for Pavel Velebil (Tide Reality) one of Prague’s most experienced residential professionals.
Pavel, if investment buyers vanished overnight, how would that show up in your sales?
For us, right now it would affect us by a third at most. A lot of our capacity is tied up in the MOSAIQ Beroun project, which goes against the grain — it’s built primarily for owner-occupiers. Three- to five-bedroom units make up almost 45% of the 210 flats in the first phase. but developments in Prague rely heavily on investment buyers. You see this the most in and around the center, where flats can be leased both long- and short-term.
What share of the Prague market depends on investment purchases — and in which segment or unit size is it strongest?
In Prague over recent months, studio and one-bedroom flats have accounted for nearly 70% of total sales in development projects. At least half of those are investment purchases. Across the Czech Republic more broadly, though, several types of investment buyer show up.
I can’t describe the whole spectrum, but here are the most typical investment buyers:
The first is the “It’s for the kids” buyer. Their motive is the fear of further price rises, but they’re usually leased out at first. The buyers usually pay in cash, they’re pleasant to deal with, and they tend to be accommodating towards their tenants.
The second group is the “It’s for my retirement” buyer. The motive is to ensure a steady income as an alternative to other kinds of investment. They usually pay cash, though the 30–45 year olds often uses a mortgage.
Interestingly, “It’s for the kids” investors sometimes turns into an “It’s for my retirement” investor over time.
The third group is the “I want to squeeze out the maximum” buyer. A significant percentage of these buyers use mortgages to leverage their acquisition. Some of them hand management over to a professional firm, while others manage the flats themselves. When letting, they push tenants hard and demand the highest possible rent. Despite this, even if they put down just 20% of their own equity, some of these investments are still cash-negative.
The fourth group always asks developers the same question before signing the reservation contract: “If my mortgage falls through, can I hand the flat over to someone else?” The question is obviously a game — they’re buying as soon as possible after sales launch in order to make a profit by transferring it to another buyer before completion. Some developers don’t allow this, but others don’t mind.
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