Prague Property - Is It Worth Investing?
The Prague property market has and continues to see overwhelming demand
from both foreign and local investors. And who wouldn't like to own a
property in this fairytale city that pulls at your heart strings and
attracts major foreign investors on the basis of economics.
With the Czech economy running red-hot, in fact, at a stunning 6% last
year (2005 GDP), there is good reason to consider this beautiful capital
as a strong investment choice. Czech Republic's results far outstripped
the average EU GDP growth of 1.6% and those of Hungary (4.1%) and Poland
(3.2%). Slovakia alone equaled Czech Republic in terms of growth.
Economic Indicator - GDP
Not only was 2005 extraordinary in terms of Czech GDP growth but also
with the sheer number of new investment projects and with this, the
total foreign investment (FDI). Total FDI in 2005 was more than 263
billion CZK (11 billion USD) which is the highest figure in history in
terms of dollars and second highest in terms of CZK.
Economic Indicator - FDI (USD billion)
However, what does all of this mean with regard to the residential
Higher GDP usually translates into higher disposable income for the
population. Much of this increase is focused on Prague where the average
gross monthly wages was 23 000 CZK as compared to the national average
of 18 900 (Q3 2005).
Also, unemployment is much lower in Prague compared with the rest of
Czech Republic. The national average is 9% and Prague's is 3.25% (Q3
Even the sheer number of tourists in Prague affects property prices as
some are purchased for the short-term rental market. Each quarter in
2005 averaged 950 000 tourists. It is rare to find in Prague private
accommodation for under 1 400 CZK/night. It only goes up from there. A
well-located apartment with a professional marketing and management
company can make an excellent return.
What other major investment news is there that affects your decision as
an investor? Here is a selection from 2005 and newer.
Other Investment News (from CzechInvest and other news sources)
March 2005: Czech airlines (CSA) is establishing a new repair center in
Prague. It will eventually employ up 400 specialized aviation mechanics
and other technicians. 1.35 billion CZK will be invested into setting up
"The project for this new repair center is based upon CSA's long-term
strategic plans for developing its technological base camp for airplane
and aircraft component maintenance and repair in close proximity to the
international Prague - Ruzyne airport," says CSA president Jaroslav
April 2005: Scottish company Incline opened its high-tech centre in
Prague-Letnany which services flat LCD notebooks, LCD televisions and
plasma screens. 165 new jobs will be created at its new center.
"The growing demand of our customers in the European region induced us
to increase our capacity and build a repair centre right in Central
Europe," said David McKinney, Executive Director of Incline Global
Technology Services, and added: "The Czech Republic was chosen because
of its excellent infrastructure and its experienced labour pool. I trust
that we will succeed in building a world-class centre here."
April 2005: Toyota Peugeot CitroŽn Automobile (TPCA) launches
production in the Czech Republic. Total investment into their new plant
in Kolin amounted to 1.3 billion EURO. An estimated staff of 3 000 will
eventually be employed here.
"The TPCA launch will be one of the factors behind this year's national
GDP surpassing the four percent mark," said Martin Jahn, Deputy Prime
Minister for Economic Affairs. "However, there are also other aspects of
this investment with material importance for our economy, among them the
import of modern technology and the transfer of the unique manufacturing
know-how that the entire world has tried to copy from Toyota. TPCA has
already made contact with the Technical College CVUT in Prague, planning
to tap its pool of top-class experts in order to fill key positions in
the firm. TPCA is also planning to cooperate with other technical
June 2005: Computer Associates International, Inc. (NYSE: CA) declared
its intended creation of the first worldwide Mainframe Centre of
Excellence in Prague. The new Centre will focus on software development,
maintenance, validation and quality assurance for the mainframe
computing environment. This is estimated to be a 36 million EURO
investment. More than 200 are expected to be hired and trained for this
Guy Harrison, senior vice president, Development Operations at CA said
"This Centre of Excellence will provide mainframe users worldwide with a
host of innovations, and will help strengthen the Czech Republic's
position as a hub of IT activity."
June 2005: Accenture, a global management consulting held the official
grand opening of its new facility in its shared services centre in
Prague-Chodov. Accenture, who fourteen years ago entered the Czech
market, is expanding rapidly here - employing more than 1,300 people and
continues to expand.
August 2005: International rating agency Fitch upgraded all its ratings
of credit reliability for the Czech Republic. It gave the Czech Republic
an A for its long-term foreign currency obligations compared to the
previous A-. The short-term currency rating jumped to F1 from F2 and the
state's rating ceiling reached AA- from A+. The rating for long-term
debts in Czech crowns was also raised from A to A+.
"Strong economic growth, continued real convergence with Western Europe
and moderate external financing risks support the upgrade of the Czech
Republic's sovereign ratings," says David Heslam, Associate Director in
Fitch's Sovereign group.
September 2005: SAP AG officially opened its newest shared services
center, the SAP Business Services Center Europe (BSCE) in Prague, Czech
Republic. As of September 2005, 132 employees worked at the center and
they supported 70 countries in 15 different languages.
"As a high performance company, it is SAP's strategy to effectively and
efficiently support core internal functions such as HR and F&A
throughout the global business. In addition to providing HR and F&A
services to SAP employees, the center also offers customers unique
insight into how 'SAP runs SAP' in performing these services," said
Claus Heinrich, member of the executive board, SAP AG. "The new BSCE
here in Prague, with its highly skilled team, is a key milestone in
executing to this strategy."
November 2005: Pan-European telecommunications company Interoute moves
their key customer center from Great Britain to Prague. Over 100
specialists will eventually be employed here over a period of 3 years.
"Our customer centre is based on a different concept than usual. Its
foundation is not administrative workers but technical personnel, which
allows us to provide highly specialized and individual service," said
Vladimir Hendrych, Country Manager of Interoute for Central and Eastern
December 2005: DHL continues to see success for their investment in
Czech Republic. DHL has invested over 500 million EURO over 5 years into
their IT center in Prague. DHL currently employs over 900 at their
center. About three quarters of these are Czech and the rest from 46
"We made the decision to come here in 2003, and since then it has become
even more desirable," says McGuckin, Prague-based managing director of
IT services. He cited Prague's numerous air links to the rest of Europe,
its good infrastructure, a business-friendly climate, low wages and low
salary inflation for this statement.
December 2005: Changhong, a leading Chinese consumer electronics
manufacturer announced it decision to build its new television-assembly
plant in the town of Nymburk (around 50 km from Prague). This is
historic since it represents the first major Chinese investment into
Czech Republic. In it's first phase the manufacturer will invest a total
of 10 million USD into the new factory and employ some 300 people.
"After a thorough screening of the CEE region, we chose the most
convenient country for our investment - this being the Czech Republic.
The main reason is the central location with respect to our European
customers as well as the availability of a skilled workforce," stated
Zhao Yong, Chairman of the Board of Changhong, adding: "The initial
investment is a part of our first-phase plan, and other expansion plans
are being discussed. This means that a substantial increase in
investment and the number of employees is possible in coming years."
December 2005: The Czech branch of software company Microsoft together
with the government agency CzechInvest will open a new software
development center in the Czech Republic early next year known as
SoftInvest. 150 to 200 IT specialists will work on demanding projects in
cooperation with local universities to develop new software and
innovative solutions. Microsoft in addition is still considering
building another, this time European, technical support center in the
"By the end of the year we want to put our intent into the form of an
fully concrete project. Barring any obstacles we will set up such a
center as early as January," stated CEO of Microsoft CR and SR Jiri
Devat, and added: "The future of the center will be in teaming up
technical universities on one side and local partners from the software
industry on the other side."
March 2006: Sun Microsystems has officially opened it's development
center and the new headquarters of its Czech branch in the Chodov
district of Prague. Microsystems total investment will equal 21.5
million USD in development specialists and high-tech equipment. By 2008
the current number of developers (400) is expected to double.
"We are very pleased that Sun chose to locate its development center in
the Czech Republic over other attractive locations around the world,"
said Zdenek Pilz, general manager of Sun Microsystems' Czech branch, on
the occasion of the new development center's opening. "Prague was chosen
especially thanks to its abundance of software-development specialists,
excellent infrastructure, stable economic and political environment,
and-of no less importance-the helpful attitude of the government as
represented by the agency CzechInvest."
Prague Property Figures
Property Sale Figures
These are the figures as of March 27 2006.
68 m2 apartment with 40% wear
Average Price 1 986 000 CZK
Increase over last month 6.36%
Average Rental 8 972 CZK or 132 CZK/m2
Increase over last month 0.15%
Apartment Rental Figures
These are the figures (CZK/m2) as of November 15 2005.
(Please see resource box for link to the chart.)
Working with the sale prices per square meter that we can find for
Prague properties versus the average rental above we can see that rental
yields of 5 to 7% are currently possible. With well-chosen properties it
is even possible to go marginally higher.
The chart also demonstrates that with rent/m2 being higher for smaller
flats it is also possible to get higher yields. Currently the market is
flooded with luxury type flats that are for rent. Investors are being
forced to lower their rates in order to attract tenants.
Because of the above factors we recommend investors buying flats where
the rent would not exceed 12 000 CZK/month. Properties for rent in this
range are in high demand and an investor will face less chance of
Other Investment Factors
Mortgages are becoming more and more accessible to Czech citizens. Many
of the younger generation are going from being cash oriented to
facilitating their purchase with mortgages.
The Prague suburbs have seen an increased demand for family houses in
the last year.
At the end of 2007 VAT is projected to go from the current 5% on new
build and newly renovated properties to 19%. When this change goes into
effect it is sure to have an impact on the market. It will likely be
spread between increased costs to the consumer and decreased profits for
With regard to the VAT change please be aware that any purchases of
projects which finish and receive occupation permission from the local
authorities after the end of the year 2007 will be susceptible to 19% on
the COMPLETE purchase price. This is a very important factor to be
protected from in your contract in case projects due to be completed in
the end of 2007 actually run over schedule (an often occurrence with
developers) into 2008.
As we've emphasized before, at Czech Point 101 we are not going to
over-inflate figures or try to sell you on hyped up facts. Our goal is
to inform you to make the best investment decisions possible.
The sources for this newsletter include the iDnes.cz, IRI and
For the most update information on the Prague property market please
visit our page devoted to Prague property
http://www.czechpoint101.com/prague_property.html and what is
happening on the market.