Housing prices have been rising much faster than rents in Prague. Fewer than 4% percent of housing owners who rent their properties out earned a gross rent for the full year 2018 on a new apartment in Prague.
Investors, however, received an 18% “bonus” in the form of growth in the potential selling price of the property itself, according to an analysis by KPMG Czech Republic.
Across the Czech Republic, housing prices rose at over twice the EU average, a separate report by EU statistical arm Eurostat stated.
This gap between rent and purchase price growth in Prague has been a trend of recent years. Since 2015, the market appreciation of flats has significantly exceeded the yield of gross leases. The ratio of these two indicators has stabilized just below a 5 to 1 ratio.
In addition, the current high acquisition prices are pushing potential rental yields against capital investment ever lower. This situation is a fundamental change against 2014, when rents outperformed market appreciation. In 2008–12, rental income even helped to offset losses from the fall in housing market prices.
The rise in apartment prices in recent years has pushed demand for rental housing sharply up. At the end of last year only about 6,300 vacant apartments were available for rent in Prague. That is 30% fewer than two years ago.
“At the same time, Prague still has a very low percentage of people paying rent compared to western cities,” Pavel Dolák, director of KPMG Czech Republic and one of the report authors, said in a press release. In Prague 32% of people rent, while in London it’s 49 percent, and in Berlin 84 percent.
The Housing Price Index report Eurostat showed that prices for flats and houses in the Czech Republic rose twice as fast as the EU average.
Year-on-year growth in house and apartment prices in the Czech Republic rose 8.7% at the end of second quarter of 2019, compared to the same period last year. In the EU, prices increased by an average of 4.2 percent, year on year.
This was sixth-highest among EU countries, where, prices increased by an average of 4.2 percent.
“Among the Member States for which data are available, the highest annual increases in house prices in the second quarter of 2019 were recorded in Hungary (+14.0%), Luxembourg (+11.4%), Croatia (+10.4%) and Portugal (+10.1%), while prices fell in Italy (-0.2%),” the Eurostat report stated.
But the annual growth rate in the Czech Republic is slowing down. It rose 9.6% year on year in the first quarter of 2019, the second-highest increase in the EU after Hungary’s 15.4%.
When the second quarter of 2019 is compared to the first quarter, property prices in the Czech Republic grew by 2.1%, compared to the EU average of 1.7%.
“Compared with the previous quarter, the house prices increased in all Member States for which the data is available. Highest increases were recorded in Latvia (+5.6%), Luxembourg (+5.1%) and Cyprus (+4.2%),” the Eurostat report stated.
Analysts say main reason for above-average growth in property prices in the Czech Republic is the limited supply of housing, while strong demand continues. There are not enough housing projects being started. One reason is the length of time it takes to get building permits.
In the Czech Republic, real estate prices grew fastest in comparison with other EU countries from the last quarter of 2016 to the end of the third quarter of 2017. The highest growth was in the second quarter of 2017, when prices for houses and apartments increased by 13.3%.
In general, housing prices in Central and Eastern Europe have been rising faster than in Western Europe.
The EU’s House Price Index (HPI) measures the price changes of all residential properties purchased by households such as flats, detached houses, and terraced houses. It includes both newly built and existing housing, independently of their final use and independently of their previous owners.
The HPI aggregates are calculated as weighted averages taking into account the GDP at market prices, expressed in Purchasing Power Standards (PPS), of the countries concerned, according to Eurostat.