Prague re-emerges as a European property hotspot

Image: Vlastula
The Czech Republic is a conservative nation that tends not to get too carried away with talk of economic booms and busts, but there are signs of cautious optimism returning on the outlook for residential property in the capital, Prague.

The Czech Republic has been hit hard by the global economic turmoil of the past four years, but the capital, Prague has proved remarkably resilient to the point where there is now genuine cause for optimism. There is a sense within the capital that the worst is now over barring any further major shocks emanating from Greece and the sovereign debt crisis.

Since the beginning of the last decade, Prague has cemented itself as a blue chip investment location, benefiting from its location at the heart of Europe and a strong economy particularly in comparison to some of the other post-communist newcomers entering the European Union. During my time as an investment analyst focusing on the city, the one thing I learnt about Prague was its reliability. Investors loved the stability it offered compared to other East European cities and any deals within its boundaries were keenly snapped up.

While property price growth was certainly healthy prior to 2008, some of the spectacular price increases (or bubbles) seen in some of the other cities around Europe didn't quite materialise to the extent they did elsewhere, it was more a case of steady growth backed up by a strong rental market, as demand from young professionals living and working in the city's high tech industries continued to rise.

It will have been interesting to see just how much property prices in Prague would have increased but for the interruption caused by the recent recession and economic troubles in the EU. Property prices have certainly taken a hit in some districts of Prague in the past year leading to a 4.1% decline on average across the city but there is a growing consensus that the bottom has already been reached and prices are unlikely to fall further.

Where recovery is well underway is the market for flats, prices are expected to remain steady this year according to King Sturge. Net rents have increased too at 8.4% though deregulation of rents could possibly hamper any further increases if it is finally introduced. But I would take this with a big pinch of salt, there have been rumours of this for much of the past 5 years along with threatened VAT increases.

The main barometer for the strength of any property market is the availability of mortgage credit and here too we see positive signs, the volume of new mortgages has risen by 45% this year and affordability amongst the population of Prague is back to levels last seen in 2005. The second thing to look at is of course the economy. Like the rest of Europe there can be no guarantees here, but while GDP forecasts for the Czech Republic have been revised downwards as with pretty much every other country in Europe, 2.3% down from 2.9% is still a very respectable number when you compare it to the UK growth forecast!

Economic fortunes could yet take a wrong turn in Europe but assuming things remain stable, you can still bet on Prague for long term property investment security. 

Source: IPSBMV