Prague’s unaffordable Old Town sends home buyers to the suburbs
Nearly 8 million people visit Prague every year, about six times its permanent population. The Czech capital’s Gothic landmarks – Charles Bridge, the Astronomical Clock and the fairy-tale towers of the Church of Our Lady before Týn – attract thousands of tourists to its compact old center every day.
All of these visitors have been a boon to local landlords who have invested in downtown apartments to rent for short-term rentals. Deloitte calculates that a quarter of apartments in the Old Town are rented out for tourism purposes on websites – around 5,000 apartments in Prague’s first district are available through Airbnb alone. Today, many believe that the center of Prague is becoming an increasingly unaffordable and impractical place to live.
So far, residents’ groups say the city’s attempts to curb the rise of so-called Airbnb investors have been flimsy. Last month, short-term owners had to start charging guests a nominal fee of $1 per night per person.
This may change. Prague Mayor Zdeněk Hřib, who has described Airbnb as having turned the city into a “distributed hotel”, is also considering introducing limitations on the number of nights a property can be rented out, or even banning landlords. to rent entire apartments.
For now, no restrictions apply, “so most [property] sales in the old town are aimed at rental owners,” explains Cyril Dejanovski of the real estate agency Svoboda & Williams. The effect has been to make the city “unapproachable for normal people”, says Ben Maudling of Savills in Prague.
Home prices have jumped 10% over the past year, Dejanovski says. Top prices, for apartments in a prime central riverside location, can be as high as €14,000 per square meter, he says, although Savills claims up to €7,000 per square meter is more. common for “normal apartments of good quality”. in the center of Prague 1 and 2, and for the large villas with gardens in Dejvicka, the embassy district.
Even in the middle market, the Expats.cz website calculates that a new apartment in Prague would cost 14.8 years gross salary to buy, based on an average 70m2 apartment costing 7.4 million Kcs ( €295,500) and a monthly salary of 42,478 Kcs. (€1,696).
According to Nationwide, the average home for a first-time buyer in London is 8.8 times the average annual salary.
Renting in Prague is expensive too. The city is the 11th most expensive European city to rent an apartment, according to Deloitte. But the fundamentals are there to attract some 40,000 foreigners to settle in Prague each year, mainly from neighboring Slovakia, but also many from Ukraine and Vietnam.
Prague has a high employment rate and is home to the regional headquarters of global companies such as Microsoft and DHL.
“As well as having a great culture and being a very pretty city that is easy to get around on foot or by public transport, it is a major European hub for the automotive industry, professional services, logistics and transport. education,” says Maudling.
He adds that the way of life in the city center has changed dramatically over the past decade, with a greater variety of retailers and restaurants, including 200 stores in the new Palladium shopping center located in an 18th century building in the old Town.
Yet, as far as practicalities go, the Old Town is no place to live, says Dejanovski. “You can’t park your car or find a supermarket.”
People are therefore turning to former industrial areas close to the city center like Karlin, with a ‘hipster’ vibe in its bars, restaurants and new riverside apartments, and prices averaging €4,000-5,000. per m², according to Savills.
Or there is Holešovice, “where Karlin was five years ago,” adds Dejanovski. Airbnb overflow is already heading to these areas and similarly Vinohrady and Žižkov, although they are further away from tourist spots.
Historically, home ownership has been popular with Czechs, with only 30% of Prague’s housing stock occupied. But rising house prices and ceilings on mortgages, at nine times borrowers’ salaries, are pushing more people to rent.
“There is a lack of good quality rental apartments. These are usually pre-engineered skyscrapers from the 1970s and 1980s. Young professionals and foreigners aspire to rent more modern apartments,” says Maudling.
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Build-to-let programs are beginning to appear. Luka Living in Prague 5 is the first, where a two-bedroom apartment of 50 m2 costs 16,900 Kcs (€675) per month. Others are in preparation.
Building more housing would ease the tension between supply and demand, but the Czech Republic is hampered by one of the slowest planning regimes in the world. “It takes eight or nine years to get a building permit. During this time the market has changed, the design has to evolve,” says Dejanovksi.
“Smaller developers are doing renovation projects instead, buying old townhouses and dividing them into smaller units.” An example is Orelská 13, 19 apartments in an art nouveau building in the increasingly fashionable district of Vršovice, east of the city center. The last remaining units start at Kcs4.5m via Svoboda & Williams.
Vršovice has “the classic Prague look at relatively reasonable prices”, says Jana Korpova-Harris, director of the Luxury Real Estate Fair. She also suggests investors look to areas with new shopping malls, such as Vysocany. “It’s less appealing to locals because of the journeys to the center, but the area is popular with rental investors,” she adds.
Many expat families find it preferable to live just outside of Prague. UK start-up co-founder Tim Young lives in a large detached house – bought for Kc5.6m in 2004 and, after a Kc3m renovation, is now worth around Kc11.2m Kcs – near the Vltava River north of Prague, with his wife and three children.
His criticisms include the poor quality of public education and the high cost of private alternatives, but he says: “Life where we are – surrounded by deer and other wildlife, half an hour from the center – is awesome.” He says he feels much safer than in the UK – and is a far cry from Airbnb’s honeypots.
- Purchase costs are around 4-6%, including agent fees of 2.5-5%. There is also a 4% acquisition tax, which is paid by the buyer
- The Czech Republic’s planning process is extremely slow, ranked 157 out of 190 countries by the Doing Business 2020 study
- Prague’s Old Town saw a 34% increase in tourist accommodation listings between 2016 and 2018, from 10,310 to 14,000, according to Deloitte
What you can buy for . . .
€350,000 A two bedroom apartment in a converted house in the countryside of Prague 6
€500,000 A two-bedroom apartment in a chic building near Prague Castle
€2.2 million A three-bedroom apartment in a converted art nouveau building on Prague’s popular Pařížská Street 1
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