The Prague real estate market is heating up once again, with apartment prices soaring to new heights. Despite concerns about affordability, investing in a rental property in the Czech capital can still be a lucrative venture, according to a recent analysis by BH Securities (BHS) for Novinky.cz.
In the second quarter of this year, the average price per square meter for apartments in Prague climbed to 132,000 CZK, representing a quarter-over-quarter increase of 5.7% and a staggering 15% year-over-year growth. This surge in prices is driven by a persistent imbalance between supply and demand, with the Czech National Bank projecting a further 5% increase in apartment prices this year.
BHS analyst Timur Barotov explains that a 4% annual price growth is the key threshold for most investors. “Simply put, if prices grow faster than this value, most investors will be satisfied with the result. However, if not, the investor can easily incur losses, potentially significant ones,” he warns.
The analysis, based on a model of a well-maintained 2+kk or 2+1 apartment in Prague purchased with a mortgage, shows that after five years, an investor could potentially earn a net profit of 650,000 CZK, or 130,000 CZK annually, assuming a 5% annual price appreciation. This profit factors in realtor fees, capital gains tax, and inflation.
However, Barotov cautions that investing in Prague real estate is not without risks. BHS considers Prague properties riskier investments than in the past, and even riskier than government bonds. “Although the probability of significant price drops is currently low, this could change in the next decade, for example, if unemployment rises sharply during a recession. There’s also growing regulatory risk, as the extreme cost of housing will increasingly motivate politicians to regulate the real estate market,” the analyst adds.