Prague flats up 68 percent in five years

Real estate in the capital out performed gold and many other investments

Flats in Prague have been a good investment. They have appreciated more than the Czech and European stock exchanges or gold since 2012.

A Kč 1 million investment in housing in Prague earned Kč 680,000 in five years, according to data from real estate developer Central Group. This is an increase of 68 percent, and there has not been much volatility.

On the other hand, gold lost 12 percent over the same period and just moved into positive numbers a few times.

The Prague Stock Exchange’s PX50 index added 17 percent in five years and investors could have earned more than 50 percent counting dividends. The Prague Stock Exchange has been more volatile, though, so investors could not have done as well depending on when they sold.

Investments in cryptocurrencies have done well since 2012, but are subject to high volatility and also to possible regulation that could interfere with their value. In December 2012, a single bitcoin was worth $13, and at the end of Dec. 15, 2017, it was worth $17,900. But it has fallen sharply since then and on Jan. 25, 2018, was worth $11,134 and continues to drop. In the time frame from Jan. 1, 2012, to Dec. 31, 2017, bitcoin was up 219,822 percent, though.

Another investment that rose faster than Prague flats was the S&P 500 Index on the New York Stock Exchange, which was up 113 percent in the same five-year time.

Flats in London rose by 63.8 percent between 2012 and 2017, slightly less than those in Prague.

The EuroStoxx 50 Index was still positive with a 47.2 percent increase. The Liv-Ex Fine Wine 100 Index was up 30.4 percent. The US dollar was up 8.2 percent compared to the Czech crown.

Losing investments included Brent crude oil, down 40 percent; gold, as previously stated down 12 percent; and the euro, down 0.3 percent to the crown.

“We can see clearly that an investment in a Prague apartment is very stable compared to the other investment instruments. Unlike stock indices or commodities, it has not experienced any major fluctuations over the past five years that could make investors nervous. The rate of rising in apartment prices in Prague may not be as steep as in the last two years, but due to the artificially reduced supply of flats, it is expected that prices will rise even in the years to come,” Central Group Executive Director Michaela Tomášková said in a press release.

Developers have long been complaining that the red tape involved with launching new projects has forced a situation where the number of new flats cannot keep up with either the current or projected demand.

Developers like Central Group also ask whether the city wants to regenerate its centre or preserve it as an “open-air museum” and instead encourage development at the edges of the city.

The share of flats bought as a source of rental income, to deposit of money or to speculate on price increases has been approximately 20 to 25 percent, according to Central Group’s statistics based on its sales of its own projects.

In 2017, the total share of investment dwellings was 23 percent. Investors prefer small apartments such as 1 + kk and 2 + kk, which are most easily rented.

Rival developer Ekospol put the number of flats sold as an investment even higher. That firm said that the number last year rose to 40 percent, after having been 20 percent two years ago, an increase of 100 percent.

Inflation has been driving people to look for investments with a high return, while the growing economy has given people more money to invest, experts said.

Central Group pointed out in their press release that there is a difference in prices between old and new flats, with older flats costing some 15 percent less. But buyers since October 2016 have to pay a 4 percent tax when acquiring an old property, while new properties are exempt for their first transfer. Also, energy efficiency has to be taken into account in terms of long-term costs. New properties are made to meet higher green standards.

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