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Why apartments in Prague are getting more expensive

Most of the real estate purchase and sale transactions in the Czech Republic, in which the Russians participate, are carried out in the capital. Five years ago, the situation was different. Along with Prague, Russian investors also enjoyed housing in resort towns: Teplice and others. Now the supply there exceeds the demand, despite the fact that last year in Karlovy Vary a decrease in the cost of a square meter by 3.8% was noted. On the contrary, affordable apartments in Prague are not enough for everyone. According to rough estimates, the deficit is about 8 thousand objects. At the same time, in 2018 developers issued only 3 thousand permits for the construction of new apartments.

Increasing demand and rising prices for apartments in Prague
The number of residents of the capital over the past two decades has been constantly increasing – up to 14 thousand people annually. Favorable factors contribute to population growth and a related boom in the Czech real estate market. The economy is experiencing a boom, so in 2018 GDP grew by 3%. High patches attract foreign workers. There is a need for qualified personnel in the country. Free quality education at prestigious universities in Prague contributes to the influx of students from abroad. The statistics fixes the growth of incomes of residents of the capital, it is more than twice the rate of inflation, which predictably leads to stimulation of demand for services and goods, including real estate.

It is expected that in the future the cost of apartments in Prague will only increase. The cost of objects is also affected by the features of the local real estate market:

Registration of building permits can be delayed for up to 7 years.
There are few land plots for building (it is planned to expand residential areas through the use of industrial zones).
Energy saving standards for capital facilities are being tightened.
The cost of construction works is increasing annually (in 2018, it increased by an average of 9%).
The dynamics of the Prague real estate market
Rising prices on the real estate market in Prague are confirmed by statistical studies. In 2017, it exceeded 20%, in 2018 – 11%. Moreover, all objects became more expensive, regardless of type and location. New buildings and secondary housing, even outdated, were in high demand, and, as a result, confidently added to the cost. The excitement was facilitated by low mortgage rates.

In 2016, a mortgage loan could be issued at 1.7% per annum. In order to slightly reduce the tension in the real estate market, the Central Bank of the Czech Republic began to raise interest rates. To stabilize prices, an increase in mortgage interest was carried out already 5 times. For 2019, the average rate for the local population and those with a residence permit is 3%, for foreigners without a residence permit – more than 3.5%. The average loan term is 20 years, the mortgage size is from 40% for foreigners to 80% of the property value for local residents.

In 2017 and 2018 Russian buyers most actively purchased apartments in the districts of Prague 5 and Prague 10. The average cost per square meter there is at a mark of 4250 € and 3550 €, respectively (relevance for 2019). The areas are relatively close to the center, they have developed infrastructure, a lot of greenery. In 2018, they competed with the Karlin microdistrict in Prague 8 on the border with the historic city center. Here, after a long break, the authorities began to issue building permits. The average price of a square in Prague is 8‑4400 €.

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