Recent data show that Prague’s property values have steadily increased due to high demand and low supply.
High demand is caused by population growth, rising wages and foreign investment. In addition, Prague attracts millions of tourists annually, affecting which affects the real estate market and particularly short-term rentals. This growing demand for real estate is reflected in the rental market, where high occupancy rates and rising rental yields have been observed. The rental market in the Czech Republic is highly competitive, with increased demand for rental properties, especially in major cities such as Prague, Brno and Ostrava.
In addition, the Czech Republic is a country determined by the country’s attractive tax system, strategic location within Europe, and favourable business environment. The country’s business-friendly policies have attracted many multinational companies, leading to a steady increase in foreign investment.
The low supply of real estate, on the other hand, is due to urban planning restrictions and the limitation of new construction.
All this leads to a vicious circle: demand outstrips supply, increasing costs and rents. In addition, to profit from the growing demand for short-term rentals, many property owners rent out their homes on Airbnb. This raises concerns about the supply of long-term rentals and the local population.
But there are several possible solutions: the growing demand for real estate from foreign buyers, the potential for new construction in areas such as brownfield sites, and the potential for investment in emerging markets such as student housing and co-working spaces.
Inflation and rental housing
According to the Český statistický úřad (the national statistical agency in Prague), the inflation rate in the Czech Republic fell to an annual 12.7 % in April, down from 15.0 % in March and 16.7 % in February. But it is clear that the rather sharp slowdown in inflation was mainly driven by last year’s high comparison base.
As for purchases in the housing market, inflation is closely linked to the interest rate and the number of monthly instalments that characterize the number of mortgages. The interest rate on new mortgages in March is the lowest since October last year but is still among the highest in 20 years.
One-fifth of the Czech population wants to buy a new home, but monthly mortgage payments can take up to 40 % of the budget. Because of high mortgage rates, interest in rental housing has increased.
A rent increase or inflation clause (“inflační doložka”) is typically agreed upon when a person signs a rental contract in the Czech Republic. However, depending on the type of contract, the landlord may have the right to raise the rent even if there is no inflation clause in the contract.
Limited period contracts
If the contract is for a limited period of 1 year, the landlord can legally ask for an increase of any amount. In practice, a few months before the expiration of the contract, the landlord and tenant negotiate a new price for another year. These kinds of contracts represent 80 % of all signed contracts in Prague and are the preferred type of lease agreement by most landlords because any amount of increase can be implemented upon the expiration of the contract.
Given the situation with rents in Czechia, especially in Prague, which are growing faster than inflation, most landlords will not sign a lease contract for longer than one year: it gives them the flexibility to increase the rent, but on the other hand, it also gives the tenants the flexibility to move to a better or more affordable apartment.
Multi-year contracts
Multi-year contracts may include an inflation clause but this duration applies more to villas or larger apartments where a bigger investment is needed to furnish the property and the usual length duration of the contract is between 2-5 years. These types of contracts are less common, representing around 15 % of lease contracts signed for more than a year.
Unlimited period contracts
In the case of an unlimited period contract, which is uncommon (representing at most 5 % or less of all signed lease contracts in the Czech Republic), the increase can go up to 20 % within 3 years. These types of contracts are usually between family members of the owner or are historic lease agreements from the communist era.
Subleases
Subletting a rented flat is legal in Czechia, but only if both parties agree on that and it’s part of the lease contract. In practice, though, most of the landlords on the market don’t allow it on their property, and standard lease contracts say it is forbidden.
There are two basic types of subletting, and each raises different issues for all parties involved.
Short-term sublets: uncommon but legal
Usually, short-term sublets are accommodations for tourists, typically done via Airbnb and other online platforms. In these instances, even if a landlord agrees to let a renter sublet, a problem with the neighbours could arise. The community of owners of housing units typically doesn’t appreciate someone in the building running short-term rentals with tenants changing after a few days or once per week.
This kind of subletting can even be forbidden by house rules, though when it comes to the law, it isn’t possible to forbid it if the owner allows subletting in their own apartment.
On the other hand, tenants can create difficulties for tenants who rent to them for the short term, citing a law that says you can’t run accommodation when the property is approved for use as a flat. The government is likely to enforce stricter regulations about this issue to protect long-term tenants and other co-owners of apartment houses or other owners of single flats in the building.
Long-term sublets: fewer issues
As long-term subletting doesn’t cause as many problems with neighbours, more owners are willing to allow their apartments to be sublet.
Student housing or co-living is a common example of how long-term sublets are used in Czechia. It works the way that one student rents a 3+1 layout apartment alone and makes an agreement with the owner that they will find two more students and sublease two rooms.
Co-living is very popular in Prague and is one of the best ways to save money, especially for people who can’t afford to buy or rent in the current market situation.
sources:
https://www.expats.cz/czech-news/article/ask-an-expert-can-my-landlord-legally-increase-the-rent
https://www.fintown.eu/it/blog/investire-nel-p2p-immobiliare-in-repubblica-ceca-unopportunita-doro
https://www.fintown.eu/it/blog/opportunita-di-investimento-immobiliare-a-praga
