There was a kind of real estate glow to the capital of the Czech Republic six or seven years ago. Foreign investors wanted to buy, international companies were paying handsomely for expatriate workers’ luxury rentals and development was surging in neighborhoods outside the city center.
Then came the global downturn.
“The two main trends we’ve seen since the economic crisis is that the most valuable properties retained their value, especially if they are located in the city center, on the river, have a view or historic aspects,” said Iva Novakova, head of the residential agency at Jones Lang LaSalle in Prague. “We’ve also had a change in buyers for luxury properties,” with more of the buyers either Czech or Russian, she said.
Svoboda & Williams, one of the few Prague agencies that specialize in luxury properties, has seen a similar pattern: While Czechs make up about 75 percent of their clientele, Russians account for half of the remainder.
Also, agents say, the foreigners who once bought in Prague for investment purposes are not interested any more.
“The rental market dropped 20 percent in the last two years,” Ms. Novakova said. “Companies aren’t renting flats for their expat employees, and those used to command a large rental price. That’s another reason people aren’t investing in expensive properties for rentals: They can’t get the rental income from them anymore.”
Czech Point 101, a real estate services company with four offices around the country, says Czechs are now the ones buying for investment.
“They are cash investors and want property as an investment versus keeping it in the bank,” said Nathan Brown, director of the company.
He said that while Russians were the largest foreign investor group, they were not interested in renting their properties. “They just want to move their money out of Russia and out of the banks,” he said.
According to Mr. Brown, the gross rental yield in Prague — a year’s rent divided by the purchase price expressed as a percentage, a standard used by many investors — has declined significantly.
“Right now in Prague, a typical purchase is 4 to 6 percent,” he said. “But seven or eight years ago it was possible to get 8 to 9 percent gross rental yields and property prices were also going up 5 to 10 percent per year, which makes a great investment. With these low yields and pricing going down slightly, it makes investment unappetizing.”
The fact that more Czechs are investing is a sign of a maturing of the market, Ms. Novakova said, adding that residents had also become more savvy about the purchase process. Now, for example, they negotiate instead of just accepting a list price.
Czechs are seeing their living standards increase. Average gross monthly wages for the third quarter of 2012 were 24,500 korunas, or about $1,250, compared with 16,500 korunas in 2003.
Whether the buyer is Czech or foreign, the allure of Prague’s history has always been a factor in its real estate market. Jan Boruvka, secretary general of the Association of Real Estate Offices of the Czech Republic, said location also played a role.
“We have here developers saying, ‘we are building luxury for you,’ but where is it?” he asked. “No matter how high the standard is inside, the possibilities are limited in Prague.”
That is because of the city’s heritage protection laws. Mr. Boruvka said that space constraints made it nearly impossible to build new developments in the city center, and that it was not easy to renovate older buildings. So new projects are usually restricted to the outlying areas of the city.
“Historic buildings are lovely but you can’t just do whatever you want on the inside because of the historical classification,” he said. “It’s strict, but we should be happy because it makes Prague what it is.”
Linda Martynkova, senior property consultant for Svoboda & Williams, says there is a shortage of new luxury developments, and when there is one, parking is one of the most common demands from prospective buyers.
One such project is Rezidence Kampa, in the Mala Strana neighborhood, south of the Castle and on the opposite side of the Vltava River from the Old Town.
The project has sold 23 of the 25 units, which range in size from 30 to 120 square meters, or about 320 to 1,300 square feet. With prices starting at 200,000 korunas per square meter, or $955 per square foot, Rezidence Kampa is at the top end of the city’s luxury price scale, which most industry experts say is roughly 100,000 to 150,000 korunas per square meter.
Martin Kodes, commercial director for J&T Real Estate, the project’s developer, said that work on Rezidence Kampa began in 2010, which some would say was the low point in the global downturn.
“The luxury residential market in the Czech Republic hasn’t been impacted by the crisis,” he said. “The demand in high-quality properties, I would say, is even increasing.”