07. February 2018
Annual Yield of Well-Chosen Investment Apartment May Reach 12%
At a time when their prices continue to soar, apartments in Prague still remain an interesting investment opportunity. Cyril Dejanovski, the Business Director at Svoboda & Williams, recaps some key factors to consider when investing in an apartment.
"The prices of premium Prague apartments have grown by approximately 30% over the past two years - the average price per square meter of the apartments in the Svoboda & Williams portfolio is approaching CZK 100 000. Even so, apartments in the Czech Republic's capital retain much investment potential," says Cyril Dejanovski. When purchasing an apartment with all cash, the yield may near 4.5%. In the case of the typical investment pattern of 30% cash down supplemented by a 70% mortgage, the return on equity may (given the current average interest rate of 2.2% and taking into account the factors influencing the net rental profit) reach approximately 12%.*
Along with the sale prices, the rental prices of Prague apartments have too been growing significantly. In newly built and newly renovated apartments in premium Prague locations, their growth has been copying the growth of sale prices. "In recent years, we have been recording a notable shift in clients' interest towards rental housing. This is a result of the growth of the economic significance of millennials, who are less ownership-oriented and prefer the flexibility of rental housing. Moreover, due to tightening conditions on taking out mortgages and the gradual interest rate increase, rental housing is for many becoming the only way to live in an apartment of the standard they require," adds Dejanovski.
The most interesting properties from the investment point of view are ones in Prague's city center and the wider central area as those are the most sought-after by potential tenants. However, an investment apartment must be chosen carefully. "According to our data concerning realised rental transactions, the actual rental price depends more on the apartment layout than on the floor area. A one-bedroom 50 sq. m. apartment is usually rented for basically the same price as a 60 sq. m. apartment of the same layout," explains Cyril Dejanovski. Acquisition costs of such apartments, on the other hand, may differ by as much as 15 to 20%.
"In the era of an ongoing shortage of quality rental apartments, the investor should consider whether it's worth paying extra for an apartment with a balcony, terrace, garden or garage. While these factors may lead to shortening of the period before the apartment is rented out, according to our data, they are not significantly reflected in the rental price," concludes Dejanovski.
* The net rental profit is calculated as 85% of the market rent. The figures reflect possible delayed rent payments, rental agency fees, maintenance, investment in furnishings, contribution to repair funds and rental income tax.