Sunday Times: January 25, 2004
Sunday Times: January 25, 2004
Overseas Property:
Czech it out Buy-to-let bargain hunters are heading for the countries set
to join the EU, reports Graham Norwood Alistair Reynette-James invests the
profits from his advertising company in buy-to-let property. He has seven
London apartments but has discovered what he hopes will be a lucrative new
market — in eastern Europe. Reynette-James, 38, is buying a flat through an
investment agency, Letterstone. It is in a new development, Central Park,
close to the centre of Prague, capital of the Czech Republic.
Flats in the development cost between £60,000 and £90,000, and are due to
be finished over the next three years. Reynette-James has put down a 5%
deposit and will pay a further 10% later this year and the rest on
completion. “Property prices have risen between 10% and 15% in Prague each
year since 2000,” he says. “If they continue to do the same I could sell my
apartment without having rented it out and still make a big profit.”
Letterstone has undertaken a
series of buy-to-let schemes in the UK, selling individual properties to
investors at a discount because it has bulk-bought. It claims Prague offers
better prospects than most domestic developments.
“Prague will be a significant European centre following EU membership in
May. Comparable property prices in Paris or large German cities are three or
four times the cost in Prague. There will be an ‘evening up’ of prices, so
Prague’s values will rise significantly,” insists Simon Hill, Letterstone’s
chief executive.
However, there are bureaucratic complications buying in a market that has
been outside communist rule for only 15 years. Individuals have to spend
about £1,400 setting up a limited company in the Czech Republic before they
can complete the purchase of a property.
Calculations of potential lettings income are only approximate as Czech
tenants traditionally bargain over rent. An investor who then sells a
property must pay a transfer fee and at least 22% of his profit in tax.
It is relatively simple for non-Czech nationals to get mortgages, but
most lenders insist on repayment and not interest-only schemes. It can take
up to six months to register a property before it can be lived in.
The business consultancy Property in Prague also warns that an oversupply
of luxury flats in recent years has led rents at the most expensive end of
the market to drop by more than 20%. But the company believes low-priced
units will be in greater demand and that there is an overall shortage of
homes throughout the country.
Large UK property consultancies are analysing the markets in Prague and
other eastern European cities for potential investors.
Knight Frank’s Jaroslav Kopac,
based in Prague, says the rental market for lower-priced properties there is
buoyant because an upwardly mobile middle class wants better homes, expats
are returning to the city to work and EU membership will attract foreign
investors. “The Czech market can be considered stabilised with great
potential for further development,” he says.
Richard Donnell, head of residential research at the British estate
agency FPDSavills, says: “The story’s the same in Warsaw, Prague, Budapest
and so on. They are joining the EU and businesses are beginning to relocate
there already, so the quality and quantity of property will rise.”
ING, a Dutch finance firm that is the third-largest property investor in
the world, has been building properties in eastern Europe for sale to
overseas owner-occupiers and investors since the late 1990s. It has luxury
apartments in an area of Warsaw called Holland Park, where one-bedroom units
are about £120,000. It is also building in the Polish port of Gdansk and has
completed houses in Budapest.
The Slovakian capital of Bratislava has aroused interest among
developers, but Letterstone says that at the moment its infrastructure is
too unsophisticated to attract wealthy buyers or corporate tenants.
Richard Donnell advises sticking with large east European capitals where
west European and American companies already have a presence and the market
economy is relatively mature.
“Somewhere will become very fashionable,” he says, “with big capital rises.
A long-term investor will probably get a good reward.”
Letterstone, 020 7348 6060,
www.letterstone.com;
ING Real Estate, 020 7659 9620,
www.ingrealestate.com;
Knight Frank, 00 420 224 217 762,
www.knightfrank.com;
Property in Prague, 00 420 605 308 463,
www.propertyinprague.com
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