As mentioned in the introduction, Brno’s new builds are increasing in quality and selection. Still, the market lags behind the type of selection that is currently available in Prague.
Why is that?
A major factor has to do with the current building costs versus the selling price of new builds.
Developers typically like to operate on a 30 to 40% profit margin and this is currently more difficult to obtain in Brno than in Prague. With land costs in premium locations averaging 4000+ CZK/m2 and actual construction costs with a median of 20 000+ CZK/m2, it is easy to see that profits are slim on the current low sale prices. The range of sale prices right now for newly constructed flats is between 31 000 to 37 000 CZK/m2.
However, we have seen a growth of 10 to 15% in the cost per m2 over the last year which bodes well for more new builds coming online in the next years. However, it also shows that now may be the best time to get in.
Why do we say that?
Currently the prices of existing flats being resold are between 19 000 CZK/m2 all the way to 30 000 CZK/m2 with slightly more for resold new builds. This means that the existing stock is more affordable for the Czech buyers. However, most of the stock being sold, and especially the ones on the lower end of the CZK/m2, are in the communist ‘panelak’ type buildings.
Interestingly, the Czechs call these prefab concrete buildings ‘králíkárna’ or rabbit hutches…so we can guess what their feelings are on them too.
Most young professional Czech prefer the new builds to the older heritage type buildings that are quite popular with foreigners. They are even currently willing to live on the city edge in order to have these modern comforts.
Historically, however, the trend toward the city edge reverses itself as the city grows and properties closer to the city center always outperform in terms of capital gains and rent ability. Currently, owners of flats in the center of the city say they have no problems with vacancy even in heritage flats.
At Czech Point 101 we see the best long-term investment apartment size being the 60 m2, 1 bedroom type, which is targeted to the slightly above average income Czech couple or single, in the 25 to 35 year old age bracket.
Although there is currently a shortage of luxury type apartments, experience in Prague has shown that this market is one of the first and easiest to become over-saturated forcing lower yields for those who bought as a rental investment.
With a well-chosen new build it is definitely possible to achieve 8% rental yield based on the current numbers. With rents increasing at between 5 to 10% per annum, this will continue to provide a good return.
A note of caution:
With few exceptions, the projects being offered are being done so by locals, sometimes operating through brand-new companies which makes due diligence difficult.
Because of the bankruptcy of some major projects in the last five years, there is a local distrust of developers. This is further hampering the local market and keeping prices down. It pays to have all possible checks in place and due diligence done through a local attorney.
All the factors above indicate that now may be the best time to buy an investment property in Brno if you are willing to take a little higher risk for the possible rewards.
For a full discussion on other indicators of the economic health in Brno and its future please see our feature on Brno property including new flights that have been announced to the local airport including a CSA connector to Prague.
Updated/Aktualizováno: July 22, 2014,
