Developers are not interested in the construction of rental apartments

Prague - Developers are currently hardly building rental apartments. The main reason is primarily a worse return on investment compared to the construction of apartments intended for sale, as well as the influence of cheap mortgages. This follows from a poll by ČTK among development and real estate companies. A change could come from rising mortgage rates or the completion of rent deregulation.
   The lower demand for rental housing in recent years is easily accessible mortgages. "If the monthly mortgage payment is comparable to or even lower than the market rent, people prefer to own housing, which is also more tax advantageous," said the spokesperson for the development company Finep, Pavlína Temrová.
   The alignment of market rents and mortgage payments means lower investment returns for developers in rental apartments. "Currently, it is more beneficial for developers to sell apartments outright than to rent them out. Selling allows them to quickly pay off their construction financing and obtain immediate and relatively high profits, which would take many years to achieve through renting," said Petr Vosmík from the Českomoravská realitní company. "Also, rental income is less attractive for large investors due to the interest rates on invested funds," he added.
   According to Temrová, a change in demand for rental housing could be caused, for example, by a significant deterioration in the availability of mortgages. However, she does not expect this situation in the foreseeable future. On the contrary, due to rent deregulation, an opposite trend is likely to emerge, strengthening the demand for ownership housing. "There will be a situation where people often living in older apartments will be forced to pay more for this housing. At this moment, it will be much more advantageous for them to acquire their own housing in a new apartment than to pay market rent for an older apartment," she stated.
   The influence of the completion of rent deregulation on the change in demand for rental housing is also confirmed by Ondřej Diblík from the real estate agency Lexxus. "The regulation of certain parts of the rental market caused an initial shortage of available rental apartments and, consequently, high market rents on one side and a favorable black market with regulated rents on the other," he said.
   However, interest in rental housing will never completely disappear. "There will always be a specific group of people in the market who will always prefer rental housing for various reasons over buying their own apartment. Whether it concerns foreigners, people relocating short-term with their job, or someone with a negative attitude toward borrowing," Temrová said. "This group, according to foreign experiences, is not insignificant and will continue to maintain the rental housing market," she added.
   According to data from the Czech Statistical Office, approximately 25 percent of households lived in rental housing in 2006. The number of constructed rental apartments in the Czech Republic ranged annually around a thousand between 1997 and 2005.
   In 2007, builders completed 41,650 apartments, according to statistics, the highest number since 1991. The year-on-year increase was 38 percent. In the previous year, construction began on 43,796 apartments, a 0.1 percent increase compared to the same period in 2006.