The debate over whether it is better to buy your own property with a mortgage, or to go for rental housing, is perhaps as old as the chicken-and-egg question. And in this case, too, experts don't quite agree on a single clear answer. Putting a number on the difference between a mortgage payment and the rent for an equally large flat is one thing, subjective and objective counterarguments quite another.
Interest rates are falling – are mortgages getting cheaper too?
The Czech Rental Housing Association is a voluntary association of more than twenty major players that own or manage tens of thousands of properties across the Czech Republic. It helps promote the development of quality housing and opens up an important discussion among all actors on the property market. Our company, FLAT SERVICE, has been part of this association since the beginning of this year. And it is the association's analytical data that show that the monthly mortgage payment on a flat of roughly 50 square metres is more than 7,600 Kč higher than the monthly rent. The situation has recently improved in favour of mortgages – at the end of 2022 the difference was still around 10,000 Kč. This is mainly due to lower interest rate offers and various incentives and subsidies from developers themselves.
The property boom is closely tied to mortgage rates. Developers know this well, which is why they have come up with so-called subsidised loans
It all rests on the gradual lowering of the base interest rate by the Czech National Bank. Mortgages with rates of 1–2%, however, are gone forever, something almost every relevant player on the market agrees on.
Will property prices in Prague keep rising?
The most common counterargument from advocates of home ownership is that a tenancy offers no asset value and there is no potential for appreciation of your own property. Over the past decade in Prague, in some locations, that appreciation could have been more than one hundred percent. That is how fast realised property sale prices climbed. Don't believe it? Then take a trip down memory lane with us: in 2014 the average sale price per square metre in new developments was below 40,000 Kč, in Prague it was 52,000 Kč. Current prices in the wider city centre comfortably reach three times that. But the chance that flat values will grow at a similarly rocketing pace over the next decade is relatively small. Experts agree that prices have, at least for now, hit an absolute ceiling. Developers are offering special price promotions, free parking spaces and investing millions in marketing.
Prices of new flats in Prague are currently rather stagnant. Buyers are far more often looking at flats in Úvaly, Beroun, Slaný or Říčany, which are more affordable
The pros and cons of rental housing
Rental housing is significantly cheaper – we know that from the data. If you save 7,600 Kč a month in your household budget, by the end of the year you have over 90,000 Kč, and that will buy you a really nice holiday somewhere exotic. Or you can put the money saved into new furnishings for your flat, a more modern car, or invest it. Another major advantage of renting is enormous flexibility. Tenants have a very strong position in the Czech Republic, so if you decide you want to set off to see the world – or simply land a well-paid job at the other end of the country – there is nothing to stop you from ending the tenancy and being somewhere completely different a few months later. On the other hand, many people rightly point to a certain insecurity stemming from short-term lease agreements. This affects families with children above all, for whom changing their home base – and, say, the school their children attend – is a significant obstacle. Limiting the so-called chaining of short-term contracts has been discussed, but the necessary legislation is unlikely to be pushed through in the current parliamentary term. At least that is what the Ministry for Regional Development admits – the ministry responsible for the agenda, which recently saw a highly publicised personnel change when the outgoing deputy prime minister Ivan Bartoš left it.
A free choice for everyone
And so, as always, every person is unique – and so is every situation that prospective tenants or mortgage applicants find themselves in. Someone who has started a family and really plans to put down roots in a place they have fallen in love with may well swallow the fact that every year they have to find almost 100,000 Kč more in the family budget. By contrast, younger generations, childless couples or simply adventurous souls – and you will find plenty of those among seniors of retirement age too – can enjoy life, save significantly and, if need be, seek their fortune one door further along. Even abroad, perhaps.
The total annual difference between rent and a mortgage in Prague is certainly not negligible
Recently published data show that almost a quarter of all Czechs now live in rental housing, and this number is bound to grow in the future. We will thus move closer to the figures regularly recorded by statisticians in Western Europe. For owners of investment properties this is clearly an opportunity worth seizing. Do you have a vacant property and are considering renting it out, but don't know where to start? We are a professional agency specialising in property management and letting to vetted tenants. We will make sure you enjoy your money without any worries. We will be happy to explain everything – just send a message to sales@flatservice.cz or call +420 277 000 330.
