Inflation is steadily climbing up to three percent, interest rates on deposits are zero and stock markets are difficult to predict. Buying an apartment is therefore still one of the most recommended investment options - whether for your own use or for rent. But things are getting more complicated even in the real estate market. This situation is what we’re going to be dealing with in today’s UGLY TRUTH.
People have already come to understand that there is very little risk of devaluation in investing in real estate, similar to investing in gold. Last year, banks provided a record amount of money on mortgages - over 250 billion! This is connected to the fact that interest rates reached the historically lowest values by falling below two percent. Due to higher inflation, clients are now returning less money to banks than they borrowed. Even those with a lower income can therefore afford a mortgage.
Stricter rules for the provision of mortgages
However, banks now subject potential clients to more scrutiny than before when choosing whom to grant a loan. Yes, the main reason is Covid-19. If you work in one of the fields affected by the pandemic, your chances are low. This applies especially to tourism and gastronomy, but sometimes also to the aviation or automotive industries. Foreigners and clients with income from abroad also have more limited access to mortgages.
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Mladí lidé se radují z úspěšného obchodu a nového domovaSource: Freepik
And if you’re looking for a more luxurious apartment, having a few thousand on your bank account won’t do the trick. Since this year, financial institutions have often wanted a higher share of the client’s own resources than they did a few months ago. Some banks warn that they intend to be more cautious in setting the estimated prices of real estate that will be pledged with them. If their value is lower, you’ll have to pay more from your pocket for your dream apartment.
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The current situation, though, is still favourable. Interest rates are haven’t gone up much and many sellers are willing to give you a discount if you act fast. If you’re considering buying an apartment, there’s no reason to wait.
The public first learned that things were getting complicated in the real estate market, no matter your personal profile, at the beginning of the year.
"We have decided to respond to the rising price of resources, which has been a trend for several months now. We have kept the rates at the bottom for a long time and now we are opting for a very slight increase,"
the ČSOB Group announced through its spokesperson, Andrea Vokalová, in February. However, in May, the slight increase developed into a dramatic change of conditions.
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Mladý pár počítá úspory a zvažuje koupi nemovitosti na hypotékuSource: Freepik
In the case of mBank, for instance, the difference is as much as 0.6 percentage points. The Czech National Bank is also expected to tighten the screws, i.e. increase its interest rates, in the second half of the year. That means the later you start looking for an apartment to buy, the worse conditions you’ll probably have in the coming months.
Do your calculations
Yet despite the recent developments, it is still worthwhile to buy a property. You just have to be a bit more careful when navigating your way through the jungle of numbers and various conditions. Otherwise, you could become financially worse off as a result.
"The differences between the individual banks have become more pronounced. The way income is calculated and the requirements for its character play an even bigger role this year,”
says Pavel Bultas from the Hypoasistent brokerage company.
jednak do splátek hypotéky a pak samozřejmě do jeho oprav, údržby, pojištění a plateb daní z nemovitosti i její správy.
If you’re still not convinced that investing in real estate will pay off, it’s always a good idea to take your time and do your calculations on paper. If you intend to buy an apartment in a prominent location for seven million, its value will increase by 4 to 5 percent every year. If you still own the property in another 30 years, its market value will amount to almost 15 million crowns. However, you’ll also have to invest in the apartment during this period: first of all, you’ll have to repay your mortgage, and then there are repair works, maintenance, insurance, tax on immovable property and its administration.
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Mladý pár s tabletem odpočívá po stěhování do nového domova Source: Freepik
Instead of using the apartment yourself or letting your children use it, you can always start renting it out. Currently, 30 to 50 percent of owners of a new residential real estate choose this option in our country. The downside is that calculating the return on such an investment is much more complicated.
An apartment worth seven million can be rented out for 20 thousand crowns per month. However, property owners also face a number of difficulties. You have to keep the property in a good condition so that your tenants wouldn’t move away. Almost every year, you’ll have to buy a new piece of equipment - sometimes it will be a broken cabinet, other times a washing machine or a sink. Add to that the costs of advertising the rental apartment offer and all the time you’ll spend organizing everything and trying to find a buyer.
Furthermore, since your tenants might change, you shouldn’t count on rental income for the entire 12 months of a year. Ten or eleven is more realistic. If you hire a real estate company, then deduct another monthly rent, which will become their commission. And to make matters worse, after deducting investments, the income had to be taxed. In real terms, roughly four to five million crowns can be earned on real estate in 30 years. However, even in this case, the advantage remains that you’ll be the owner of an apartment, the value of which grows over time.
HARD NUMBER: 7 million
Buy an apartment for 7 million and keep it for 30 years. If its value increases by 4 to 5 percent every year, its original price will be more than 100% returned and you will be able to sell it for 15 million crowns!
