Speculators await massive Prague city property sell-off

Czech capital prepares wave of housing stock privatization, with nearly 4,000 flats up for sale over the next three years

Politics & Policy|Real Estate
Kateřina Menzelová | 13.07.2012

Prague councilors have approved the sale of nearly 3,855 city-owned dwellings — just a few hundred shy of the entire number of apartments sold last year in the Czech capital — for which the city hopes to fetch at least Kč 4 billion. There is talk, however, that speculators will manage to circumvent controls seeking to grant favorable terms only to current tenants.

Why is Prague looking to unload the property now? At the end of 2011, the city owned nearly 11,000 dwellings. Many were built or renovated using grants and government regulations had prevented them from changing ownership for a 20-year period. The majority of tenants living in these apartments have fixed-term contracts, normally for two years, after which the city has the chance to increase the rents.

It’s quite another situation for those renters with indefinite contracts, in flats that were financed without grants and it is these that are slated for privatization. In a report, councilor Ivan Kabický (Civic Democrats, ODS) said the reason was: “Due to unreasonable legal protections, as exhaustively set out in the Civil Code, it is not possible to terminate these leases. Prague is therefore providing assistance in the form of housing for people who do not need help."

Most of the apartments for sale were built in the 1980s or in the late 1890s. Roughly a third are located in the district of Hlubočepy, as well as in Černý Most, Stodůlky and Chodov. The city plans to privatize the apartments in four states, with preference given to existing tenants and housing cooperatives established by them. If the city were to sell them to individuals, however, it would take considerable time and increase administrative costs.

About 170 apartments intended for privatization are now vacant, and Prague is looking for tenants to fill them. At present seven apartments in Prague 5 are on offer. Applicants may apply by the end of July. Tenants will be selected in an open tender, with the only criterion the rent for the month. In the coming months, there will become tenants with indefinite contracts, and pay on a scale according to the location and condition of the dwelling.

White horses

In a given apartment house, an individual can apply for only one flat — but there is always the possibility of “white horses” (proxies) as speculators look to take advantage of the beneficial conditions offered to long-term tenants of municipal housing. A source familiar with the deliberations told Czech Position that the fact the tenders have not been widely promoted also plays into the hands of speculators; however, city spokesperson Tereza Králová said these were standard tenders, and published on the server www.reality.cz.

Regardless, the apartments are meant to sold at market price and enrich city coffers by some Kč 4 billion, or roughly Kč 1 million per flat, the proceeds of which will go into the general budget. “Some of this will be used to invest in city-owned property and to create a fund for suitable housing for the elderly, disabled and other applicants needing housing,” Králová said, adding that the particular form and manner had yet to be decided.

Prague experienced a privatization wave from 1995 to 2006, with the ownership of 236 houses and 4,825 apartments transferred, 93 percent of which were sold, for some Kč 1 billion. Although over the next three years nearly 4,000, it should not have a dramatic effect on the overall residential market. Ondřej Novotný, head of market research at Jones Lang LaSalle said. “It depends under what conditions they appear on the market and how they can be accessed. If above all it concerns sales to current tenants the influence will not be too noticeable, as has been the case in sales over a number of years,” he said. 

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Better than previously reported

3,855 over 3 years is much better than the originally reported 10,000 in 2012 alone. Did common sense prevail in the end about the timing of selling these properties? 

 

By itself this does not look likely to affect the Prague market. However, it is another piece in the whole picture of why prices are depressed in Prague and will continue for the near future. 

 

Nathan

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