"In the regions, the authorities concerned are less busy," comments co-owner Jan Lobo | K&L Rock 1
K&L Rock Group / News / "In the regions, the authorities concerned are less busy," comments co-owner Jan Lobo

"In the regions, the authorities concerned are less busy," comments co-owner Jan Lobo

Published by: 23.03.2023 16:04:37

The construction of new flats is increasingly heading to the regions. While until now the development was clearly dominated by Prague - it accounted for about two thirds of the market - under the pressure of high prices and lack of available building land in the capital, developers are increasingly looking at smaller towns and villages within commuting distance from the metropolis. The economics of the projects also favour a rethinking of the current pragocentric trend. In Kladno, for example, over two thousand new flats are to be built within ten years. Large Prague companies such as Finep or YIT are planning to build there. But also purely regional developers.


In sight of the big city


Large regional cities, such as Brno or Olomouc, and Prague, still attract large numbers of people for better-paid jobs, study opportunities or entertainment. But despite the current slowdown in sales, prices in Prague are still above CZK 145,000 per square metre and other large cities are gradually catching up. Housing in them is becoming unaffordable for many people. Therefore, they are looking for properties within commuting distance of metropolises. This is also being noticed by property developers.


"This trend is most evident in the vicinity of Prague and Brno. Development projects are now being developed in large numbers within 60 minutes' drive - for example in Kladno, Stara Boleslav, Beroun or Jesenice," says Petr Hána, Director of Construction and Real Estate at Deloitte.


Developers are mainly looking for towns and villages with direct train connections to the metropolis. "We didn't choose Karlštejn because of the castle or the beautiful countryside. The decisive factor for us was the accessibility to Prague. Our building is located about three minutes walk to the train station, where there is a train every 12 minutes and you can be in Prague in 25 minutes," says Daniel Římal, founder of the Czechoslovak Real Estate Fund SICAV. The fund offers 90 apartments in two construction phases in Karlštejn.


Availability decides. Developers are mainly looking for cities and towns with direct train connections to the metropolis.


An example of a region trying to attract people for itself, and not just "to sleep over", is Blansko. As part of a joint project between Trikaya and Hopa Group, 400 new apartments are to be built there, which is a respectable number for a town of around 20,000 inhabitants. The Blansko town hall believes that the new construction will bring new residents to the town, which will help solve the local labour shortage. "Many people, many of them from Brno, commute to Blansko for work," said town spokeswoman Pavla Komárková.


Escape from complicated building permitting


Building in smaller towns is generally easier for developers than in metropolitan areas. "In the regions, the authorities concerned are clearly less busy, so they approve projects faster than in Prague," points out Jan Lobo, co-owner of K&L Rock, which is currently building forty apartments in Světlá nad Sázavou, a town with just under seven thousand inhabitants. They obtained the necessary permits to build there in less than two years after buying the land.


"While in Prague it takes an average of 900 days to issue a building permit from the time of obtaining a zoning permit, in Brno it takes an average of 500 days. At the other end of the scale is Karlovy Vary, where a building permit can be obtained within 200 days," says Hána.


Developers also praise the friendliness and good communication with town halls in other cities. "In Blansko, our project was preceded by a minor change to the zoning plan. I would characterize the negotiations as consensual, it was not forceful, but we got along with the city hall," says Dalibor Lamka, chairman of the board of Trikaya Asset Management.


The current project, called Rezidence Písky, which is due to start construction in two years, is unusual in that the developer will build on city land. The city will transfer the land to the owners of the newly built apartments only after they have been approved. From the point of view of the town hall, this is a protection against the unfinished project. For the developer, it is financially advantageous.


Kamil Dunaj from the Getberg development company, which builds mainly in the Central Bohemia region, has calculated that the savings from faster building permits in the regions can exceed ten percent of the total price of the apartment. This improves the profitability of regional investments. "In Prague, developers get lower margins than those outside Prague," he told the weekly Ekonom.


Further savings can also be found in land prices. These are usually cheaper in smaller towns than in Prague or Brno. "Land prices depend on the price of the end product, i.e. an apartment - if apartments in Prague are 10 percent more expensive than in Brno, a similar difference can be expected for land. The difference between Prague and Ústí nad Labem will be even more significant," explains Hána.


An advantage for developers is also a greater supply of land in smaller towns compared to metropolises. In Prague, most of the available space has already been snapped up by large established companies. New smaller companies have practically no chance in the metropolis. However, there are plenty of vacant plots outside Prague, even in the required size. This then allows developers to plan more attractive, higher quality projects. "You can get, for example, a park and other things there," Dunaj says.


Alou na hory


However, it's not just smaller towns that are currently on the development bandwagon. Since the coronavirus pandemic, Czechs' interest in apartments in the mountains or in recreational areas has also held up. "This segment is still gaining momentum. It is a kind of alternative to the Czech cottage industry and can also offer the advantages of short-term rentals for more enterprising natures," says Deloitte's Hána.


While historically this type of development was seen as a signal of an overheating residential market, coronary closures have changed that view. The covid was an absolutely crucial milestone for the development of this segment. New apartment houses are no longer growing only in the most famous resorts such as Špindlerův Mlýn or Pec pod Sněžkou. Developers are also interested in smaller villages such as Černý Důl or Vítkovice in the Krkonoše Mountains. And they are also starting to discover locations in the Jeseníky or Ore Mountains.



Not only does the location itself play a big role in sales, but also the relationship of potential clients to those locations. "We often encounter that our clients used to go to these locations as children and like to return to the same place," says Jan Stuchlík of Realspo, a company that builds in the Krkonoše and Jeseníky mountains.


On its own infrastructure



But probably the biggest mountain development project in the Czech Republic is now construction near Klínovec, especially in Loučná pod Klínovcem. Hundreds of plots of land have been turned into building plots over the past decade in the village, which lies between the Czech and German ski areas.



But projects of this type are usually preceded by a long period of preparation. The first references to building plans in Loučná, for example, began to appear around 2007. This places completely different demands on developers than in cities. They must first build access roads, for example. Often they also have to develop the associated sports facilities.



The need to build infrastructure also leads to very wide-open scissors in land prices. While a basic building plot without the necessary connections to infrastructure and networks can currently be purchased in the Ore Mountains for several hundred crowns per square metre, the price per square metre for fully prepared plots climbs to around four thousand crowns.



Yet it can be an interesting investment. "Mountain resorts have a limited amount of land available for development and any similar product usually does not lose value in the long run," says Petr Kozojed, head of the Real Estate Advisory team at EY.



In general, the greater the risk, the greater the return on the property. This also favours mountainous areas. Especially in the Ore Mountains, the annual rent to purchase price ratio is up to 20 percent, according to Deloitte data. By contrast, in large cities such as Prague, this indicator is usually only in the lower percentages.



Investors in the mountains, however, must expect more price volatility. Experts therefore recommend them only to those who plan to use the apartment for their own recreation as well. "When the economic situation comes, when people will get rid of similar properties, it may happen that the owner will have a problem to sell at all. Therefore, it is important to consider whether I really want to own such a property and am able to hold it even in times when the economic situation is not easy," explains Miroslav Hodina from the real estate agency Re/Max G8 Reality.


His words are also confirmed by the current events on the market. Data from the Reas price map show that especially in localities where the supply of flats has recently increased a lot, the prices of flats have started to fall since last autumn. This applies, among others, to Loučná pod Klínovcem.


Second Breath


Councils in smaller cities and towns where construction is underway or about to begin see development as an opportunity in the first place. "We would welcome further interest from developers and those interested in housing. A larger population can bring more work expertise to Blansko and thus also the development of the service and manufacturing sectors," Komárková points out.


This is even more important in post-industrial locations such as Kladno in Central Bohemia. After the decline of mining and the collapse of Poldi Kladno in the 1990s, the city began to depopulate. While in 1990 there were almost 75,000 people living there, now there are only 63,000.


New development, however, poses big challenges for the town hall. The biggest one, which affects virtually all locations with direct and fast connections to metropolitan areas, is keeping the new population alive during the day so that towns do not become mere "dormitories" where residents leave in the morning for work and return in the evening.


So building in smaller cities forces builders and town halls to think and plan more. To keep residents, they need to offer a lifestyle comparable to a metropolis. Above all, a representative environment, restaurants, cafés and sports facilities. "The trend is to provide services within walking distance. Then the new neighbourhoods can function as a functional urban space," says social geographer Ondřej Slach.


If they fail to do so, emerging cities risk following the earlier trend of satellite villages, where homeowners often suffer from a sense of disillusionment with previously desirable locations.


When the economic crisis hits, mountain apartments can temporarily become unsellable lagers. Vítkovice or Černý Důl in the Krkonoše Mountains, Stříbrnice in the Jeseníky Mountains or the Ore Mountains are becoming new construction centres. While in Prague it takes on average 900 days to obtain a building permit, in Karlovy Vary the same takes 200 days. Accessibility is crucial. Developers are mainly looking for towns and villages with direct train connections to the metropolis.


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