Falling prices attract foreign investors in Czech spa town, Karlovy Vary

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Karlovy Vary is the Czech Republic’s most famous spa town. The river Tepla, which runs through it, is also famous for its naturally warm waters. The town’s economy has been focused on tourism and wellness since the 14^th century when Emperor Charles IV came here for treatment. Underneath the buildings, there is a vast network of springs (over 300), many of which have been developed into therapeutic spas.

Karlovy Vary is a historic spa town in the Czech Republic’s Bohemia region

There has traditionally been high demand for real estate in the Czech Republic from Russian buyers since the 18^th century. Property here is still undervalued and less expensive than in neighbouring countries such as Austria and Germany. However, real estate agents now report that demand is currently higher from Ukrainian buyers than Russians and the Czechs are also returning now that prices have fallen (before, it was considered expensive for Czech budgets). At the same time, Chinese interest in large Czech real estate projects has been growing.

Falling prices, confused owners

Prices in Karlovy Vary have fallen and pricing is volatile. Owners have not yet adapted to the new pricing situation and it’s possible to find two identical apartments in the same building for very different prices — sometimes even double the price next door.

Property Type	Prices from, EUR/sq m
Apartments (pre-owned)	0,700
Apartments (new)	1,300
Luxury property	3,000

Due to its popularity as a spa resort, holiday homes, accommodation and rental property for tourists are the leading real estate segments. Another attraction point for foreign buyers are the relatively low prices in the Czech Republic compared to Western Europe for example.

-> International buyers looking for “safe havens”

There are cheap options available with price €49,000–56,000 for 70–80 square metres (about €700/sq m). However they are rather older fashioned and would require renovation for a modern interior design, especially if the buyer plans to rent out the flat.

Apartments are the most common type of property on sale in terms of residential real estate. Flats in a new residential building start at €1,300 per square metre. Diminished earnings for Russians at home might mean that there are many options to choose from currently as the current economic situation in Russia has made it more expensive to own real estate in Europe

Commercial property options

There are restaurants, shops, cafes, hotels and more on the market at the moment. Commercial property near the centre is a safer investment because it is near tourist spots and more likely to attract a stable tenant.

Yields per segment:

– 3 star hotel with 40–45 rooms and balneotherapy: up to 8%

– residential

long-term yields: 5% (conservative estimate)

–

short-term rental yields:

8–9% (possible changes to come)

The main retail transaction in Karlovy Vary in 2015 was the sale of Varyáda shopping centre to European Property Group. First opened in 2005, it has 18,000 square meters of retail space anchored by Albert hypermarket and additional 65 retailers. European Property Group has plans to expand so as to accommodate more than 120 tenants in total.

The town’s healing waters created an elite wellness destination

“Varyáda is arguably the best regional retail asset that will have transacted in the Czech Republic in 2015. After a recent refurbishment program, the buyer is acquiring a well-performing centre which further benefits from significant expansion potential,” Tomáš Jandík, associate director for capital markets at CBRE, said in a press release.

Change in store for Karlovy Vary

The spa town has been particularly famous for its overwhelming popularity with Russian visitors and property buyers. However, recent currency volatility and a recession in the Russian Federation has seen visitor numbers decrease.

-> Russians choose most expensive property abroad despite crisis

It is hoped that capital inflow from Ukraine and other new buyer segments (including the Czechs) will cover the economic losses from falling Russian tourism and stop the decline of property prices.

Growing Chinese interest?

The number of Chinese tourists visiting Karlovy Vary has been rising year-by-year according to daily newspaper Lidové Noviny. Potential interest from China and excellent overall results for the Czech Republic in terms of commercial investments are both positive signals.

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Karlovy Vary hosted a Chinese delegation investigating investment opportunities in July 2015. In November, more Chinese investors CEFC were considering investing in the iconic Pupp Hotel. Recently, one investment group recently spent a record €8 million on a greenfield spa project in Czech’s Moravia region.

Chinese buyers have developed a taste for Czech real estate as they expand their real estate investment activity in lesser-known markets in Central Europe. This development could be extremely positive for Karlovy Vary in the near future.

What next?

The Czech Republic has some excellent prospects according to experts. The country’s economic growth is one of the strongest in the European Union. Property prices are on the rise but are still low in comparison to Western Europe, which makes it attractive to foreign investors. At the same time, incomes are also increasing, contributing to the attraction of commercial real estate industry.

Leigh Stewart