Prior to 1989's "Velvet Revolution" the typical Czech newly-wed couple had to wait ten years for an apartment in Prague. Today that wait for a State owned apartment is approximately 5 years.

There are approximately 360 flats for every 1,000 inhabitants. This figure is not far from the western European norm. However, it is estimated that 1 out of every 15 flats remain unoccupied for one reason or another. The individual holding the rent agreement finds it in his/her interest to continue paying a low regulated rent rather than return the flat to the State and back into commerce.

Such tenants keep the flat empty with the intent of allowing their children to use the flat sometime in the future or in some cases it is sub-leased illegally at a price several times higher than the State controlled price. The wait to rent a privately owned apartment is considerable shorted. However, since market rents are well beyond the incomes of most Czechs, in reality the wait for a place to call home is much longer.

It is this basic scarcity of available apartments which defines all aspects of the Prague housing market; from the rental market through to the sales market. There is simply not enough quality housing stock available in today's Czech Republic.

The real question then becomes; is there enough income on the part of Czechs, now or the foreseeable future or enough sustained demand from expatriates and/or institutional investors to support large scale development of new housing schemes?

Between 1950 and 1990 housing and housing construction was controlled and financed by the State. In 1959 the State introduced a cooperative form of housing development/ownership that required finding by the individual cooperative members and thus reintroduced private participation in the development of housing. It was between those years that about 50% of the existing housing stock was built.

The scope of housing development during those years is certainly impressive. The 1991 census data indicates that some 2,153,000 housing units were built between 1945 and 190, which is approximately 58% of the total number of units occupied as of 1991. It should be noted that the housing stock developed during those years was, for the most part, pre-fabricated, high-rise multiple unit buildings known as panels or panel buildings.

These buildings were quickly assembled out of materials that were suppose to last for generations. The reality, however, is that some of the components (namely concrete) disappeared during construction phases (more water was then used to make up for the loss of concrete) and, therefore, a lesser quality product went up. The floor plates, the average size of the units, were typically quite small and never really met the needs of a family with children. It was, however, the old regime's "answer to the housing problem".

These buildings, even the newer ones, are beginning to deteriorate at a rapid pace not only because of the poor construction but also because of a lack of maintenance. Approximately 43% of the city's population lives in these units.

In 1989 the "Velvet Revolution" brought about major changes in the political and economic life in the Czech Republic. These changes significantly changed the housing sector with major State funded housing developments being phased out completely by 1992 without providing any alternative policies to make up for it. Housing expansion, therefore, reverted to the individual municipalities and the marketplace in general. All at the same time remaining highly regulated by the State.

Since those early years of economic and political reform, the leasing and sales markets have undergone a steady metamorphosis. The first few years after the revolution, enterprising owners reconstructed apartmetns and rented them to foreign experts. These reconstructions were often not thorough and below western standards. Given the demand and limited number of suitable apartments, prices rapidly increased. 1992 and 1993 were pivotal years as demand continued moving upwards while supply at any level remained comparatively low. Towards the end of 1993, renovated, western-standard developments began to hit the market and prices went up further as western companies began competing for these newly available apartments.

Rental prices for a centrally located two bedroom apartment, reconstructed to a high western standard can still command $2,000 to $3,000 per month.

Mid level apartments in the same area are becoming more difficult to rent as prices have yet to reflect quality and he number of mid-level apartments have increased. It is expected that the prices for these mid-level apartments will go down.

There are currently two separate and distinct residential markets in Prague. First is the Czech market which is predominated by low priced, non-western style apartments. The other market is the expat community living in high priced, western finished apartments and homes.

As these two markets see prices continue to change, the Czech market is experiencing a slow but steady increase in rental prices while the expat market sees a decrease in pricing, there will be an eventual convergence. This is expected sometime over the next three to five years. Once this ocurs the marketplace will become similar to any other western market where locals and foreigners alike will be able to find housing at the same pricing levels without regard for nationality, etc.

John Breaux, CIPS, is the director of Prague based LEXXUS Real Estate Services. LEXXUS provides full-service brokerage and management to local and foreign investors and developers. He has 17 years experience within the industry working in commercial investment brokerage and institutional asset management.
www.lexx.cz