A recent study by International Real Estate Agency Gordon Rock compared the average income of residents of different cities in the world to the price of purchasing a 70 m2 flat in the same city. The results were surprising when compared with the situation in Prague and recent reports we have heard regarding a study from the Czech National Bank on Czech Republic property prices.

“International real estate agency Gordon Rock to determine the number of years, which need to be worked by residents of large cities in the world and Russia to buy different types of apartments in the city. In accordance with research, the people of Berlin for the purchase of a model apartment will require only 3 years old, residents of large cities in the U.S. and Canada – no more than 6 years old, residents of most European capitals – from 7 to 14 years, residents of London, Paris, Rome, Tokyo, Sydney, Kiev, Moscow, St. Petersburg – up to 20 years, and residents of Singapore – an anti-record 36 years. Russian cities with million to purchase several types of apartments to be worked from 10 to 14 years, ie like most Europeans, and less than Moscow and St. Petersburg.”

“The methodology of research on data on average annual income of residents of the largest cities in the world and the Rosstat data on average wages in Russian cities. It is important to note that the calculation carried out for the average income of urban residents – ie for those whose profession can be attributed to working professions, services, education and servants. Consequently, the assessed value of such properties, which are in demand is for ordinary urban residents. As a model of the property in the study adopted a flat area of 70 square meters, which is located in the peripheral areas of the city and which can be arbitrarily assigned to the class of ‘new development model’. Therefore, the cost per square meter in a particular town, used in the study, below the average cost per square meter, which significantly affects housing luxury and business class.”

If we compare to the figures in Prague, it shows that the real estate market in Prague does not seem overpriced at this point. If we take 29 000 CZK as the average gross salary (Q1 2010 according to CSU) for someone living in Prague and the average CZK/m2 for a 70 m2 ‘newish’ flat on the peripherals of the city (as per the survey) at 45 000 CZK so a purchase price of 3,150,000 CZK (which is generous based on figures from: iDNES.cz, realio.cz and bezrealitky.cz) it would take 9 years to pay the property off.

One thing we don’t know from the articles is whether the survey used gross or net salary. Even if we used net salary (roughly 23% less than 29 000 CZK/month) we get a payback time of 11.75 years.

Some other factors to consider regarding whether property prices are affordable to the local market in comparison to other cities in the survey:

1. Czech Republic has a lower unemployment rate, 7.5% than the EU average of 10% based on the May, 2010 figures from Eurostat.

2. The Czechs have among the lowest personal income tax rates in the EU.

3. Locals have the fourth lowest level of household indebtedness versus GDP in the EU.

As a way of comparison we got the figures from CE Invest Hungary on Budapest, Hungary and it would take 6.5 years to pay a similar property off on the average gross salary and 10 years if using net salary in the equation.

In Bratislava, Slovakia it would take 12 years to pay off a similar property based on gross wages and 14.5 years based on net (courtesy CE Invest Slovakia).

In comparison to other European cities this puts Prague prices at a reasonable level and definitely not “unaffordable” for local citizens in comparison with other cities of the world as local media reported the Czech National Bank claimed in a recent study. Perhaps when compared to historical averages this holds true but definitely not when comparing to other cities of the world.

Nathan Brown www.czechpoint101.com