Turbulence on the real estate market. What to expect next?

The real estate market in the 2008–2009 period was facing the worst economic downturn since the end of the WWII. How did it manage to get over the crisis and what major changes have been undertaken since? The structure of real estate owners and investors has changed, the market of investments into commercial real estate has become more segmented, and new forms of investments have sprung up. Along with this development, the services provided by HAVEL & PARTNERS have also been undergoing changes.

The start of the new millennium was marked by strong growth in the prices of residential property, not only in the Czech Republic but also in neighbouring countries. The growth was possible due to affordable mortgages and a high demand for housing among the baby-boom generation born in the 1970s. But then, the world was hit by the economic crisis and the real estate bubble burst. Banks responded by tightening mortgage terms, and real estate prices plummeted. In terms of percentage, the year-on-year dive amounted to double-digit numbers.

In the years that followed, it was possible to revive the market thanks to the active approach of banks that gradually started loosening mortgage conditions and decreasing interest rates. Step by step, the market was coming to life after the recession and the prices of flats started to grow again. Even today, one of the reasons behind the rising prices is the duration of the approval process and the resulting insufficient construction of new flats. That, in turn, makes the supply lag behind demand. The COVID-19 crisis has not changed anything in this respect – the concerns about a further drop in the residential real estate market have not yet materialised.

Market dynamics

The commercial real estate segment has also undergone significant changes in the past 20 years. The post-2000 era primarily saw growing investments into retail and shopping centre real estate property. In fact, basically all the currently existing significant and successful shopping centres had been built by 2010. The crisis, however, resulted in a substantial segmentation of the market – investors were also investing their assets into other types of commercial real estate, namely into logistics, office buildings and hotels.

The first twenty years of the new millennium saw a very dynamic development on the real estate market. The legal services provided in this field are developing too; a law firm that desires to succeed on the market must offer comprehensive services and adopt to the market dynamics.

“Our advisory spans all aspects of real estate projects in the private as well as public sectors – from the project preparation stage, to approval and construction stages and follow-up transactions with the real estate property or potential real estate portfolio management. Thus, we have a detailed knowledge of individual projects from their very beginning, which is of crucial importance to clients. Standardly, we are involved in the preparation, construction, purchases, sales and leases of real estate in the Czech Republic, Slovakia and abroad, in residential and developer projects, development and refurbishment of industrial real estate, infrastructure and PPP projects in all their stages,” Lukáš Syrový, one of the managers of the real estate team, described.

Thanks to our excellent connections in banking and non-banking financial institutions, we can arrange for our clients a truly comprehensive care for their real estate portfolios by asset managers and investors and in advisory networks, and thus contribute to the long-term maximisation of their returns.

The law firm also focuses on real estate public tenders and procurement procedures and has many years of experience in spatial development planning and building permit proceedings, project financing and structuring and negotiating contracts with financial institutions. The firm’s clients comprise major property development companies, investment funds, architects, designers, private investors and public sector entities.

Dozens of real estate transactions a year

HAVEL & PARTNERS has been focusing on real estate law ever since its beginning in 2001. Today, this field is covered by over 30 lawyers including 8 partners. This remarkable personnel capacity and the law firm’s know-how in real estate, the building industry and investment projects, secures the law firm a significant share on the Czech legal market. Each year, it is involved in 20 to 30 large real estate transactions.

In the past years, the law firm also responded to changes in the structure of real estate owners and investors, more and more represented by affluent Czech and Slovak capital investors. “Frequently, these are family offices and investor clubs who have primarily made money in other fields, namely industry and outside of big cities, and now want to invest into real estate in Prague and other big cities. The primary aim of these investors is not to make instant profit but rather long-term investment and protection of assets,” said partner Václav Audes, who is also involved in the development of the real estate practice at HAVEL &PARTNERS.

The law firm provides these prominent clients with comprehensive services in relation to their investments in real estate both in the Czech Republic and abroad. Most often, clients invest into luxurious commercial buildings, private purchases, sales or leases of residential housing or investments into real estate funds.

Real estate funds – an affordable investment

The past years saw the establishment of a whole number of open-ended or closed-end real estate funds, both in the Czech Republic as well as abroad. Hence, the market also opened up to investors recruited from outside the professional ranks of real estate. Investing into a fund is a relatively conservative way of adding value to one’s assets and is it accessible by a significantly larger range of investors. At least in the horizon of the following 5 to 7 years, this looks like a profitable and very attractive segment.

The law firm gives advice to clients already when they are selecting assets and investing them into open-ended and closed-end funds at home and abroad, as well as in the stage of establishing their own funds, raising capital, management and also exit. “Thanks to our long-term excellent connections in banking and non-banking financial institutions, we can arrange for our clients, apart from standard legal services, a truly comprehensive care for their real estate portfolios by asset managers and investors and in advisory networks, and thus contribute to the long-term maximisation of their returns,” added Syrový.

For better legislation

Being the leader on the market, the law firm also invests its experience and know-how into its efforts to enhance Czech legislation in the area of real estate and construction. In terms of the duration of the approval process, the Czech Republic ranks 157th, i.e., at the end of the global list of countries, right next to countries such as Honduras, Cameroon or Burundi. That was one of the reasons the representatives of the law firm were involved in the drafting of the new construction bill that should significantly speed up the building approval procedure.

The law firm’s experts have also joined in the preparation of a construction bill intended to expedite the construction of line infrastructure, which was elected the Actof the Year 2018. In 2016, František Korbel, a partner in the law firm, alongwith his team won a group prize for exceptional achievement in architecture fordrafting Prague Building Regulations. The organiser of the contest, the CzechChamber of Architects and the professional jury appreciated the new legalregulation for its “extraordinary attempt to significantly enhance the qualityof construction and public space in the capital city.”

The real estate sector will be crucial for HAVEL & PARTNERS also in the years to come. “In the next ten years, the development in this field will be substantial for us and that is why we are giving it our maximum effort. We are expanding our team and changing its mode of operation. We have drafted a strategic programming document ‘Real estate in 2020–2030’’ and we approach these issues in a very comprehensive way. I believe that thanks to our ability to flexibly respond to the market dynamics, we will be able to retain our position as one of the leaders on the market,” added Jaroslav Havel.