In the future, the Prague magistrate wants to involve more large private investors in infrastructure projects. A special fund is to make this possible. Read all about it here.

A new real estate investment strategy in Prague

The Czech capital, Prague, is experimenting with a new real estate investment strategy. The city’s magistrate recently announced a special fund that will enable private investors to co-finance real estate and infrastructure projects. A similar model has been successful in the Czech city of Brno.

Future construction in Prague should be backed increasingly by large private investors. In return for this opportunity, investors will pay into a new fund that Prague will use for public infrastructure projects. Prague’s city parliament decided on this real estate strategy in the end of January.

Improved funding for public projects

Officials explained that Prague does not have the funds for all its public projects in the mid- to long term. Therefore, the new real estate investment fund will create an additional revenue stream to counteract this expected scarcity. The yields from private investors who pay into the fund will cover public projects such as new schools or infrastructure.

In the future, Prague’s real estate investors will have the option for a special contract with the city. They will know from the beginning which projects they support with their payment into the urban development fund.

Prague’s deputy mayor, Petr Hlaváček, explained that this funding model will be beneficial for the city’s housing shortage, among other things. Parks, schools, and the tram network will also benefit. Another idea is to construct new city districts that will provide the necessary housing.

Prague has been struggling with a housing crisis for several years. The city’s population of 1.3 million people is growing steadily due to both natural growth and immigration from within and outside the Czech Republic. The country’s economy and Prague’s economy in particular is growing quickly – if not booming yet, according to property experts from Savills.

Two fee models for real estate investment in Prague

The city’s magistrate has decided on two fee models for the new real estate investment strategy. Private investors will pay a basic fee of 700 Czech crowns (about 29 Euros) per square metre of each new building. When investors apply for a change in the land use plan to enlarge their projects, they will have to pay 2,300 crowns (about 95 Euros) per square metre.

Importantly, the real estate fund in Prague will remain a voluntary option for developers. Local government officials are optimistic that there will be enough supporters since construction is a popular investment area in the Czech city. Work on public projects, such as the transformation of the disused goods station Žižkov into a new district with houses and workplaces for tens of thousands of inhabitants, is attractive for investors.

The new fund could contribute around 1.5 billion crowns (62 million Euros) to this project. According to Hlaváček, the first contracts for this real estate investment opportunity could be closed in 2022. “These contracts will be a base for further negotiations. They already are an important tool of urban development”, he explained.

Private investment as an urban planning tool

The Czech city Brno has already implemented a version of the real estate investment strategy that Prague is now establishing. In Brno, 150 million crowns (6.2 million Euros) have been raised in 2021 via the fund. The magistrate has closed 14 contracts with investors agreeing to pay a fee of 800 crowns (33 Euros) per square metre into the fund.

Brno’s mayor Markéta Vaňková explained: “We want to create not only new buildings, but to also invite developers to cooperate with the city in investing in public infrastructure. Sidewalks, streets, parking spaces, parks and green spaces, but also kindergartens are relevant for this kind of investment.”

The methodology for this real estate investment strategy has been developed by Brno’s association of architects and builders. Its head, Market Vinter, agrees that a fund such as Prague’s real estate investment fund is a step in the right direction. Moreover, this strategy makes conditions clearer for developers as well. Ultimately, it is hoped to benefit the whole city.

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