Housing Standards 2007/2008:
The Factors behind the High Prices of Owner-Occupied Housing in Prague

5.2 Flat-owners who prefer leasing their flats to selling them

Among the surveys conducted especially for the purpose of this project was the questionnaire survey Landlords 2007. The survey was conducted as a telephone interview on a sample of 150 selected flat-owners leasing their flats in Prague. Most of the respondents were selected ‘randomly’, based on contacts from their flat-rental advertisements. A small number of respondents were selected from contacts obtained from the Association of Czech Real Estate Owners. Given the size of the sample and the selection method used, the respondents’ responses cannot be guaranteed to be representative of the entire target population. Again the results should be understood more as a form of probe into the thoughts of this specific group of people engaged in the real estate market in Prague.

The results of this questionnaire survey revealed that flat-owners who lease out their flats usually assume that flat prices in Prague will continue to rise. This means that a considerable number of these landlords expect the widening gap between the today already relatively high purchasing costs of buying a flat and the relatively ‘low’ incomes to be obtained from leasing them in the open market. Landlords cite very diverse reasons for their belief that the prices in Prague will continue to rise; those mentioned most often are the continuing rise in demand and the continuation of the past trend of rising prices. Although landlords are not too sure whether their income from rent will increase in the future, only few believe that given the situation today it is better to sell than to lease. Only a very small percentage (15%) of the landlords asked were considering selling their flats, while the absolute majority had no intention of selling their flats and preferred to continue to lease them out. Those landlords who do not want to sell have three main reasons: they see an advantage in having continuous income from rent, they regard residential real estate as a good investment, and they believe it to be safer than other forms of investment. A total of 90% of respondents agreed with the statement that residential real estate is a safe place to invest their savings. The small group of landlords who think it better to sell than to lease their real estate cite the current high prices of real estate, which makes selling the flat an attractive option.

The survey also examined what landlords would do if they were unable to find a tenant to whom to lease the flat even at the minimum level of rent (i.e. a level of rent at which they would still be willing to lease the flat). Landlords responded to this in various ways: 26% of them answered that this situation could not occur, and in their view a tenant can always be found to pay the minimum price; 24% of landlords confessed that they would be willing to reduce the offered price even further. Relatively few respondents, just 14%, would consider selling their real estate.

In the questionnaire landlords were presented with a range of hypothetical situations that might induce them to sell the flat, the aim being to examine what portion of them would agree to sell the flat if the given circumstances occurred. Generally the majority of landlords would not consider selling the flat at all, and none of the hypothetical situations examined in the questionnaire altered their decision. When someone did ultimately admit they might sell, the strongest motivation for doing so was if they needed money for a more profitable investment or if they got a very good offer to buy the residential real estate – in these cases, respectively, 43% and 39% would consider selling. Potential threats were also significant motivations to sell the flat: a real threat of a fall in residential real estate prices (35% of respondents) or being required to sign a lease with a tenant for an indefinite term (33% of respondents). Raising the tax on income from rent does not really come across as a threat. It is worth noting that the simple fact of being unable for some time (two years) to find a tenant for the flat did not strike most landlords as a reason to sell the flat (it would be a reason for only 9% of respondents).

The survey also revealed that the majority of landlords (85%) choose tenants not only on the basis of whether they are able to pay the rent but also based on their own personal experiences, inclinations, and intuition (28%). When looking for tenants they tend to avoid individuals from groups they view as risky (Roma, particular ethnic groups, the unemployed, drug users, and people with a criminal record). References and recommendations play very little role in the Czech Republic.