The current situation of high interest rates is taking a chance to get a mortgage even for middle-income people who would normally reach a larger apartment for a family or house with a mortgage. At the same time, their savings on current accounts are beginning to be attacked by rising inflation. However, they should not leave the money saved idle, but take advantage of other opportunities, how and where to invest. The solution may be renting, so-called rentvesting, the Fond Českého Bydlení (Fond) recommends.
“The combination of rental housing and investing is referred to as rentvesting, ie rental investment, which is relatively widespread in the West and has all the prerequisites to become popular in our country. Be careful, people should not confuse it with investing in rent. Indeed, long-term investing can generate very attractive value for investors from the general public, it is not necessary to become a professional trader,” says David Fogad, a member of the Supervisory Board of the Fond Českého Bydlení, the first investment fund on the Czech market to offer rental housing.
According to David Fogad, people who would have achieved, for example, a mortgage of 4 to 5 million crowns with their income in the past are still in a very good financial situation. If they have an income that allows them to build up reserves after paying current expenses, it’s time to think about how to deal with these free resources. Keeping them in a current account and waiting for real estate prices to fall is very unwise, even at low inflation. If inflation actually reaches the level of 7% p.a., then it means that from today’s point of view, only CZK 93,000 will remain from CZK 100,000. Therefore, retail investors should think about how and where to invest and not focus on the vision of their own real estate, which the Czechs have historically tended to do. For comparison, in Germany about half of the population lives in rent, while in the Czech Republic only about 22%. Thanks to digitalisation, Czechs can now direct their savings much more easily and flexibly to more advantageous investments than ever before.
“I will give an example. A person who recently reached a mortgage of CZK 5,000,000 probably had at least 10 percent of this amount saved as an advance payment for the bank. He therefore has CZK 500,000 at his disposal. Let’s say he’s able to save CZK 5,000 a month. If he invested these funds (ie 500,000 one-off and then 5,000 regularly every month), then after 30 years and an average appreciation on the stock markets (the average of S&P 500 is about 6% pa) at once he could have saved an amount of almost 8 million crowns,” says David Fogad, a member of the Supervisory Board of the Fond Českého Bydlení.
Apartment prices have grown significantly faster than wages in recent years, and this has resulted in less affordability of one’s own housing. This situation leads to a strengthening of the trend of rental housing. It manifests itself mainly in larger cities, but housing prices are also rising in smaller cities and are becoming less accessible not only to lower-income citizens, but also to the middle-income group. Rental housing is thus becoming a natural alternative and people are willing to pay more for rent than in the past. Rental prices do not copy the growth of apartment prices and their development is significantly milder and more correlated with the development of household income. “I dare say that rental housing is relatively affordable in the Czech Republic and can therefore be a real and economically sustainable alternative to owner-occupied housing,” adds David Fogad, a member of the Supervisory Board of the Fond Českého Bydlení.
