Rental prices are slowly returning to normal – what if tenants cannot afford to pay?
Over the past several months, the property market has been characterised by high property prices and low rental prices. Rents fell mainly in large cities, particularly in Prague, where the departure of tourists and the resulting release of many short-term flats increased the supply of properties available to rent. The situation is now slowly returning to normal, however, and flat owners are trying to make up for the decline of recent months.
In theory, they can afford to do so. The situation is also supported by the state of the property sales market. Property prices continue to rise, as does the number of people who simply cannot qualify for a mortgage. On the one hand, they would now have to borrow an amount that is hard for many residents to swallow; on the other, they do not have the savings required by the Czech National Bank (ČNB) in order to obtain a mortgage from a bank. People are therefore currently split into two groups. One proceeds with buying a property because they have accepted that conditions are unlikely to improve. The other waits, as property prices seem absurdly high to them.
However, the rental property market is slowly returning to normal, and rents are expected to start rising again gradually. The largest increase is anticipated in Prague, where real estate agencies estimate a rise of 20 %. The increase is a response not only to property prices, but also to the general, long-term shortage of flats to rent. Coronavirus has also affected people’s incomes, and some are still facing financial difficulties. What can a property owner do if a tenant is unable to pay the rent?
During the pandemic, a special law was adopted prohibiting landlords from terminating a flat lease if tenants had fallen into rent arrears between March and July 2020. However, they were subsequently required to settle the debt in full by the end of that same year. Things have now returned to normal, and landlords again have the right to terminate a lease with three months’ notice. However, notice cannot be given after the first missed rent payment, and the entire process of evicting a tenant can take months. For someone repaying a mortgage on the property, this can present a considerable problem. The ideal solution is therefore to have a tenant who simply pays.
However, such a utopia can hardly be expected. On the other hand, the same outcome is offered by the guaranteed rent service introduced to the market years ago by the Czech real estate company Bohemian Estates International. It offers its clients, property owners, management of a flat or house, including a guarantee of pre-agreed rent. For owners, this means they will receive rent regularly even if the tenant fails to pay or the property is temporarily vacant. The company also handles all administration, communication with authorities and, above all, finding tenants. The price of the service is agreed contractually and amounts to approximately 15 % of the market rent, determined following an inspection of the property.