The form of privatization of municipal apartments disrupted the market

Prague - The privatization of municipal apartments has significantly affected the Czech housing market in recent years, much more than developer construction. At the same time, however, the manner in which the transfers of apartments to private hands occurred led to market disruption due to low selling prices. One issue, for example, is that new owners may not be able to adequately care for the former municipal apartments due to a lack of funds. This was revealed by the ČTK from the Trend Report 2008 published by the Association for the Real Estate Market.
    Apartments from massive privatization clearly prevail in the market in many cities according to the authors of the study. Due to the lack of commercial construction, these housing units along with cooperative apartments reportedly represent the majority of units in the market with a low price base. "Subsequent price increases in many cities are merely catching up with real market prices during subsequent sales," stated the Trend Report.
    The authors of the study do not question the privatization itself but point to the incorrect setting of its form and its results. "The danger of these transactions is that real estate, often of significant value, is acquired by tenants who are frequently financially weak and then do not have the financial strength to manage the common parts of the building with the care of good housekeepers," explained the authors of the study. "This could potentially become a major problem for many locations in the future," they added.
    For municipalities, this form of housing privatization has meant significant financial losses according to the authors of the Trend Report. "Due to undervalued selling prices, municipalities lost significant money compared to sales within regular competitions, and in many locations, these dumping sales significantly disrupted the housing market," noted the study.
    The privatization of the housing stock in the Czech Republic began as early as 1991 with the sale of entire apartment buildings, and three years later, the sale of individual apartments was added. By 2000, around 40 percent of municipal apartments were reportedly in private hands. By the end of last year, this number had increased to an average of 65 percent. The Trend Report estimates that the privatization process will conclude in 2015, with approximately 23 percent of the original housing stock remaining in municipal ownership.
    According to the research, the clear winner in apartment privatization is Teplice, which sold a full 100 percent of its former municipal apartments. Ústí nad Labem came in second with 90 percent of privatized housing units, and Plzeň is third with 80 percent. Prague has already sold around 65 percent of its housing units, while Brno has sold only about 30 percent. "There is little privatization in small towns with populations under 10,000," concluded the study.