Regulated Housing

Perhaps one of the most overlooked sectors is that of regulated housing. This strategy involves buying up flats with regulated housing with regulated rents and re-selling these properties to the tenants that live in these properties.

The by-product of this strategy is that it solves one of the most serious social situations in the Czech Republic: What to do with the regulated rental housing market?

The idea is to approach owners of large housing blocks (typically >500 units in an area) that are filled with regulated tenants and offer to buy these flats with the intent of systematically selling the flats to the current occupiers (i.e. the regulated tenant). The typical owners would be state-owned companies (often outside of Prague) that are either bankrupt, under financial distress or just simply sick and tired of dealing with the burden of owning a huge block of regulated flats that do not generate any significant income. These regulated properties are more likely to cause serious headache management difficulties far outside their core business activities. The prospective buyers would be the current tenants who know that regulated rents are under review and serious scrutiny in the Czech Parliament, meaning that regulated rents have a high probability of experiencing drastic measures for increases or complete deregulation.

The solution the fund provides is to purchase the regulated rental properties in bulk from state companies at a low acquisition cost price, ex. CZK 150,000, and resell the properties to the individual tenants for a trading range CZK 300,000-450,000. The market value of the regulated rental properties are well above the acquisition costs. Meaning that the regulated tenant will be able to get up to 100% financing for their mortgage from a bank as the property they bought for CZK 300,000 has a market value that trades between CZK 800,000 to 2 million. With a CZK 300,000 loan against a 25 year mortgage at an interest of 4% the tenant would have a mortgage of CZK 1,790 a month, much lower than what they pay in current rent.