Investment apartments have become the subject of a heated debate in Prague. The Czech Pirate party’s proposal to ascertain the number of vacant apartments in the capital by monitoring their electricity consumption and then levy a tax on such apartments raised a wave of protest, criticism and coalition conflicts at Prague City Hall. However, two equally important topics were neglected in this debate: firstly, that of investment apartments in small towns, the (mere) existence of which can change the atmosphere and appearance of these towns, and secondly, investment apartments purchased with dirty money, which often serve as a safe deposit of wealth and a “rainy day fund” for corrupt politicians or people involved in organized crime. Both of these appear to be the case in Mariánské Lázně, which, with its 13,000 inhabitants, makes it one of the smaller towns in the Czech Republic, but at the same time, thanks to its renowned spa, is considered a somewhat exclusive area.
The Czech Republic is indeed a popular destination for those in need of a place to safely invest their illegally acquired money. It has steady economic growth, a relatively predictable political scene, a reputation for safety, and, most importantly, real estate values aren’t going to drop any time soon; in fact, the opposite is expected. This situation is also helped by growing demand for new apartments in comparison with the number of apartments that are actually built every year.
- What Determines the Price of a Property?
There are several reasons for this inflation of real estate values. People moving to cities for better job opportunities. A richer cultural scene creates a phenomenon called “the housing crisis,” which is only one such reason. In Czechia, one can add the slow and unnecessarily complex process of getting a building permit, resulting in the slow construction of living spaces, which cannot possibly meet the demand. Demand surpasses supply to such an extent that it is causing real estate prices to skyrocket—for both property rentals and purchases.
Annual property prices have reached such heights that some professionals are sounding the alarm. More specifically, if this trend continues, the situation could get to the point where the average Czech household would not be able to afford an apartment of their own.
Unlike cities the size of Prague, which are able to absorb the effects of a few thousand investment apartments, smaller towns are being devastated by such trends.
High Rollers from the East
An iconic colonnade crowned by a “Singing Fountain” and approximately forty thermal springs: this is the town of Mariánské Lázně, a picturesque place at first sight and popular even amongst foreign visitors since time immemorial. However, for the last few years, it has been struggling with housing unavailability, caused, among other reasons, by massive interference from foreign investors.
Hotels and apartments in the town center are mostly owned by Russian or Russian-speaking investors, who are second only to Czechs in the number of owned properties in the whole town. Among the largest foreign language-speaking minorities in Mariánské Lázně are Russians and Germans. The population of other minorities (e.g. Vietnamese, Chinese, Arabs) is much smaller in comparison.
One of the biggest and most luxurious hotels in Mariánské Lázně, the Hotel Evropa, is being built by Ali Nagijev, a deputy director of Azerbaijan’s anti-corruption commission, a country that ranked 152nd out of 180 in the latest Corruption Perceptions Index. A previous article on investigace.cz focuses on the properties in Prague and Mariánské Lázně owned by his family and their business partners, for which they paid over one billion crowns in total.
The problem is that there is no way that either Ali Nagijev or his family could possible officially afford these investments, which are valued in the billions of crowns—all of the Nagijev family are, and always have been, employed in civil service in a country where the average salary is about 7,500 Czech crowns a month.
According to the blueprints, the hotel, which should connect a whole block of houses under the luxury franchise Vichy Celeste, was supposed to be completed in June of 2019. A month before this deadline, however, the project is still in the rough construction phase. As regular visitors of Mariánské Lázně have said in passing, construction appears to have been at a standstill for the last few years—they haven’t noticed any progress or even seen any construction workers on the premises. The Hotel Evropa remains an abandoned construction site for the moment.
“The Hotel Evropa is reliant on whether or not the investor will have the funds to continue its construction,” commented Vojtěch Franta, the city’s former mayor, on the current situation. According to Franta, the ambitious project looks like nothing more than a way of holding the proprietor’s money from both a professional and layman’s point of view. The owner is unlikely to find staff or the appropriate clientele for a service so vast.
The Grandhotel Nabokov also turns heads with a similar size and level of of luxury. Its owner is former Russian colonel Salav Zaynalabidov. The former high-ranking military official invested hundreds of millions of crowns into repairs alone. According to Zaynalabidov, the investment was funded from his own pocket in addition to unspecified loans.
Zaynalabidov has been the manager of Russian joint-stock company 711 Военпроект (711 Vojenprojekt) since 1990 and he certainly doesn’t have deep pockets. The company makes money on state contracts from the Russian Ministry of Defence. For example, it was responsible for building military objects in Chechnya, Ingushetia, andDagestan—all very controversial areas of Russian interest.
Just a few years ago, the entirety of the Grandhotel Nabokov belonged to the Czech Ministry of Defence, which had allegedly been struggling to sell this property for more than six years. Zaynalabidov, who, in his own words, has been visiting Mariánské Lázně regularly for over fifteen years, just “couldn’t bear to see” the deterioration of the complex of seven buildings, which once belonged to the former Vojenský lázeňský ústav (Military Spa Institute), and bought the grounds for over 100 million crowns. The Grandhotel Nabokov reopened on May 12, 2018.
Another example of the consequences of massive foreign investments is the case of former children’s sanatorium Miramonte. It was bought by a group of Kazakh businessmen in 2008. Since then, the building remains abandoned and shows obvious signs of neglect. The article below deals with the Miramonte case in greater detail.
Rustam Hukumov can also brag about owning private property in Mariánské Lázně. Rustam is the elder son of the former director of Tajik Rail, who was forced to resign in 2014 after news of his sons’ scandals leaked to the press. One of them was involved in drug trafficking and the other was at fault in a car accident that cost three people their lives.
Even a nine-year prison sentence for attempting to sell nine kilograms of heroin didn’t stop Hukumov from purchasing a luxury villa in the residential neighbourhood Hamerníky. After about a year, he was released and, in 2012, he bought the aforementioned villa, which boasts a swimming pool, an outdoor fireplace, a garage, and a 1000-square meter garden, all valued at over 11 million Czech crowns. Currently, the building remains unoccuppied. According to a neighbor, however, the family visits from time to time, which is further evidenced by the well-kept garden and its recently mown lawn. But as for often the family comes to Mariánské Lázně, how long they stay when they do, and whether it has been confirmed that these visitors are actually Hukumov’s family at all, the neighbour couldn’t say.
The oversized and still unfinished Hotel Evropa and the abandoned sanatorium Miramonte are both examples of the negative impact of similar foreign investments. But what’s the catch in the case of the Grandhotel Nabokov, an unused property formerly owned by the Czech government, which was purchased by a Russian investor and consequently repaired and turned into a functioning business? According to former mayor Franta, the catch can be seen in the quality of the hotel’s spa services. Foreign proprietors or managers tend not to have a deeper relationship with the town and, as a result, their main interest is usually profit alone. The room prices remain the same, regardless of location, and staff are underpaid. The result of such a business strategy are often dismal: exorbitant prices for subpar services rendered by disgruntled employees. That doesn’t contribute much to the town’s reputation or development.
Neither do the suspicious proprietors themselves contribute to the town’s reputation or development— not even including any truly dangerous people. One of the apartment buildings in Mariánské Lázně is a property of SIRIUS INVEST GROUP, one co-owner of which is jihadist David Souaan, who was sentenced in Britain to three-and-a-half years in prison. Souaan was detained by police at London Heathrow Airport just as he was about to fly to Syria to join a terrorist group, according to the official indictment. During the investigation, police found dozens of materials on his laptop detailing his extremist views, including a video recording of the execution of a so-called “infidel” by slitting his throat. When investigace.cz’s reporters went to see the part of the villa that belongs to the SIRIUS INVEST GROUP and where Souaan’s apartment is located, the company’s name was nowhere to be found, not even on the doorbell or the mailboxes. The part of the house in question, which is located only a few hundred meters from the town square, appears to be completely abandoned. An upcoming article concerning the many suspicious real estate owners in the town of Mariánské Lázně will provide a deeper look into David Souaan’s connection to Mariánské Lázně.
Nobody wants Russian neighbours
The strange hotels might discourage potential visitors from coming to the town, which is unfortunate, but still resolvable in the short-term. A more serious issue for the town appears that the town may be losing its soul: its local community. This situation has been unfolding in Mariánské Lázně for some time now. According to the information made available by the local land management bureau, about 12% of all real estate in the city is owned by foreigners and, in the city center, that percentage increases significantly. The majority of these foreign owners come from former Soviet countries. When the town of Karlovy Vary got too small for all of these investors, they began to expand to other towns in the region. They bought private apartments for astronomical prices in those towns and even increased the value of those apartments by refurbishing them in their own posh, extravagant style.
Currently, the majority of these apartments are abandoned and unsellable, and some have simply been left to rot. “Today, when somebody wants to buy an apartment in Mariánské Lázně, they first look at the owners of other apartments in the building and they know right away if the neighbors will clean the halls or heat their flats. If the buyer discovers that four out of six apartments in the building are owned by citizens of post-Soviet republics, they will not purchase that apartment, because they know they would be the only ones with their lights and heating on. And, of course, the walls they share with their neighbors would be cold ,” remarks the situation architect and former mayor Franta.
If we add the fact that most of the residents of Mariánské Lázně are relatively new to the town (a large number of Czechs moved there just after World War II and the expulsion of Sudeten Germans) and never developed a close bond with the town, which can be seen in situations where parents, dissatisfied with the living conditions and work opportunities in town, encourage their children to get a degree and move away. The vicious cycle begins anew and the town population continues to decline.
Urban planner Petr Návrat has also commented on the hot-button issue of depopulation and vacant investment apartments. According to his experience, the purchase of apartments that are never occupied is responsible for the shattering of the local community and for rising rent in a given area, which more often than not results in the gradual depopulation of that area. These consequences manifest almost immediately and with clearer, more visible impact in smaller towns, as opposed to cities with more inhabitants, where the impact is slower to become visible. The cost of living begins to rise, the number of potential workers in the town decreases due to the lack of affordable housing, and businessesare short-staffed, which increases the possibility that active businesses will relocate elsewhere, at which point it becomes impossible to ignore the growing exodus of residents.
According to Franta, there is currently no way for Mariánské Lázně to successfully battle these unfavorable circumstances.