Will the longest rise in apartment prices in history stop? There is no reason for that, experts say
The largest Czech apartment builder, Central Group of billionaire Dušan Kunovský, yesterday launched the sale of apartments in a new development project on the edge of the Háje housing estate at the southeastern tip of Prague. prices? The smallest 1 + kk flats start at almost five million.
That is, on more than double what the average Prague apartment in 2010 cost 4 + 1. Today, such a four-room apartment is offered by the developer for more than sixteen million. So much would cost a hypothetical apartment in the very heart of Prague in 2010 with an area of at least 140 square meters.
Such is the reality of the housing market in the Czech Republic. Their prices have been rising sharply for several years now, since about 2012, and there is no indication that growth should stop. It slows down slightly at most. The Czechia is even the fourth in Europe in terms of the price of apartments, and developers in Prague, for example, are raising prices several times in succession during the individual stages of construction.
Moreover, the rise in prices does not only concern new buildings, but also older flats on the second-hand market. In Prague, for example, the price of a square meter of an older apartment jumped over 110,000 crowns for the first time, which is the value of the average square meter in a new building at the end of 2019.
For a better view of the current almost ten-year and continuous rise in real estate prices, it is good to look into history. According to the Czech Statistical Office, there has been a third period of growth in house prices since 1998, when reliable statistics on price developments exist.
The first started in about 1998, culminated in 2003 and was related to the Czech Republic’s accession to the European Union and the expectations of foreign buyers in Czech real estate. It was followed by a slight fall, but between 2006 and 2008 real estate prices in the Czech Republic began to rise again.
The relatively steep rise in apartment prices was then led by a wave of global economic growth and optimism. However, it was in 2008 that the real estate bubble burst in the USA, which eventually resulted in a global financial crisis and a mortgage market crisis. With it came a rapid fall in property prices in the Czech Republic and subsequent stagnation, which lasted until about 2011. And around 2012, the market revived and growth continues to this day. It is the longest since 1998.
At the beginning of the covidu-19 pandemic, many people were looking for a parallel with the crisis after 2008 and foresaw another steep fall. However, coronavirus has hardly affected property prices.
“After 2008, the fall in property prices was caused mainly by two factors. Stopping real estate financing by banks and a sharp rise in unemployment. The problem was therefore on the low demand side. But now the situation is the opposite. Banks provide record numbers of loans and housing and unemployment is low, ”explains Michal Pich from real estate Reality Čechy.
In addition, building materials prices are currently rising and there is pressure to raise wages. After all, other people in the field do not expect growth to stop either.
“I do not expect apartment prices in the Czech Republic to start falling soon. The tensions that are on the market continue to increase as the supply of new and, in fact, existing real estate remains limited. Although higher interest rates may dampen the demand for housing and force households to renovate, the rapidly rising prices of building materials and work make it difficult to create any room for price correction, ”says ČSOB analyst Petr Dufek.
According to him, until construction starts properly, especially in Prague, the tendency for further growth in apartment prices will continue, although probably more slowly than before.
Deloitte real estate expert Petr Hána sees a similar development. He also expects further price growth, although not as dynamic, especially given the pandemic and the rise in mortgage rates.
Some secondary data are already beginning to show that we can expect a slight slowdown in growth. In the case of more expensive apartments, for example, the necessary for sale is extended and the first offer is reduced more often.
“Although it is not possible to predict stagnation or decline this time either, we expect price growth to slow down in the second half of the year. Although the projects will increase rising prices, it seems that Prague or Brno are increasingly encountering the financial possibilities of Czech households. That means only one thing for the owners – to stay longer in the offer or to reduce the price, ”explains Hendrik Meyer, CEO of Bezrealitka.
Developers are also expecting continued growth, drawing attention to slow permitting processes and the related shortage of supply. However, they also point out that the trend may slow down slightly.
“We expect prices to rise further, as there are no reasons to fall. There is a long-term shortage of flats on the market and the demand for housing, also due to the protection of money against inflation, is at a record high. The number of flats sold in Prague in the first half of this year is twice as high as in the same period last year. However, price growth may slow down with rising mortgage interest rates, ”says Ondřej Šťastný, an analyst at Central Group.
According to him, in order for the rise in prices to stop, the supply of flats on the market must increase sharply, but this will not happen in the foreseeable future due to the way in which new construction is permitted.
The situation could theoretically change the new building law, which aims to simplify and speed up permits. However, its effects will not appear until a few years later. In addition, there are still voices, especially from the leadership of cities and municipalities, that he will bring more chaos to construction.
“The insufficient supply of new flats does not satisfy the demand appetite, and therefore the growth in the prices of new flats in Prague alone accelerated again to ten percent. It is highly efficient that similar growth will continue for several months to come, ”adds Marcel Soural, Chairman of the Board of Trigema.