Are they making apartments more expensive or cheaper? And what will be in a month? We are looking for answers to increasingly complex questions
Every summary of the real estate market could easily begin with the phrase “apartment prices” since 2015, when the market started to grow steadily. Until last year.
Now his condition cannot be described so simply. And developers, analysts and economists are trying to unravel what is currently happening with the housing market. Even when looking at the statistics for the past year, it is not so clear.
What is certain is that the residential real estate market has stalled in the last year. And at first glance, or in a simple comparison with the previous year, it was really essential to fail. Here, however, it is necessary to add that 2021 was a record year and surpassed all previous years. Mortgages were extremely cheap, people had savings from pandemic lockdowns and the appetite to buy apartments was huge.
This is best seen in the data on apartment sales in Prague. While developers sold 7,500 apartments in the metropolis in 2021, last year, according to a joint analysis by the development companies Trigema, Central Group and Skanska Residential, the number fell to 3,100 apartments, i.e. a drop of almost sixty percent.
This essentially copied the decline in new mortgages, which banks negotiated last year due to rising interest rates and strict conditions, which were sixty percent less than in 2021.
Analysis of another major player on the market – Ekospol Evžena Korce, they even talk about an even worse sales result. According to her, for the whole of last year, developers in Prague sold only 2,400 new apartments, which is the least in the last twenty years. “We have been operating on the market for three decades and I have never experienced such a bad year as last year,” commented Korec.
But it wasn’t just expensive mortgages behind the cooling of demand. Other reasons are probably felt by all of us – huge uncertainty surrounding the future development of the economy and international politics, as well as the highest inflation since 1993, which has an impact on purchasing power.
According to the largest domestic apartment builder Dušan Kunovský, foreign clients have also decreased, which Kunovského Central Group has also felt. “It already came with covid and the war in Ukraine intensified it. We are too close to the war for the Western clients, the Eastern clients have other concerns, and we ourselves are far from the Russian one because of the war,” he says the eleventh richest Czech Republic.
According to him, the market is now experiencing deferred demand, when people are waiting for a more affordable mortgage and those interested in housing are temporarily moving to the rental market.
In addition, the portal Valuo, for example, offers a look at nationwide sales in the year, and its data shows that the number of sales decreased. She calculated the year-on-year change within the Czech Republic as a decrease of twenty-six percent.
However, according to the cadastre, the number of sales began to rise again at the end of last year. Of course, this can be a short-term fluctuation, but also another trend change. As the number of completed sales decreases, offers accumulate on real estate servers. As of December 2021, the number of apartments offered in the Czech Republic increased by 103 percent.
Due to low interest, the supply of new apartments in Prague has also increased. There are currently 5,100 apartments available in development projects, while the offer increased by 400 apartments in the last quarter. “The year-on-year increase in supply in the metropolis was eighty percent. This is due to the very low base in 2021, where the market is almost sold out,” summarizes Petr Michálek, chairman of the board of Skanska Residential.
Despite the accumulation of apartments in the offers of developers and real estate agencies, we get to the question of prices. Nevertheless, something is definitely happening with the price of apartments, the statistics show that the declines are not as big as was expected in the autumn of last year. In addition, it cannot be said that the prices of flats are falling across the board. A big role is played by the age of the apartment, its energy requirements, and also the location. Even in the case of Prague itself, it is not possible to follow any clear trends.
Owner of investment and development group Trigema Marcel Soural this shows, for example, the current Prague numbers that Trigema has at its disposal thanks to its Flat Zone analysis tool.
Looking at Prague-wide data, it appears that the year-on-year increase in new apartments in the last quarter of last year was below ten percent. The average offer price stood at 154,881 crowns per square meter at the end of the year, and the selling price, i.e. how many apartments are actually sold for, was 151,643 crowns per square meter.
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But if we take the data on the new apartments that will enter the market in the last quarter of the project, we already reach an offer price of over 170,000 per square meter and a year-on-year increase of 13.8 percent. “Here we are concerned with what they are currently dealing with, namely the growth of all costs from construction work to materials to financing,” says Soural.
And when we divide Prague into districts, the numbers show different data again. While in Prague 9, for example, apartment prices fell in the last quarter, in Prague 5 it was the opposite. “Big numbers can be confusing. It is therefore necessary to go down one level in the statistics and look at them in a little more detail. The very statement that apartment prices are falling is misleading,” adds Soural.
Several housing market analyzes have been published in recent days. Each tracks slightly different parameters and each comes up with different numbers. For example, the aforementioned Valuo focuses on public analyzes of real estate offers across the country. It follows that the prices of apartments and houses sold during the last six months fell by eleven percent.
Data from the real estate portal Bezrealitky, on the other hand, show that the prices of older properties in less attractive locations continue to fall, where, in addition to transport accessibility, the technical condition of the building and its energy consumption also play a crucial role. According to the portal’s analysis, apartments in Prague and Brno have fallen to the same level as twelve months ago, and prices are falling the fastest in Ostrava and Karlovy Vary.
Revival already in the spring?
How will the market develop further? This is a question that interests almost everyone. Whether you’re looking for a new home, you’re about to sell your old apartment or you’re looking around for options where to invest. But no one knows the clear answer. The main unknown is when potential buyers, who are waiting for now, will decide to buy apartments again.
According to Kunovský, the recovery of the market can be expected in two waves. The first, weaker one, should come already in the spring, when demand is traditionally strong and when people’s willingness to suffer might be a little higher after the winter has passed. “We ourselves are preparing a new location for spring,” says Kunovský.
“However, in our opinion, the fundamental recovery will not come until 2024,” he adds. At that time, mortgage interest rates would return to three percent, which should reignite interest in home loans. Even taking into account that the rent is now increasing due to the shift of demand to the rental market and will continue to increase.
And with this prediction, big developers also claim that they cannot make new apartments cheaper. “A widespread drop in prices is not realistic. Construction costs have increased by tens of percent and it is not possible to sell below cost. Developers prefer to postpone construction,” says the owner of Central Group Kunovský, for example.
After all, at the end of last year, his company already announced a one-year postponement of the construction of two stages of the large projects Parková čtvrť in Žižkov and Tesla Hloubětín. According to Kunovský, because it is simply not worth it now with weak sales and high costs.
The fact that costs for apartment builders have increased significantly in the last two years is also confirmed by data from the Czech Statistical Office. According to him, the prices of construction works increased by 12.3 percent, and the prices of products and construction materials by an average of 20.7 percent. In addition, according to developers, construction is constantly made more expensive by slow permitting processes.
According to the developers, these are all reasons why new apartments will not be cheaper. “At most, crisis sales can occur with weaker developers who may run into problems with repaying loans,” Kunovský added.
On the other hand, some developers have recently resorted to marketing tools that have weak sales support. For example, Kunovského Central Group or even Skanska offer interested parties the furnishing of an apartment of a certain value for free, which can be understood as a certain form of discount.
However, according to Marcel Soural, this is a strategy that is common on the market. “Each development company has items in its calculations that are somehow focused on certain marketing actions during construction. Everyone deals with it differently, even in times of growth you could register marketing actions of companies that needed to somehow sell off their portfolio,” he says.
The situation may be different from that of new buildings for older apartments, where prices may fall even further this year. However, even for older apartments, the braking of the market may not be so fundamental.
The Bezrealitky portal, for example, monitors how long it takes to search for an average property on the server of interest. In the case of houses and apartments, this value, which determines the time between the publication of an ad and the successful finding of interest, will be slightly reduced at the beginning of this year compared to seventy in the fall to seven days. According to experts, this clearly shows that supply and demand are once again finding their way to each other in a month of uncertainty.
“It is already clear that the real estate market is on the slide. Now we’re just trying. predict how long it will be So far, it seems that thanks to a warm winter and an averted energy crisis, the declines will be significantly smaller than what was predicted in the fall. From our point of view, we can expect partial declines this quarter as well, but rather stagnation will prevail. In the second half of spring, the market will take a breather and with it a significant turn may occur,” says Hendrik Meyer, head of the European Housing Services real estate group, for Bezrealitky.
According to him, a definite change in direction can be expected from March or April. “That’s why there are a number of indications coming from the market – the number of households that have funds and are just waiting for a more stable outlook is not low at all. For offers that have been able to reduce their price, we then see similar interest as, for example, a year ago at this time,” explains Meyer. “It is confirmed that demand remains stronger than expected, and the main limit is the reverberation of last year’s spring prices, which were demonstrably bubble-like,” he adds.
The fact that there is a great interest in housing, especially in Prague, and the current decline is only short-term, also stems from the pan-European trend where people want to move to big cities, and they have to react to that. Developers point out that too.
According to them, there is a need to support construction, for example, by finally making it clear which legislation is to be followed, or which, in the case of Prague, the spatial plan will be valid in the coming years. If construction were to slow down rapidly now and reduce the supply, this could again put too much pressure on prices in the future when interest in new apartments is renewed.
After all, according to the city development strategy approved by Prague’s leadership, nine thousand new apartments should be built every year to meet the needs of the city. However, this is far from happening.
“In the last quarter, only 950 new apartments came on the market, and this is the second worst quarterly result since 2017. At the end of the year, the supply stabilized at the level of the long-term average, but it is still insufficient for the needs of the metropolis. Very few flats are also still permitted. While the construction of almost ten thousand units could start in 2021, it will be roughly half less than last year,” says the head of Skanska Residential, Michálek.