Will the continual price increase in the real estate market hit the top from its start in 2012? There is no reason for it, experts say.

The very  question posed by many Czech households as well as Czech and foreign investors. Experts from the ranks of economists, developers, directors of Czech banks all agree that there is no indication that real estate growth should hit its top anytime soon. However, the price growth in the Czech Republic will certainly slow down eventually. In larger cities boasting high demand for housing with relatively low listing supply we will be witnesses to a minor slowdown.  

Such is the reality of the real estate market in the Czech Republic. This applies to both new as well as “second-hand” units on the market. The average price of one m2 in Prague hovers around CZK 110,00. To put that in perspective, that is an average price you would pay for a new unit back in the second half of 2019.

Let’s take a quick trip down the memory lane for a second. Long-term growth of property prices can be split into three periods. The first one dates back to the years between 1998 and 2003 when it peaked. Growth was associated with the country’s annexation to the European Union that sparked the interest of foreign buyers. After that, we became witnesses to a slight decrease, followed by sudden growth between the years 2006 and 2008. This period could be characterized by steep increase due to global economic growth and positive future expectations. Then, as we all know, the whole world was shaken by the financial crisis caused by the American real estate market crash. Prices plunged off the cliff but shortly after that, in 2012 the third wave of growth came around and continues until this very day.

At the beginning of the Covid-19 pandemic, numerous potential buyers went out looking for a parallel between the present situation and that which occurred in 2008. Nevertheless, coronavirus had only a minimal impact on the real estate prices. Back then, the price plunge was a result of a sudden rise in unemployment combined with drastic reduction of real estate financing by the banks. Reason at the time was caused by low demand which is definitely not an issue the market would be facing today.

The period of today is characterized by record number of brokered loans and high demand. Nowadays, people try to save money by putting it towards an “investment instrument” that is profitable in the long run. One of the reasons being the increasing levels of inflation and price level predictions in the Czech Republic. Nevertheless, the demand for real estate is only satisfied by a very little.

What are the reasons behind the low market supply? There are a couple:

  1. Limited offer of current real estate units.
  2. Tedious approval processes developers need to undergo when acquiring building permits which hampers the housing construction in the Czech Republic. The new building law isn’t helping the situation either. We will dive deeper into this particular topic in the upcoming article.
  3. Numerous real estate-agency offers do not even get to the public listings and only reach the close contacts and investors in private circles of the agencies. This, however, creates tension on the side of potential buyers.

There are two factors that will definitely impact the real estate prices. The first being a gradual decline of the pandemic. The latter, one that will have a greater impact, is an overall increase in mortgage rates. We should therefore become witnesses to a slowdown in real estate price growth in the coming months. Though, it is safe to say that we will not see the price curve flattening or rolling over forming a downward trendline. What we should be on a lookout for is a slight overall price increase. 

At the same time, another aspect has entered the decision-making process for the potential buyer, which is rent. If you are on the market for your first home, rent definitely ought to be included in your calculations as that is basically an unnecessary burden. For investors, it is important to have the mortgage paid for by the rent coming from the tenants’ pockets. 

At Check to be Czech, we substantiate all of our recommendations and decisions on detailed cash flow as well as financial analysis. In this regard, we approach each and every case individually. After all, real estate purchase is mainly a game of numbers.

We will be happy to help you with finding the right and financially suitable way to get your share of the real estate game.

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