The real estate market in the Czech Republic is reviving
Sales of older and new homes increased by tens of percent during 2023
The domestic real estate market has been experiencing growth in terms of the number of transactions for all types of real estate since last spring. Sales of new-buildings almost doubled year-on-year in the last quarter, older flats increased by 49% and sales of detached houses strengthened by 45%. This is a significant recovery, especially after the sharp drop in the overall market in the second half of 2022. There was also more interest in home loans. Prices of older flats fell by an average of 7% last year.
The price decline was moderate and smaller than expected
The price development should be assessed in the context of the varied developments in the individual quarters of the last two years, when prices declined mainly between the third quarter of 2022 and the second quarter of 2023 and, on the contrary, stagnated or rose slightly from the third quarter of 2023 onwards. Thus, prices of older flats decreased by only 4.4% in the last quarter of 2023 compared to the last quarter of 2022, with the average price per square metre coming out at CZK 60,000. Brick houses retained a significantly higher price compared to prefabricated houses. The most significant price drop for older flats was in Prague, where the decline was around 6.8%, and it was similar for new buildings in the capital. Conversely, at the national level, prices for new-builds fell by only 0.1% during 2023. People paid 5.5% less for detached houses, but in Prague they became 0.5% more expensive.
Table 1: Property prices at the end of 2023
|
Property |
Older apartment (CZK/m2) |
New building (CZK/m2) |
Family house (mill. CZK) |
||
|
brick |
panel |
first sale |
resale |
||
|
Average Price |
67
500 |
55
000 |
119
100 |
110
000 |
5,16 |
Real estate market activity is returning to a long-term normal
Market activity in the last quarter of last year grew at a double-digit rate for new buildings compared to the same period in 2022, while interest in older residential buildings was lower, but it was still a double-digit growth - it reached 49% nationwide and 55% in the capital. Sales of detached houses also increased significantly in the fourth quarter of last year, by 45%. Almost 1,000 new apartment buildings and 22,500 detached houses were built in the Czech Republic last year. Nearly 12,500 new flats were built.
Housing Fund
blue: apartments in new buildings
orange: apartments in brick houses
gray: apartments in panel houses
"The market, especially in the second half of 2023, was already much more active than in the previous four quarters. And so we can say that we are gradually approaching the normal behaviour between supply and demand that existed before the war and before the exaggerated boom of 2021. However, the current high year-on-year growth figures, where, for example, the number of sales of new flats in Prague more than doubled year-on-year, must be seen as growth from a completely frozen market where almost nothing was traded for a year. In fact, we are now comparing year-on-year with the quarters in which historically the fewest apartments have been sold in the last 20 years. This better describes the situation by assessing that we have reached a similar level of activity at the end of 2023 as we did at the end of 2020," says Milan Roček, CEO of Dataligence.
Recovery of the real estate market supported by higher interest in mortgages
The mortgage market bottomed out in the second half of 2022. Its gradual recovery over the following year was helped by a thawing of the real estate market. The reason for the higher interest in mortgages was mainly due to the reduction in interest rates, which had been rising since the end of 2021 and only started to gradually decrease at the beginning of last year. As a result, the volume of mortgages granted last year reached the upper limit of the estimates at the beginning of the year. This has also enabled a gradual increase in property sales.
"The gradual recovery of the mortgage market last year was probably due to a combination of factors, from the relaxation of income rules by the CNB to a slight decline in property prices or a slight drop in mortgage rates. Deferred demand from the previous period also played a role. This year, the mortgage market should continue to recover and we can expect double-digit growth for the whole year, but it will probably still not reach the levels of the pre-pandemic years," says Jakub Seidler, chief economist at the Czech Banking Association.
The gap between household incomes and house prices has narrowed
The Czech Republic has improved slightly in international comparisons, but the imbalance between house prices and household incomes persists. In terms of house price developments in the European Union, the Czech Republic is one of the countries with the highest growth dynamics in the longer term, despite a slight decrease in prices last year. Over the last 10 years, house prices in the Czech Republic have risen by 125%, while the EU average was "only" 55%. Even though property is very expensive relative to wages and interest rates are high, the share of housing loans with repayment difficulties is still at historically low levels. At the end of last year, the share of non-performing mortgage loans was 0.61%, below its long-term average of the last 20 years (1.8%).
"In 2022, the Czech Republic was among the top countries in the international comparison, where the growth of property prices in recent years has significantly outpaced the growth of household incomes. From this perspective, last year brought a slight correction, but still these scissors remain significantly open and the Czech Republic continues to be at the forefront of housing unaffordability in international comparisons," adds Jakub Seidler, chief economist at the Czech Banking Association.
Expect stagnation and moderate price growth in the future
Unless something exceptionally negative and unexpected enters the Czech residential market in the coming months, it seems that most of the initial parameters that will influence the housing market this year will point towards further market recovery. The retreat of most of the previous negative influences will create a much more favourable environment in the real estate market than has been the case in the last two years.For new-builds, we expect that if demand growth occurs, we can expect a reduction in marketing incentives from developers, which were primarily behind the slight reduction in new-build prices in the first half of 2023.For older flats, we expect that, as has happened in the past, we can expect that the price development of older flats will be influenced by the price development of new builds and that the trend in 2024 in the older flats market will be a slight increase in prices.