What’s driving the property boom?

The current mentality regarding real estate similar to someone looking for a new car

We can describe the situation with a quick story comparing consumers’ mentality three years ago to today.

Consumers’ mentality 3 years ago

Jane knew she needed to replace her car within the next year. She’d been researching different options and decided she wanted to go with a BMW.

Very close to where she worked was a BMW dealership so on one lunch break she walked over to have a look at the model she was interested in. Everything seemed to match with the research she had done on the internet.

The salesman comes over to her. He asks if she was definitely interested in that model. Yes she replies. He leans closer and quietly confides in her that next month it would possibly go on sale for up to 10% off.

What will Jane do? Well she does what most of us would do who have a longer time frame to work with. She decided not to buy. Because there was the chance that it would be cheaper in a month, she would put off the decision.

Consumers’ mentality now

Now take another scenario, everything is the same except what the salesman says is different. He tells her that there is actually really strong demand for that BMW model and it is almost guaranteed that the price would be higher next month. Not by much but nevertheless it would be higher. He speculated that this could go on for multiple months.

Jane talks to another dealership, does a search on the internet and everything confirms the story of strong demand for this model and increasing prices.

What does Jane do in this situation? In the face of almost guaranteed price increases she is more likely to purchase sooner rather than later in her one year time frame.

How it all applies to property

This illustrates what has been and is happening on the property market.

First there was a lot of pent-up demand from buyers who put off the decision because there was the chance prices would be lower in the future. They are now buying.

On the other side you have the buyers who have decided they want to buy in the next, perhaps, two years. As they see prices start to climb and mortgage rates creeping higher, they purchase now instead of later in their personal buying time frame.

What’s next?

Personally I expect the rest of this year and next to be years of strong price growth. Developers have been building less than long-term trends through the recession (see point 5 in our 2015 Czech property forecast).

After that it will probably moderate as developers react to the demand, putting out more product and mortgage rates inevitably rise.

by Nathan Brown (Google+) - nathan(at)czechpoint101.com - owner and managing director of Czech Point 101 - "You’re in good hands whether buying, selling or managing property in the Czech Republic."

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