Apartment prices up 30 percent in two years

A lack of supply of new flats is the main driver on the market

Apartment prices in Prague have been rising. In January and February 2017 the average price for a new apartment rose 2.5 percent to Kč 88,500 per square meter, representing an annual increase of 21.2 percent. In two years, housing prices have risen by more than 30 percent. The most expensive apartments are in Prague 1, while the cheapest are in Prague 9 and Prague 10, according to an analysis by consultancy Deloitte.

“The last year was very dynamic in terms of the development of all Prague residential market indicators. At the same time, it offered new experience — a significant excess of demand over supply and developers’ limited capability to balance the growing difference,” Deloitte real estate director Miroslav Linhart said in a press release.

Since the start of 2015, the stock of vacant apartments has decreased by more than 40 percent, according to Deloittes' figures.

“The increase in apartment prices at the end of the year reflects changes in mortgages as well as their consequent lower availability, which many entities try to prevent, and speculations about the end of the Czech crown interventions by the Czech National Bank. It should be emphasized that there is a critical shortage of vacant apartments in Prague,” Tomáš Kadeřábek, director of the Association of Developers, said in the press release.

Compared to the average for 2014, the average offer price has already risen by 35.5 percent. With the increasing average price per square meter, the average total price per apartment has grown by Kč 243,000 up to Kč 6,925,000. Prices have grown in most Prague districts, with the highest increase of 4.5 percent in Prague 6. A slight price correction was reported in Prague 1 and Prague 8, Deloitte stated in its report.

“The number of new apartment projects delivered to the market remained very low, comprising only 15 projects. The number of apartments newly offered for sale also stagnated (517 apartments). On the other hand, 27 apartment projects were sold in full,” Milan Roček, the statutory executive of CenovaMapa.org, said. The group tracks developments on the real estate market.

Developers cite a collision of factors. “The reason for the sharp increase in apartment prices in the latest years is the conflict of the historic maximum demand for housing and the entirely insufficient offer of new projects, which consequently increases the prices of older apartments,” Ján Horváth from the CTR Group said.

Smaller and cheaper apartments sell faster. The average offer price of all new apartments that were offered for sale in January and February amounted to Kč 83,900 per sqm. The price of apartments sold in that period was Kč 75,188 per sqm. The average price of vacant apartments in Prague has grown again to Kč 88,500 per sqm.

Deloitte concludes that at the beginning of 2017, the market responded in a similar manner as in mid-2016 when an increase in prices was followed by a period with a lower sale in absolute figures. However, it still applies that the vast majority of sales are when the construction of a project is in its early stage.

“The key role in the price development is played by the ever-falling offering of new apartments on the market; the factors having the highest impact comprise unsatisfactory legislation and the related lengthy process of construction proceedings, the improved economic situation and favorable conditions for funding new housing purchases,” Martin Vachek, the executive director of real estate investment company Daramis, said.

In January and February, 932 apartments were removed from developers’ offerings, with the highest numbers reported by Central Group (109), AFI Europe (89) and Finep (79). In the same period, 122 apartments returned to pricelists, according to information compiled by Deloitte.

Sales are expected to be sluggish in March and April. The current and planned regulatory interventions in the mortgage market, which will restrict the availability of mortgages even more, will have a large impact.

”Given the ever-decreasing supply of new apartments, it is hard to anticipate whether the mortgage regulation will have the expected impact and stop the growth in new apartment prices. The problem of the current Prague real estate market lies in the lack of new apartments rather than the disproportionate demand,” Deloitte's Linhart said.

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