Czech Property Forecast for 2014

A look back at our 2013 property forecast

To begin we'll take a quick look back on our forecast for 2013 and see what actually occurred and what did not.

In 2013 we had predicted property prices to increase 1% overall and as of the time of this writing (12/2013) it looks like the price increase will come in some place between 0 and 1%. This is not much but is very significant in terms of the psychology of buyers (see section below on "Acknowledgment that property price decreases are behind us").

We had expected prices to decrease in the first half but gain enough in the second half to neutralize the earlier losses. In fact the gains started a little earlier than expected coming in the second quarter.

What didn't happen, which we expected to put some pressure on the market at the end of 2013, was the change in the transfer tax from being paid by the seller to being paid by the buyer. This proposal was not passed into law and it looks like it will not be.

The biggest factors affecting the housing market in 2013 proved to be the record low interest rates as well as the improving optimism in the economy.

Anyway, let's look out the window ahead to 2014.

The biggest factors which will affect property in 2014

1. Cheap mortgage rates (++)
2. Real wage decrease (--)
3. Continued improvement in the European and global economy (+)
4. Acknowledgment that property price decreases are behind us (+)
5. Decrease in dwelling units started (+)
6. Property being viewed as an investment of choice (+)
7. FDI strengthens improving economic outlook (+)

1. Cheap mortgage rates (++)

We enter 2014 as we did 2013 with cheap mortgage rates that are very close to historical lows. With the CNB looking like they will hold the base rate steady through 2014 it looks like it will also be a year of strong demand.

Average mortgage rates from 2003 to 2013 (Fincentrum)


January to October 2013 saw mortgage borrowing that exceeded the peak year of 2007. However, a look at what the lending was for we can see that 2013 was almost half due to refinancing of existing mortgages. Still it saw the highest volume of lending for new purchases since 2006.

Jan. to Oct. historical mortgage volume and proportion of new, orange, to refinancing, grey (iHNED)


If there is any indication that rates could be increasing it will cause a strong rush from buyers who speed up their purchase plans in order to make use of the rates. This rush of buyers with a similar perceived threat of increasing interest rates has been seen in other property markets such as Canada and the UK.

(References: Fincentrum HypoindexBank attacking record – in Czech)

2. Real wage decrease (--)

Following the disturbing development that we saw for the first time in 2012 it looks like again in 2013 real wages will decrease, even more than in 2012.

In 2013 the average wage earner again saw their buying power decrease (CSU – Q4 estimated)


Real wage decreases for households decreases their confidence to commit to large purchases and this will be a major negative factor on property prices in 2014.

(References: Czech Statistical Office – Salaries)

3. Continued improvement in the European and global economy (+)

At the end of 2013 there were many positive signs that the economic recovery is not just budding but in full growth. This includes positive data from the US, the engine of the global economy, as well as Germany, Czech Republic's primary business partner.

As this growth continues we expect it to have a very positive influence on Czech exports and the mentality of consumers.

(References: Revision Shows U.S. Growing at Fastest Rate Since 2011Germany raises growth forecasts)

4. Acknowledgment that property price decreases are behind us (+)

We all know the self-affliction and embarrassment of making a major purchase only to see it go on sale the following week.

Many people looking to purchase property for their own living have been holding off with the fear that more property price decreases could come.

As we enter 2014 we will have data indicating that there have been three quarters of positive property price growth (two confirmed as of this writing and the final is my presumption). As this continues through 2014 you can expect more and more of the cautious buyers coming forward to make the purchases they had been holding off on.

5. Decrease in dwelling units started (+)

Following the trend in 2012 we again saw the number of dwelling units started decrease in 2013. It is again the lowest number on record since 1998.

2013 looks to become the lowest year on record for dwelling units started (CSU)


We expect demand to ramp up more quickly than new housing units can be built since developers often need a two year lead time. New construction will hold a premium over resale properties for a short period.

(References: Czech Statistical Office – Housing Construction)

6. Property being viewed as an investment of choice (+)

A trend we have seen within our company as well as being reported by our partner real estate firms is the increasing trend of Czechs to purchase property as an investment.

One indicator of this was a property which a foreign client of ours forfeited to his mortgage lender causing it to go to auction. It was a small flat in Brno which a bank would probably value at 1,000,000 CZK. At the day of the auction there were around 50 interested parties there and the flat ended up being bought for over 1,150,000 CZK, perhaps only a 4% discount off of its market price.

Although the cheap lending rates are great for purchasing property they kill any kind of return in a bank with interest rates on savings barely keeping up with inflation. Many locals are looking at what other options there are for their money.

With the property price bottom behind us, mortgage rates still at record lows and other investment mediums tanking, look for Czechs purchasing investment property to put pressure on resale prices, especially smaller property.

7. FDI strengthens improving economic outlook (+)

There are many factors which we feel will improve economics going forward in Czech Republic, including the  increasing of foreign direct investment and the resulting improvement in employment and real wages. These include the regionally low debt to GDP ratio, the artificially weakened currency and low taxation rates.

(References: Czechs Keep Rates on Hold as Currency Cap Deemed Appropriate)

End conclusion - Short Term (2014)

In our view there are many more positive influences on the horizon than negative and in 2014 we should start to see a real improvement in property prices.

We believe there is an even bigger potential of prices increasing more than expected than less than expected.

One of the biggest variables being whether there are indications about interest rates increasing in the foreseeable future. This combined with the lower number of new units being constructed could cause prices to increase at a stronger than predicted rate.

End Conclusion - Longer Term (2015/2016)

As the economy locally and regionally improves we would expect property appreciation to continue in the range of 3 to 5% annually.

by Nathan Brown (Google+)[email protected] - 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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