Housing Prices in Eastern Europe

Comparison of residential housing in four capitals of the Visegrad countries (i.e. Czech Republic, Poland, Slovak Republic and Hungary) shows that Prague is the most expensive city in the region. The average price of a new flat in Prague has reached the level of €2.222/m2. The Czech capital is followed by Bratislava where the average price of new flats is €2.139/m2. Warsaw has dropped from the top spot in the last year to the third position this year, as the price per square meter for a new flat is €1.870/m2 on average. Hungarian capital Budapest is listed at the very bottom of the virtual chart as the average prices of a new flat is approx. €1.400/m2. All surveyed markets show the same trend, varying only varies in intensity – all the cities have witnessed a decline in residential prices (between 5% and 15%), a decline in residential sales (10% to 50%), an increase in mortgage interest rates (5% to 13%) and a major restriction of new residential housing supply.

Prague was last year in second position in the survey of average prices for new residential housing in the Visegrad countries. The capital has climbed to the top spot this year. A square meter of new flat in Prague costs €2.222/m2 on average. While the price of new residential housing increased by 10.5% on average, in the first quarter of 2009 it dropped by 5.2%. Changes in the bank sector have affected the residential market significantly as mortgages have become more expensive. Interest rates have increased from 5.28% in December 2007 to nearly 6% in December 2008. Currently they have dropped to 5.5% again. Banks have tightened their lending conditions for both buyers and developers alike. “Residential sales in Prague have declined by 50% since the beginning of 2009 and therefore supply currently significantly exceeds demand. Completion of new projects has stopped as most developers are not able to meet bank requirements for presale (40% – 60%) and private equity (up to 50% – 60%),” says Iva Nováková, Head of Residential Agency at King Sturge in Prague.   

Similar conditions prevail in other Visegrad countries:  

Bratislava is in second position in the survey with an average price of new residential housing at €2.139/m2. Even if the asking prices seem to be stagnating, effective prices have dropped by nearly 10%, mainly due to negotiated discounts. Despite favourable mortgage interest rates (that currently start at 4.5%), residential sales have declined enormously since the summer of the last year. “Buyers are mainly interested in finished or almost finished flats and started to challenge asked prices, asking for discounts and expecting various incentives. There are hardly any off-plan buyers. That´s another reason why developers are unable to obtain construction loans. The level of presales required by financial institutions is unrealistically high and developers are not able to meet such requirements satisfactorily. The common scenario is to pull the project from the market and wait for better times.” adds Michal Padych, head of residential agency at King Sturge in Slovakia.   

Warsaw, a long-term leader of the residential market in Central Europe, has dropped to third position. In the last 12 months, the average price of a new residential development fell from €2.641/m2 to €1.870/m2. The difference is set by the drop in the value of residential property (between 10% and 15%) and the change in the exchange rate; unlike the Czech Crown, the Polish Złoty has continually weakened in relation to the Euro over the last 15 months. Current mortgage interest rates are at around 8.4%. In the first quarter of 2009, residential sales have decreased by 50% year-on-year. Even if developers tried to offer discounts and incentives (which usually means a saving of approximately 10%, sometimes even 15%, over the asking price), they haven´t so far succeeded in kick-starting demand. The steadily decreasing appetite for buying residential property combined by very limited access to bank loans have stopped any new residential development in Warsaw. “The residential market has ground to a halt, as buyers refuse to pay the asking price. In addition developers are reluctant to decrease the price of their product, hoping that better times will come soon. Unfortunately, in the past 6 months we have seen the behaviour of buyers changing. Some have now started to pull out of a signed contract; sometimes simply because of the need to save money or because they were refused a mortgage” says Ewa Rasińska from King Sturge Warsaw.

Budapest has been known for the low prices of its new residential property and this year the average price was €1.400/m2. Prices have dropped by 10% in the year-on-year comparisons. Even if Hungary has the most expensive mortgages in Europe (current interest rates are between 12% – 13%) residential sales only decreased by 10%. Due to the limited access to bank loans, developers have stopped and postponed the vast majority of residential projects. An increase in Value Added Tax and property tax are expected and would be likely to further affect the residential market in the months to come.

Note: overview of the average prices of new residential housing in the Visegrad countries´ capitals. We would like to highlight that average prices in Euros were calculated from the average prices in the national currencies. In the last eighteen months, exchange rates have changed notably; the depreciation of the Złoty and Forint has affected the property prices as shown in the overview.