Prices for older Czech apartments to rise due to slowdown in construction

While higher construction costs and other factors have led developers to cut back on new flats, demand is expected to rise. Staff ČTK

Written by StaffČTK Published on 08.08.2023 15:02:00 (updated on 08.08.2023) Reading time: 2 minutes

In a noticeable downturn, the start of new apartment construction in Czechia fell by 18.3 percent year-on-year, while the completion of 2,469 apartments marked a modest 4 percent increase compared to the previous year.

Housing experts have observed a discernible reduction in housing construction since the prior spring. This trend primarily stems from limited access to financing resulting from elevated inflation rates and restricted bank loans. Contributing factors also include the elevated costs of construction materials and labor. Analysts emphasize that this decrease in construction activity is anticipated to exert upward pressure on the values of older apartments.

"The ongoing decrease in housing construction is hardly surprising. The deceleration of this trend became evident since last spring, as investors curtailed their endeavors due to the unfolding economic challenges and surging building material costs. Undoubtedly, this will bring about market stabilization while prompting efforts to make inputs more affordable," Creditas Bank chief economist Petr Dufek told ČTK.

Komerční banka economist Martin Gürtler attributes the diminished residential construction activity mainly to inflated prices for mortgages. In his view, intricate financial arrangements are the principal driver behind the cooling housing market, making the construction of residential real estate a less lucrative venture for developers.

"Available data shows that several developers have reduced construction due to the current low demand. Considering the length of the permit procedure, this will not contribute to improving the poor housing situation in larger cities and will lead to a resumption of real estate price growth after demand recover," Gürtler added.

Property prices to rise worldwide

Difficulty in obtaining mortgages, coupled with reduced interest in new apartments, is projected to exert upward pressure on their future prices, according to developer Trigema’s board chairman Marcel Soural.

He said that market reports indicate there will be a significant global increase in property prices over the next decade. "A study by the Munich-based Ifo Institute for Economic Research and the Lucene-based Institute for Swiss Economic Policy showed that the average annual nominal growth rate of real estate prices will be 9 percent, and even around 15 percent in Eastern Europe," Soural added.

Older flats in prime locations will cost almost as much as new ones spokesman František Brož said the scarcity of new apartments will correlate with heightened prices in the secondary market. Brož envisions a considerable diversification in older apartment prices, especially those in prime locations that have undergone renovations and remain in excellent condition. He suggests these units will rapidly approach the price points of new constructions, particularly if they are situated in central city zones.

Brož further projects price increments for certain units in paneled buildings that have received long-term maintenance and owner investment. Conversely, he notes that apartments in less desirable locales, necessitating extensive restoration, are witnessing a continuing decline in value.

Ondřej Boreš, public affairs and sustainability manager for window firm Velux, suggests that elevated property prices, inflation, and mortgage rates will motivate property owners to renovate their existing older properties. These renovations are expected to bolster sustainability and decrease energy consumption.

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