The number of new flats available in Prague hits a record low, while price increases accelerate

More people are turning to real estate as a hedge against inflation, and the number of new flats on the market can't keep up with the demand.

Raymond Johnston

Written by Raymond Johnston
Published on 02.08.2021 15:03 (updated on 02.08.2021)

Interest in new housing in Prague set a record, while at the same time the number of available units hit a low point.

During the second quarter of 2021, according to an analysis by developers Central Group, Trigema, and Skanska, some 2,650 new flats were sold in Prague, which is the highest in history. On the other hand, the number of units offered fell to 3,350, the lowest in the entire period of market monitoring.

Prices have also risen sharply due to a convergence of factors, and the rate of increase is accelerating.

Compared to the same time last year, prices are up almost 10 percent. Not only is there an excess of demand over supply, but the rising prices of building materials is already impacting prices of new flats. Mortgage prices are also starting to increase, which is creating even another incentive for buyers to act sooner rather than later.

Some experts last year had predicted there could be a slight drop in prices due to the pandemic freeing up flats that were being used for short-term rental, but this did not occur.

The average selling price of flats has climbed to CZK 118,480 per square meter, and the average offering price hit CZK 129,410 per sqm.

During the second quarter of this year, those interested in new housing bought 2,650 flats. According to a joint analysis by developers, this is 550 units more than in the previous quarter, which set the previous sales record with 2,100 apartments sold. In total, 4,750 new apartments have been sold in the first half of this year. Compared to last year, this is almost double.

Purchasers showed the greatest interest in 2+kk layouts, with three-room flats coming in second.

“Sales have been at a record level for nine months in a row. Demand is being driven by still very affordable mortgages and also by fear of devaluation of savings due to inflation,” Dušan Kunovský, the founder and head of Central Group, said in a joint press release.

“There are even queues forming for apartments, and new projects are largely sold out almost immediately after being launched on the market. This year will most likely to be our most successful year in terms of sales,” he added.

New records are also seen on the supply side, which has fallen to the lowest level in the time that Trigema, Skanska and Central Group have been monitoring the market. There were 3,350 vacant properties in the middle of this year, which is 850 fewer than at the end of the first quarter of 2021 and 2,450 fewer apartments than a year ago.

The supply structure with regard to layout has not changed much. The strongest position is occupied by two-room apartments, which account for 40 percent of the units available. This is followed by 3+kk layouts with about a quarter share, followed closely by studio flats, which account for one-fifth of the offer. The supply of four- and five-room apartments is significantly lower.

“An above-average number of new flats went on sale, but even so, the enormous interest of buyers managed to bring the supply down to a historic low,” Petr Michálek, CEO of Skanska Reality, said.

“In order for the new housing market not to continue to deform, a balance between supply and demand must be created. That is why we continue to call for faster permitting of new construction. Should this situation continue, it may be reflected in the price and quality of future supply,” Michálek added.

The Czech Republic has long has one of the most difficult procedures in Europe for issuing building permits. Developers have called for reforms to the permitting process, which can drag out into years after land is purchased and designs are made.

The increasingly widening gap between demand and supply are the reason for further price increases. Quarter-on-quarter, sales prices rose by 5.6 percent to CZK 118,480 per sqm, and the pace of price increases is beginning to accelerate again. Year-on-year, prices are 9.4 percent higher.

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According to sales statistics from the developers, the average price of one-room flats has risen sharply. Their unit price reached CZK 128,278 per sqm on average. Just behind them, on the other hand, is the price of large, five-room flats, where the average price stood at 123,823 per sqm. For 2+kk layouts it was CZK 116,848, and for 3+kk it was CZK 113,079. Prices of four-room flats climbed to CZK 116,315 per sqm, according to data from developers.

The average offer prices of new units still available in the metropolis has also risen sharply. At the end of June, the average price of these reached CZK 129,410 per sqm, which is 6.5 percent more than in the previous quarter and more than 15 percent year-on-year.

The highest prices were recorded in Prague 2, where the price climbed to CZK 171,039 per sqm. On the other hand, the cheapest flats were offered in Prague 9, at an average price of CZK 117,116 per sqm. In Prague 5, where according to the companies' analysis the strongest supply and sales are, the average price was CZK 127,988 per sqm.

“In a period of expected inflationary growth, savings of Czech households and investors are turning into real estate purchases. We have been following this trend for more than three years. However, in the last year, influenced by the Covid atmosphere, it has increased even more,” Marcel Soural, chairman of Trigema, said.

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“The insufficient supply of new flats is unable to satisfy the demand appetite, and therefore the price growth of new flats in Prague has accelerated again to 10 percent. It is highly probable that similar growth will continue for several more months,” he added.

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