Prague Real Estate Price Hikes Set To Cool Off

Several investment firms and real estate agencies have suggested that the recent surges in property prices in Prague could soon stagnate.

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Tenants in Prague have suffered greatly in the past few years as property prices have soared meaning a knock-on effect for those looking to rent. Can we expect these prices to continue rising or should we expect a slowdown whilst wages catch up? It is well documented that unemployment is enviously low, especially in Prague, meaning that companies should be offering higher wages to lure the top talents. Salary levels, however, continue to lag behind other countries whilst rental and property prices continue to soar.

European Price Rises

Whilst prices understandably vary significantly from city to city in the Czech Republic, the year-on-year price growth of houses and flats in the whole of the Czech Republic slowed down from 7.7 percent at the end of March to 7.5 percent in the second quarter. Despite the fact that the government have taken steps to regulate the property market, as well as raising interest rates, many are saying the growth is too fast and significantly faster than the growth in wages.

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Within the European Union, the Czech Republic had the seventh highest year-on-year rise in property prices behind Slovenia, Ireland, Portugal , Hungary, Netherlands and Latvia. The European average was 4.3 percent according to Eurostat. The only countries where prices fell Sweden by 1.7 percent and Italy by 0.2 percent.

“The fact that in six countries the real estate has grown more strongly, there is no surprise: the central bank in the Czech Republic tightens monetary policy, while in most of the EU countries, especially in the euro area, the rates remain de facto at zero; a relaxed monetary policy.” – Czech Fund analyst Lukáš Kovanda.

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Possible Stagnation

Real estate agencies and investment firms have come to a mutual prediction that these prices will start to stagnate in the very near future. Should the prices continue to soar, Czech residents will no longer look to buy and will hold on until prices fall. We should remember that something is only worth whatever anyone is willing to pay, and if the bull market turns into a bear market, prices will not rise in the same way they have been.

“Real estate prices have slowed down slightly compared to the previous quarter, but are still high compared with the previous year, with the shortage of high-quality real estate in large cities and their immediate vicinity, and a slight rise in prices will continue in the coming period.” – Roman Weiser, Business Director of Bidli.

In the Czech Republic, real estate prices grew fastest compared to other EU countries from the last quarter of 2016 to the end of the third quarter of 2017. The highest growth was in the second quarter of last year, when home prices grew by 13.3 percent y / y. Compared to the EU average, then growth was more than three times higher.

“The reason for the slowdown in price growth is mainly saturation of demand, financial availability of housing, CNB regulation regulating the mortgage market and a high comparative base from previous years. However, supply side problems are far from resolved, especially in Prague where new construction lags behind the overall population growth.” – Frantisek Táborský, Raiffeisenbank analyst.

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“Rising prices for flats and houses in the Czech Republic are due to poor building laws, which disproportionately extend the period of construction of new real estate adding to the rise in prices, which also contribute to rising wages that allow people to spend more money on housing” Štěpán Křeček, BH Securities analyst.

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Our Prediction

The prices cannot continue to rise at the current rates, but don’t expect them to drop anytime soon. Prices will still be high for a few years, but with regulation of the short-term rental market, as suggested by some political parties, and increased investment in low cost social housing, authorities may be able to keep more people in affordable housing and improve the living standards for all residents. It is also important for authorities to regulate foreign ownership of property, with a large number of property investors coming from the Russian Federation. With owners living abroad, the prices are not always indicative of the market value of the property.

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