Next year, the supply of real estate is expected to decrease by 0.9%, which is mainly due to the fact that currently the construction of a sufficient number of residential housing projects is not starting, which would have a positive effect on the supply next year. The implementation of a large part of investment projects has slowed down or their completion is being postponed. The number of processed building permits is also dropping rapidly.
Approximately one-third of developers have changed completed projects to offer rental housing, which will weaken the insufficient supply of housing even more. Demand for housing, on the other hand, will increase by 2.3% in the first half of next year. Developers engaged in residential construction expect mainly stable prices for new housing. According to the survey, 63% of respondents plans to keep its real estate prices at current levels.
The number of building permits registered by building authorities is decreasing
The development of the residential real estate market in the Czech Republic in the coming period is strongly linked to the further development of the economy. The supply of new housing continues to be limited by restraint on the part of investors due to the poorer availability of loans and the persistent cooling of demand for housing. With the exception of July, the numbers of housing construction starts have been significantly decreasing year-on-year for seven months in a row. Similarly, the number of building permits registered by building authorities is falling, falling by an average of 9.3% every month since April.
Residential real estate supply to fall by 0.9%
In the first half of next year, it is therefore expected that the supply of residential real estate in the entire Czech Republic will decrease by 0.9%, as follows from the answers of the interviewed directors of development companies.
According to 57% of developers, the insufficient level of civic amenities is an obstacle to housing development and an obstacle to planned projects:
„Housing financing rests on the shoulders of private capital, but investment projects, in addition to economic pressures, are burdened by the requirement of contribution fees from municipalities to finance public infrastructure. But municipalities have no choice. The current setting of the budgetary allocation of taxes does not motivate them not to take the development of new housing as just another burden on their budgets. At the same time, funds exceeding 400 billion lie in the accounts of cities and municipalities, which should be invested in infrastructure,” explains Michal Vacek, executive director of CEEC Research.
If we focus on Prague…
In the first half of next year, on the other hand, a slight increase in supply by 0.7% is expected. With the development of apartment sales, Prague deviates from the trend of the rest of the Czech Republic, thousands of apartments could be sold in the capital this year, which motivates investors to maintain housing construction at a certain level. Overall, the real estate market still lacks a significant number of housing units, especially in Prague.
„The supply of new apartments has been insufficient for a long time due to dysfunctional permits. It fell for the first time in a year and a half, and we expect it to continue to fall. Until construction supply prices drop, new projects will continue to be postponed. After slowing down in the second half of last year, sales in Prague have been growing significantly since this spring. This year is the year of marketing bonuses in the housing market, from which buyers can profit. There will be no better conditions for buying an apartment than this year,” says Dušan Kunovský, chairman of the board of one of the largest Czech developers.
Demand for real estate will increase by 2.3% throughout the Czech Republic
In the first half of next year, demand for real estate in the Czech Republic is expected to increase by an average of 2.3%. This increase should be caused by reduced interest rates, which will be used by a part of buyers who have long been troubled by the lack of available housing units, but have so far postponed their decision due to expensive mortgages. In the second half of the year, an even more significant increase in demand is expected, by another 2.5%, which indicates a consolidation of the positive trend in the residential real estate market.
„I expect some recovery in demand. The financial situation of households will be less tense than this year and, especially in the second half of the year, a more noticeable reduction in both CNB interest rates and mortgage rates can be expected, which will support the demand for housing. The economy as a whole is expected to grow by more than two percent, after expected stagnation this year, which should support demand for real estate among both individual and institutional buyers. But let’s definitely not expect a bright year,” says Lukáš Kovanda, chief economist of a leading bank in the Czech Republic.
„The demand is related to the long-term movement of the population to cities and suburbs for work, so it has a growing tendency. Due to the increasing volumes of mortgage loans granted in recent months, it seems that people are getting used to the current level of interest rates and the market is starting to move slowly. Only a reduction in interest rates could increase the dynamics. In the long term, the offer is not able to satisfy the demand and, at least in the short term, I do not see room for improvement,” says Michal Hrbatý, director of a major construction company.
If we focus on Prague, a stronger demand growth of 2.9% is expected in the first half of next year. The main factor may be the attractiveness of Prague as an area with a high standard of living and work or investment opportunities. In the next six months, demand in Prague should increase by as much as 3.8%, which indicates that interest in real estate in the metropolis will continue to grow.
„We look forward to the coming year with slight optimism and believe in a slight recovery. Already, the triggers for many housing investment fears are waning. There is still demand for real estate, especially in the capital. The desire to live in one’s own home did not disappear. However, investors are waiting for more favorable financing conditions,” observes Kamil Jeřábek, CEO of a leading construction company, adding: “Sales of new apartments in Prague accelerated this summer. Due to the recent slowdown in construction and the suspension of some projects, we expect that in the coming period interest in own property investment will exceed supply, which will be most noticeable in the capital.“
The prices of new housing will remain at the same level
Developers engaged in residential construction expect mainly stable prices for new housing. According to the survey, 63% of respondents plan to keep their property prices at their current level. 31% of the surveyed developers intend to raise prices, but only by 5% on average. This rise in prices may be motivated by expectations of increased demand and inflation. A smaller group, made up of 6% of respondents, expects a drop in the prices of offered new buildings by -4% on average. Developers’ expectations regarding real estate prices thus indicate a certain caution and reaction to current market and economic conditions. “The price of residential real estate will have a hard time recovering from this year’s biggest year-on-year drop in the last thirteen years. Rather, a certain stabilization will occur,” predicts Lukáš Kovanda.
The current development of stagnant prices no longer follows the development of inflation, and thus there is a real reduction in the value of new apartments. However, the developers refuse the nominal discount. Thus, the gap between the prices of new and older apartments continues to widen, as older apartments continue to become cheaper this year, which is caused by frozen demand due to expensive loans. Expensive financing and the current price level of construction supplies until next year do not give investors room to discount the calculated price of new apartments. “If we look at other factors, such as the price of building materials, I see no reason for a drop in prices, at least for new buildings,” thinks Michal Hrbatý.
The data result from the Study of development companies H2/2023 processed by the analytical company CEEC Research.
P.S. Do you want to know where you can save on the house construction budget and, conversely, where it is worth not skimping? Visit the Veleton construction fair online, which will take place on January 26-29, 2024. You can download your FREE ticket now at this link
(the number of tickets is limited). You can look forward to lots of inspiration, live lectures, consultations with experts and discount vouchers.
A small mistake is all it takes and a person can suddenly get into big trouble. It may sound like an excessive scare at the beginning, but this golden rule applies not only to driving a car, but also to all construction processes. Some errors are very difficult to solve, if not completely unsolvable… Read more →
Father and son embarked on a joint reconstruction of the attic. Mr. Martin shared with us his observations from the installation of skylights… Read more →
The danger of lightning rods is often not visible. The revision will cost one thousand crowns and will help prevent disputes with the insurance company… Read more →
2023-10-30 17:50:00
#Housing #supply #decrease #prices #remain #stable
