With overpriced mortgages and a sharp decline in the number of real estate sales, did you expect high house and condo prices to go down? It partially happened, but only somewhere, and the desired reversal in the development of prices was far from happening. What’s worse, compared to how much we earn and how much we have to spend to buy a home, we’re the worst of the 58 states tracked.
For the first time, the Czech Banking Association did a unique survey together with the company Dataligence, which is a follower of the Society for Price Maps. To analyze the development of real estate prices, they evaluated all sales transactions that took place in 2022 throughout the territory of the Czech Republic and were registered in the real estate cadastre. In this way, the cadastre recorded 61,000 real sales transactions of older apartments and family houses, as well as over 8,000 apartments sold by developers.
In order to have something to compare with, the project evaluated data from the previous 5 years between 2018 and 2021, when the cadastral office recorded transactions in 275 thousand family houses and older apartments, more than 50 thousand apartments in new buildings were sold by developers during this period. Non-standard sales, such as transfers of cooperative shares or sales of only parts of flats or houses, were not included in the data.
The real estate market in 2022
Apartment buildings: total 214,100
- New construction: 14,700
- Brick houses: 130,200
- Prefab houses: 69,200
- Of this number, 65% of houses are divided into privately owned housing units (1.86 million units). 35% of houses are not defined as residential units (approx. 530,000 units).
- There are 12,650 transaction prices available for comparison.
Housing units
- A total of 2.46 million apartments.
- There were 1.86 million privately owned apartments (defined units).
- Cooperative and rental apartments 530 thousand. (undefined units).
- There are 545,020 transaction prices available, of which 216,780 transaction prices are for new buildings since 1995 and 328,240 for older apartments since 2014.
Family houses
- A total of 2,160,000 family homes.
- There are 283,760 transaction prices available.
The most important message that both companies bring is therefore: Real estate prices did fall, but only for the period of the second half of 2022. Prices decreased on average by 4,3 %. However, at the end of 2022, market prices were still o 5 % higher than in 2021.
What happened last year and why didn’t the much-anticipated significant drop in prices come?
At the beginning of 2022, the shopping fever that flared up during the previous year continued. Fearing rising inflation, people looked for the best way to save their money, which in the Czech Republic traditionally means turning money into “bricks”, i.e. purchasing your own real estate. As a result, the apartment market quickly sold out and the subsequent supply of remaining properties was the lowest in the last 10 years.
After the outbreak of the war in Ukraine, the first shock occurred. The onset of the energy crisis, higher energy prices, and a sharp increase in inflation all changed people’s mood. This continued throughout the second quarter and was exacerbated by rising mortgage interest rates. Because of this, in the second half of 2022 the real estate market practically froze,
he says Milan RočekDirector of Dataligence.
The freezing of the real estate market was reflected across all types of real estate, the number of sales fell by roughly half. For older apartments, sales fell by 51%, for apartments in new buildings by 57% and family houses by 49%.
Even though in the first half of last year there was a general expectation that due to hard-to-find mortgages, sellers would have to make concessions on their ideas about the price, this happened only partially, and in some parts of the country even not at all.
Older apartments in brick and panel construction increased their prices in the middle of the year, so that in the second half fell by only 4.3% on average. But compared to 2021, prices are still 3.4% higher.
That number is significantly smaller than expected, the share of transactions in Prague and Brno, where there was almost no change, plays a role here. Not at all in Brno, in Prague by less than 1%. The biggest drop is in the Hradec Králové region and the Moravian-Silesian region, where we are between 10 and 15%,
Milan Roček comments on the situation surrounding the development of prices.
If anywhere prices fell more significantly in the second half of 2022, by two decimal places, it was mainly in the Liberec (15%), Karlovy Vary, Moravian-Silesian, Ústí, Hradec Králové and Central Bohemia regions. Here the decrease was manifested by approx. 13%.
Prices in the South Moravian region fell slightly for a while, but at the end of the year they rose again to new highs. And finally, Prague real estate prices fell by only 1%.
Property prices in new buildings have not fallen at all
Just as the prices of older apartments could still be easily influenced, where the only thing that matters is the pressure of the buyer and the willingness of the seller, it was practically impossible to negotiate with apartments in new buildings. Although the developers tried to increase sales by means of marketing actions, these did not translate into the final sales prices at all. It was still possible to get a kitchen or garage discount, but that was the maximum that could be done. Unlike already completed older properties, developers could not influence the high prices of building materials.
Therefore, the average prices of new real estate rose by 11%, to an average of CZK 120,000 per square meter. Prague has the highest prices (CZK 151,643/m2). The average price in the regions is now 14% higher (CZK 100,692/m2).
Price development of new buildings in the Czech Republic 2018–2022
Prices of family houses
In the last two years, the development of prices for family houses looked a little different than for apartment units, especially in Prague. While the price increase in the regions was gradual and only slightly decreased towards the end of 2022 to stabilize at an average price of approx. 4.8 million CZK, Prague experienced a price jump in the second half of 2021. The average price of family houses soared to 19 million CZK, only to fall to less than 16 million CZK in the first half of 2022. However, before the end of 2022, it started to rise slightly again.
Price development of family houses in the Czech Republic, 2018–2022
Just as the real estate market froze, so did the volumes and numbers of mortgages. While the volumes last year were the smallest in the last 10 years, the number of newly granted mortgages was the lowest in the past 20 years.
Interest rates of around 6% p.a. caused the average monthly mortgage payment of CZK 3 million to increase by 6000 CZK. For a smaller mortgage of around CZK 1 million, the monthly difference is approx 2000 CZK. In the table below, you can see how the price of a 3+kk apartment in a new building, if you would like to buy it with a mortgage, differs in Prague and Karlovy Vary. While in Prague, in order to get such a mortgage, the net family income must be CZK 135,000, in Karlovy Vary, you will need CZK 53,000 for an apartment of the same size.
| City | Prague | Carlsbad |
|---|---|---|
| Average price 3+kk | CZK 13,000,000 | CZK 5,000,000 |
| Own resources | CZK 3,000,000 | CZK 1,000,000 |
| The amount of the mortgage | CZK 10,000,000 | CZK 4,000,000 |
| Interest rate | 5,93 % | 5,93 % |
| Monthly payment | 59,500 CZK | 23,800 CZK |
| Minimum monthly household income | 135,000 CZK | CZK 53,000 |
| Source: Czech Banking Association, Dataligence | ||
| City | Brno | Usti nad Labem |
|---|---|---|
| Average price 3+kk | CZK 6,300,000 | 2,290,000 CZK |
| Own resources | 1,260,000 CZK | 460,000 CZK |
| The amount of the mortgage | CZK 5,040,000 | 1,830,000 CZK |
| Interest rate | 5,93 % | 5,93 % |
| Monthly payment | 29,990 CZK | 10,890 CZK |
| Minimum monthly household income | 67,000 CZK | 25,000 CZK |
| Source: Czech Banking Association, Dataligence | ||
Nevertheless, the Czechs are very exemplary with repayment, even if the new amount of the obligation is quite noticeable. They cling to their “bricks” and the last thing they would lose due to non-payment is real estate.
Despite the noticeable increase in mortgage rates, the share of defaulted mortgage loans remains at very low levels. At the end of 2022, the share of problem loans was 0.57%, while in the crisis years 2011-2013 this value was on average 3.2%. Even the still low number of problematic mortgage loans is the cause of the relatively low decline in real estate prices so far, because a higher amount of real estate for sale does not reach the market,
mentions Jakub Seidler, chief economist of the Czech Banking Association.
The Czech Republic holds a sad lead: We are the worst of the selected 58 countries in terms of the balance between income and real estate prices, which is confirmed by data from the International Monetary Fund (IMF). We spend a little more on housing than New Zealanders. We can only envy our neighbors in Slovakia, Austria or Poland.
How we compare in income and property prices to the other 58 countries
While nominal wages and GDP rose by less than 20% in the pre-Covid year, prices for older apartments and single-family homes rose by more than 60%. According to his data, from 2015 to the end of 2021, the income disparity in the Czech Republic increased most significantly of the 58 monitored countries,
says Jakub Seidler.
Scissors between real estate prices and incomes in the Czech Republic, 2014–2022
