The era of expensive mortgages is affecting how Czechs think about buying real estate. In a country where owner-occupied housing is unrivalled over rentals, people have begun to reconsider their intention to invest in real estate.
According to a survey by Broker Consulting, a company that mediates financial and real estate services, more than a third of people have canceled or postponed their plan to buy their own property. The most common reason for canceling a purchase was higher mortgage interest rates, rising real estate and energy prices.
| Canceling and postponing plans to buy a property | |||
|---|---|---|---|
| Intention cancelled | 10 % | ||
| Intention postponed | 26 % | ||
| Source: Broker Consulting, Ipsos | |||
According to Miroslav Singer, Chief Economist of Generali CEE and former Governor of the Czech National Bank, high interest rates are not the main reason why people give up buying real estate.
“People would be willing to buy real estate even at current mortgage interest rates. But the main and real obstacle for them is the credit indicators of the CNB, which the central bank tightened last April,” said the economist.
From April 1, 2022, for example, banks may not grant loans with an LTV (percentage ratio between the amount of the loan and the value of the mortgaged property) higher than 80 percent, i.e. above 80 percent of the value of the mortgaged property (90% for applicants under the age of 36). Furthermore, the percentage of the total amount of all monthly installments on the loan applicant’s net monthly income must reach a maximum of 45 percent (50% for young people under 36).
People who postponed the purchase of real estate used the saved money in different ways. A third of people sent savings to their savings account, another fifth kept the funds in a current account. Fourteen percent invested in mutual funds.
| Loading with unused funds | |||
|---|---|---|---|
| Depositing funds into a savings account | 33 % | ||
| I have money in a checking account | 22 % | ||
| I invested in mutual funds | 14 % | ||
| Depositing funds for building savings | 13 % | ||
| Housing reconstruction | 13 % | ||
| Reimbursement of energy expenses | 13 % | ||
| Purchase of consumer goods for the home | 10 % | ||
| Buying a car | 7 % | ||
| Investment in precious metals | 7 % | ||
| Investments in real estate funds | 5 % | ||
| Annuity investment | 4 % | ||
| Source: Broker Consulting, Ipsos | |||
Will continue to buy
However, according to the survey, the typically Czech view of real estate as a profitable investment does not change. Another third of respondents are considering buying a house or apartment in the next five years, regardless of the level of interest rates or the development of inflation. Some Czechs want to protect their saved finances from inflationary pressures by buying real estate.
“Up to eighty percent of the Czech population is at least partially concerned about inflation, which is why people are looking for ways to protect themselves against the devaluation of their free funds. Investing in real estate can be one of the ways,” says Michal Kormaňák, Account Director from the agency Ipsos, which conducted the survey.
| Housing plans for the next 5 years | |||
|---|---|---|---|
| He plans to buy a house or apartment | 29 % | He does not plan to solve the housing situation | 45 % |
| House plans | |||
| Acquisition of a house for own living | 17 % | ||
| Reconstruction of a house for own living | 13 % | ||
| Buying a house for investment | 2 % | ||
| Plans with an apartment | |||
| Acquisition of an apartment for own living | 10 % | ||
| Reconstruction of an apartment for own living | 8 % | ||
| Acquisition of an apartment for investment | 6 % | ||
| Source: Broker Consulting, Ipsos | |||
Even in the current situation associated with expensive and unaffordable mortgages, six out of ten Czechs consider investing in real estate to be advantageous.
“When buying real estate for further rental, so-called investment real estate, it is absolutely crucial to calculate correctly. Even at the current time of higher interest rates, buying such a property can be an interesting alternative. However, a potential investor should not forget about risks, such as lost return on equity,” adds Martin Novák, chief analyst at Broker Consulting.
However, the greatest interest should still be in the purchase of real estate intended for personal residence. Less than a fifth of respondents who are considering a purchase would like a family home. Another ten percent of potential buyers would then consider buying an apartment.
According to the survey, those who are planning to buy a home are mostly young people under the age of 34. These are often unmarried respondents with a university education, whose monthly net household income exceeds 60,000 crowns.
Complex availability of mortgages
Plans to buy your own home could be ruined by the (una)availability of mortgages. According to the survey, two-thirds of Czechs believe that mortgages are currently unaffordable for them. Of those planning a mortgage, only a third are convinced of its availability.
According to the Chief Economist of Česká spořitelna Michal Skořepá, the mortgage market should slowly begin to melt.
“We can expect some recovery in the mortgage market this year as interest rates on new mortgages begin to decline. In the horizon of roughly two years, mortgage rates could stabilize at a level of around four percent,” said Michal Skořepa.
Survey by Broker Consulting
The survey was carried out by the Ipsos agency and 1010 respondents took part in it.
The data was collected in the period from January 23 to 30, 2023.
Broker Consulting operates in the Czech Republic and Slovakia as an intermediary of financial and real estate services.
