The domestic residential market could start to bounce back from an imaginary bottom in the spring and summer of 2023. In August, the trio of Prague developers Central Group, Skanska Reality and Trigema published their estimates, according to which sales of new apartments in Prague jumped to 1,000 units in Q2 from 650 in Q1. Moreover, the level of 1,000 units is also above Q2 2022, and we can say that the market has already breathed a sigh of relief in terms of volume after several weaker quarters.

The reason for this development has been both the increasing volume of mortgage allocations, but also the continued interest of institutional investors such as funds and churches in entire apartment complexes. At the same time, the average selling price of new flats did not fall any further and remained virtually unchanged compared to the beginning of the year, slightly above CZK 150,000 per square metre. This year, therefore, we can speak of a stabilisation of the real estate market.

What development can be expected next? In our view, current market conditions are not such that prices could return to the rapid growth we were used to for years. First of all, we expect the Czech National Bank to cut interest rates rather slowly. Whether the first cut from the current 7% will take place this year or in the new year, the pace will likely be cautious, as inflation will remain above the Bank’s 2% target for a long time. This will prevent new mortgages from rising from the current volume of around CZK 10bn a month back to earlier levels above CZK 20bn, and will not create new upward pressure on prices.

At the same time, we do not see strong reasons for a significant price decline either. It appears that part of the missing demand is being replaced by larger institutional investors. They have a long time horizon, want to hold apartments for rental purposes and are betting on the trend of rising rents. There are good reasons for this, such as the unavailability of owner-occupied housing, net immigration to the Czech Republic, or the growing proportion of singles in the population. In our view, the demand of these investors will prevent a more significant decline in apartment prices. Overall, we expect residential property prices to stagnate in the near term.

In connection with the topic of housing, the issue of real estate investment also arises. Jan Večerka, founder of BrikkApp, says that investing in real estate is not limited to wealthy individuals, but is available to anyone with a smaller financial stake. BrikkApp acts as an aggregator of real estate investment offers in Europe, allowing people to invest even just a few hundred crowns in specific projects and achieve value for their money.

The residential market is going through a healthy correction this year, which came after a meteoric rise in previous years. However, the crisis scenario with a fall in prices, which we have read about repeatedly, is not coming true and there are no preconditions for it in the coming quarters.

Source:

Pavel Ryska, Analyst, J&T Banka, a.s.