Prague real estate: what you need to know
In this article, we will examine the real estate market in the Czech Republic with a focus on the Prague market, of which the distinctive characteristics will be explored. Moreover, the prices of apartments for sale and rent in Prague are shown. The last paragraph describes current inflation and how the Czech government has reacted to mitigate the risks associated with it. To better understand what is currently happening, updated data has been added and then compared with those recorded in the past.
Czech real estate: what you need to know
Price of apartments in CZ: how they are affected
In 2021, the real estate market in the Czech Republic was characterized by ever-increasing prices. From 2010 to today, according to Eurostat, the prices at which the properties were sold have increased to double the initial value. The situation is in line with what happened in the E.U. where the overall growth was 39 percent. The Czech Republic, however, differs with a much higher increase, showing a percentage of 100. The country ranks sixth in the ranking of states with the highest growth. During the last half of 2021, there was an annual increase of 22 percent while the other countries of the Union showed a lower growth rate (i.e. 9 percent).
Factors that influence the price of a property
The price of real estate, however, depends on various factors. Some of these are the conditions of the property such as its size, the area, the services, and the furnishings. These aspects can greatly influence prices and ensure that there is a wide differentiation based on the increase in comfort offered. For example, a well-appointed studio apartment in the central district of Nové Město (Prague 2) will be priced higher than one of the same type located in Prague 4 which is a more peripheral area and may be far from transport services.
Rents and prices of houses for sale in the Czech Republic: what is their trend?
If these specificities are not considered, but the trend is generally assessed, this is certainly growing strongly in the capital and the largest cities of the nation, but prices are characterized by lower growth in the suburbs and small neighboring countries.
For example, in 2021, the Brno real estate market recorded significant sales: approximately 1200 houses and apartments, an increase of 25 percent compared to the previous year with total investments of 6.5 billion Czech crowns. Prices in this town have also risen steadily and the percentage is 23 percent compared to last year. Despite this, there are still many apartments available and various projects to be developed.
Rental rates trend in the Czech Republic
From 2010 to 2021, not only did the cost of properties increase, even the rents have undergone significant changes. During this decade, growth was 30 percent which is double that of the European Union and this is in line with the sales situation.
Housing loans 2021
During the past year, there was also a 70 percent increase in home loans granted compared to 2020. According to Jan Sadil, a member of the Board of Directors of ČSOB, one of the largest commercial banks operating in the Czech Republic. The situation is exceptional: during 2022 the regulations and the increase in interest rates will influence the demand for mortgages which should return to an almost standard situation.
Deloitte Real Index third quarter 2021: what it indicates
The Real Index is an index that was developed by the well-known consulting and auditing firm Deloitte CZ and which shows the real prices of apartments sold in the Czech Republic.
The data is based on the sales that have been concluded in the regional capitals and considers the apartments that are registered in the land registry in the purchase contract form. The analyzed price of apartments in the Czech Republic is the price per square meter, as shown in the map below.
The percentages that can be observed in each region represent the change in the average price of the third quarter of 2021, compared to the previous period, in this case, the second quarter of 2021.
As can be noticed from the image below, only in the two northern areas of the Czech Republic (Ústí nad Lebem and Liberec) there has been a significant increase in the average percentage prices compared to the previous period and that variation is more than 20%.
Regardless, the highest price of apartments and houses for sale per square meter was recorded in Prague with a price of 109,800 Czech crowns and in the South Moravian region with 91,400 crowns. This is followed by the Central Bohemian Region (72,300 crowns) and Hradec Králové (69,600 crowns).
If we evaluate a general trend in prices, the analyzes show a general increase of 5 percent, which allowed the achievement of an average value of 84,300 per square meter.
From the following graph, it emerges that the sales price trend index in Prague and the capitals have had a strong growth trend since 2014.
The volume of apartments sold during the summer of 2021 (third quarter) is structured as follows. Most of them were sold in Prague (about 60%), in second place in the city of Pardubice (20%) and Brno with 11%. Follow with less significant percentages, Plzeň, Liberec, and others with percentages of about 3 percent.
Prague real estate
What are the prices of apartments in Prague?
A study by Deloitte CZ, a consulting and auditing company, looked at the prices of apartments for sale in Prague.
Overall, apartment prices in the capital have grown 19 percent year on year. The most expensive apartments were sold in Prague 1 with a cost of 163,800 Czech crowns per square meter and in Prague 2 with 137,900 Czech crowns. The cheapest was recorded in Prague 4 (98,400 Czech crowns per square meter) and Prague 9 (101,200 Czech crowns per square meter).
Compared to 2020, in the Czech Republic, the total value of an investment in real estate has grown by about 45 percent to a total of 38 billion crowns. More than 60 percent of total sales took place in Prague, followed by Brno (8 percent) and Pilsen (4 percent).
Apartments in Prague: how are the prices?
In general, the average rent for an apartment in Prague that was registered during 2021 is around 630 euros which corresponds to around 16,000 Czech crowns.
A studio flat in the center (in Prague 1, or Prague 2), for example, has an average rent of about 12,100 Kc (480 euros), while outside the center, in the more peripheral areas, such as Prague 10, the price drops to 9,000 Kč. (357 euros).
A two-bedroom apartment in the aforementioned central areas has an average rent of 15,000 Kc (595 euros), the same one located outside the center of the capital has a lower average price which corresponds to about 13,500 Kč (535 euros).
These prices drop significantly when you move to some towns outside Prague such as Roubnice Nab Labem or Most, which are about an hour’s drive from the capital. Currently, this is not happening in all cities outside the capital. In fact, in recent years even the areas closest to Prague have experienced increases in the average monthly rent. Year after year, apartment rents have increased in cities such as Zlín, České Budějovic, Liberec.
Houses in Prague: what was built in 2021
In 2021, the municipality of Prague issued 9,700 permits for the construction of new apartments and residences, more than double the construction projects in 2020 (approximately 3,500 to 9,000), a figure that has not been achieved since 1997.
Surely everything was influenced by a less rigid regulatory plan which also allowed the development of some large projects such as the example, that occurred in the neighborhoods of Smíchov and Žižkov.
The aim is to ensure that central housing prices fall or remain constant to avoid creating a housing bubble. Despite this, city councilors think that to achieve this goal, at least 10,000 new homes must be built a year.
Deloitte real index in Prague: what it indicates
Deloitte real index 2021, source https://www2.deloitte.com/cz/cs.html
The index analyzed earlier was also applied to the city of Prague, which experienced an average price increase of about 3 percent compared to the second quarter of 2021, reaching the values shown on the map. Compared to the Czech Republic, the values increased, but to a lesser extent (3 percent, in this case, 5 percent in the Czech Republic).
Sales related to developing projects amounted to 1,389 for a total of 10.2 billion Czech crowns and a value of 113,700 per square meter. As for brick houses, the value per square meter is lower (Czech crowns 112,700) and the volume of sales is halved compared to developing projects, as is the total number of homes sold (802).
The highest prices per square meter were recorded in Prague 1 with 164,400 Czech crowns, followed by Prague 2 and Prague 7, an area currently in expansion.
Prague real estate bubble
Prague real estate bubble: inflation
The increase in prices is also due to inflation which has reached a very high percentage (4.9 percent in September 2021) never reached after 2008, the year during which it had touched the value of 7.5 percent.
In fact, in the last semester of 2021, the prices of services and raw materials underwent a significant increase which led to an increase in inflation of about one percentage point in August and September alone, an important value if we consider that during these months there is no use of electricity and gas as in winter. Furthermore, if every month there were this increase, double-digit inflation increases would be achieved and this is not sustainable in a healthy economy, just think that the objective of the Czech National Bank is an annual inflation of 2%.
Inflation is determined by various elements and the main one is the price of energy. During these months, it is estimated that this will increase by 30 percent and that that of gas could increase by 50 percent compared to the current value. The forecasts for 2022 are for a constant increase in inflation which should decrease starting from the first months of 2023.
Increase in the cost of materials: what has changed?
The cost of energy will also be reflected in the price of raw materials that have become difficult to find and therefore more expensive. The sharp rise in the cost of building materials was recorded by the companies that had to tackle this new problem. To cope with the new situation, the increase in production costs by companies is expected to be around 20 percent.
The Government: how it reacted
With the financial bulletin n.34 of October 2021, a tax relief came into force regarding VAT on electricity and gas which affected November and December of last year. The choice of Finance Minister Alena Schillerová was made to try to calm the sharp rise in energy prices by trying to protect businesses and families. The zero VAT rate on electricity has allowed the latter to save a percentage of 21 percent. In the autumn of 2021, the amendment of the VAT law was proposed for the whole of 2022 but now is not in force.
Final remarks
In conclusion, this article analyzed the fundamental aspects of the real estate market in Prague and the Czech Republic. In the first section, it emerged that the trend in the prices of houses and apartments in the Czech Republic is generally growing strongly as well as rents, which, during the last ten years, have grown by 30 percent. The real estate market in Prague has the same trend in terms of prices, but also rents. While for a long time it was convenient to rent an apartment outside Prague, currently few cities have affordable prices compared to those of the capital. According to Deloitte Czech Republic, both the prices of sales in the provincial capitals and those of Prague increased in the summer of 2021, which is in line with the data analyzed. Finally, as far as inflation is concerned, this is certainly on the rise so much so that the government has reacted through important tax relief on VAT.
References:
https://www.savinopartners.com/blog/2021/11/08/luce-e-gas-stop-alliva/
