What are the key drivers of the current property market situation?
The central bank’s April mortgage lending regulations represent a significant intervention in the business surrounding the sale of new flats. As a result of these restrictions, an estimated one quarter of clients will struggle to buy a new flat. This suggests that the supply of new flats could expand due to lower demand. However, according to David Novotný, owner of the real estate company Bohemian Estates, a dramatic fall in prices of new flats cannot be expected. At the same time, he adds that the sharp escalation in prices is likely to slow down and prices will begin to stabilise.
From 1 April, mortgage applicants must meet new, stricter rules. Those over 36 must have savings from their own resources of at least one fifth of the total value of the property, the mortgage amount granted must not exceed 8.5 times their annual net income, and the maximum monthly repayment must not exceed 45% of their monthly net income.
Price growth is slowing, but new flats will not become cheaper
“Demand for property in the first months of this year fell by approximately one third. As a result of Czech National Bank regulations, we expect lower demand for property, which could provide a positive stimulus for the supply of new flats on the Czech market. Supply will probably grow to some extent, but I would be cautious about excessive optimism. New flats will not become cheaper; only the dramatic escalation in their prices that we have witnessed over the past several years will stop, and prices will stabilise in the medium term,” explains David Novotný, owner and managing director of the real estate company Bohemian Estates.
The reason why the decline in demand will not significantly improve the supply of new flats lies elsewhere. “The Czech property market is specific in that it is not driven by demand alone, but also by the permitting process, which is very lengthy and often burdened by pointless bureaucracy. The role of the state and the planned amendment to the Building Act are crucial in this respect. Once the state enables construction permits to be issued more quickly, the supply of property will expand and the market will stabilise. The desperate shortage of flats, especially in the capital Prague, is causing the price escalation we have known from previous years. Therefore, after demand cools as a result of mortgage lending regulations, the overall situation will not change all that much. Rising prices of building materials and construction work are also strongly reflected in final property prices. For some types of materials, we are facing price increases of 50 to 100%. And that is already a substantial difference,” explains David Novotný of Bohemian Estates.
A stimulus for the development of the rental housing market
Current developments represent a strong stimulus for the rental housing market, which therefore has significant potential for growth. The Western market is an inspiration in this respect, where the proportion of owner-occupied and rental housing is roughly fifty-fifty – unlike the Czech Republic, where rented housing accounts for approximately one quarter. There is therefore considerable scope in the future for these proportions to become more balanced.