Real estate market analysis for 2020

Since the beginning of 2020, the real estate market has been in recession. The coronavirus pandemic has forced the situation to change not in favor of rising prices.

Now people are afraid of losing their jobs, and many have already lost them, while most of the businesses are struggling to survive. In such a situation, a mortgage is not the best solution.

On the one hand, developers are keeping the price stable, since there is no other way out, otherwise the projects would be unprofitable. The cost of the construction was negotiated before the pandemic, and it took into account the costs of sales, loans and the investors’ money. But how long they will be able to keep prices at the level that was before the pandemic remains unknown. The state is trying to support the market by abolishing the 4% tax on the purchase of secondary housing.

On the other hand, due to the decline in rental prices, many owners who bought housing for investment are deciding to sell it, since it becomes unprofitable to rent it for a much lower cost.

On the Sreality portal, the number of offers for sale since April has increased by 900 properties (from 4100 to 5000). Which is about 21%.

Investments from outside, that is, the purchase of apartments by investors from abroad, also decreased significantly. In other countries, the situation with the pandemic is also critical, therefore it is quite risky to buy real estate abroad. Many are waiting for prices to drop.

Also, an important factor is the large number of new development projects that are ongoing, this number will continue to grow. In 2019, 24.3% more construction permits were issued than in 2018.

The results of the construction industry for eleven months of 2019, published by the Czech Statistical Office (CSO), show that during this period the construction of 4,969 apartments in new apartment buildings began in Prague. In total, more than 5,000 apartments were commissioned last year, which is twice as much as in 2018. In addition, this is the largest number of started construction projects in Prague since 2008.

Map of Prague showing started apartments in apartment buildings
Housing construction in the Czech Republic - apartments started

One of the important factors pulling rental prices down is the outflow of foreign employees, workers, and students. This also leads to an increase in offers for rental apartments. And if rental prices go down, then the sale price goes down as well.Reduction of unreasonably high prices for apartments
Real estate that has an unjustifiably high cost includes apartments located in both unattractive and rather attractive locations. There will be practically no people who are interested in real estate and are ready to pay any price due to the coronavirus epidemic and the related crisis.

Thus, in many localities, prices of 120 thousand CZK and more per square meter will remain in the past. According to experts, in small populated parts of Prague, they will drop below 100,000 CZK. The average cost will be 80-95,000 CZK per square meter.

This situation is beneficial for those who want to have their own housing but are not ready to pay large sums. Thus, the demand for small apartments should not decrease significantly. Since, first of all, these people will consider the purchase of small apartments.
Real estate prices are more or less dependent on supply and demand in the market. Demand, in turn, is determined by three main factors: population, average wages and availability of mortgage loans. In the Czech Republic, property prices have risen twice as fast as in the rest of the EU (8-9% yearly increase) over the years. In Prague, prices rose faster than in all European capitals (by 22% in 2016). However, this does not mean that Czech apartments are the most expensive (Parisian ones cost 4 times more). But in the current situation, a decline in property prices seems inevitable due to the pandemic.

The capital has a problem with a shortage of housing. Currently, Prague is short of about 20,000 apartments. If the current trends do not change, then in 10 years there will be a shortage of up to 100,000 apartments. So, while the coronavirus crisis will undoubtedly affect the cost of housing in Prague, prices will rise in the long term. In five years, they may rise to an even higher level than before the crisis. The number of Prague residents and people who will find work here will undoubtedly continue to grow.

Experts believe that a nationwide downward trend in prices will soon follow due to the economic downturn. Now the real estate market in Prague is full of empty Airbnb apartments. However, this situation will not last long and prices will start to rise again.

If you are planning to sell an apartment in Prague in the near future, try to do it as soon as possible, during 2020. If there is an opportunity to postpone the sale for five years, then it is better to wait until prices for apartments in the capital start to rise again.

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Vladislav Glinskij

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17 December 2021

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