Limited housing construction will hamper the decline in prices of new properties on the Czech market, experts agree in response to the Czech Statistical Office’s (ČSÚ) August results on the construction sector. The main reason for the year-on-year drop in housing starts in August by 23 percent and completions by 22 percent is mainly due to low construction in Prague and the Central Bohemia Region, they said. This is a consequence of lower demand, which is caused by high inflation and mortgage loans, and thus investors’ uncertainty in starting new construction, they believe.
“It is evident that developers are still stepping on the brake and limiting new projects even in regions that have long suffered from an insufficient supply of flats leading to earlier sharp price growth. However, developers are behaving in a completely rational way, taking into account the development of interest rates that make construction more expensive and consumer financing of purchases,” said Petr Dufek, an economist at Creditas Bank.
In addition to the reform of the permitting process, the solution to improving the situation could be, according to independent real estate investor Libor Vaka, greater investment in other regions outside Prague and the Central Bohemian Region. “Here, the original buildings can be used for conversion into residential units. This means not only faster construction, lower costs for building new housing, overall revitalisation of the area, but also a reduction in the energy consumption of the building,” Váka said.
The reason for the price increase, according to experts, is not only high inflation and loans, but also the cost of construction work and building materials. For residential construction to resume, prices of building contractors would have to fall by 15 percent compared to last year, according to Michaela Tomášková, executive director of developer Central Group.
In Prague, only 32 new flats in apartment buildings were permitted in August, i.e. housing for less than 100 people. And such a low number of permitted flats is not an exception this year. In April, 48 new flats were permitted, in May only 17.
Trinity Bank economist Lukáš Kovanda, referring to Eurostat data, said that prices of new and older properties in the Czech Republic fell by 2.9 percent year-on-year in the second quarter of this year due to low demand. “This is the most significant year-on-year decline in residential property prices since the first quarter of 2010, when the Czech property market was still struggling with the effects of the global financial crisis,” Kovanda said.
According to the statistics, both housing starts and completions fell year-on-year in August. The number of flats that started construction fell by 23.1 percent to 3,102 and the number of flats that finished construction fell by 21.8 percent to 2,792.
Building authorities issued 6,801 building permits, down 8.4 per cent year-on-year. Construction output in August fell 0.2 percent year-on-year, but was two percent higher month-on-month. The indicative value of building permits reached CZK 50.1 billion, up 31 per cent year-on-year.
Source: ČSÚ and CTK
