The profitability of investments in residential real estate decreased again in October. This follows from data from UniCredit Bank. Its indicator, which represents the net annual rental yield from which the average of mortgage and government bond interest rates is deducted, fell by 23 points month-on-month to minus 3.94 percent.
“The UniCredit Indicator of tension on the real estate market fell 23 points deeper into the negative in October to a record minus 3.94 percent, making investments in residential real estate even more unfavorable,” UniCredit Bank analyst Jiří Pour said.
According to the indicator, the gross annual rental yield in regional cities of the Czech Republic increased by 13 points month-on-month to 3.91 percent due to the continued month-on-month decrease in real estate prices and rent growth. Government bond yields continued to rise in October under the influence of high inflation, the direction of foreign central banks and government borrowing.
“The scissors between ‘mortgagors’ and ‘savers’ closed sharply again in October, as a noticeable rise in government bond yields made apartments disadvantageous in the eyes of ‘savers’, while in the eyes of ‘mortgagors’ the disadvantage of real estate eased a little due to the slight drop in mortgage rates,” Pour explained.
Of the individual regional cities, according to the indicator, properties in Ostrava and Ústí nad Labem were the least disadvantageous. At the opposite end of the ranking is Brno, followed by Zlín. Prague is in third place, which it shares with Pilsen. Month-on-month, the indicator fell the most in Zlín (by 54 points), Pilsen (by 42 points) and in Liberec (by 41 points). In these cities, there was a noticeable month-on-month decrease in rents, in addition to the increase in apartment prices in Zlín, Pour said.
“The real estate market is continuing to cool down, which, as expected, is caused by the disadvantages, namely the unaffordability of residential real estate and the increased motivation of owners to sell their real estate,” the analyst pointed out. For next year, he expects a drop in real estate prices by roughly five percent, and in the outlook for the next few years, he expects stagnation or slow growth in real estate prices under the dynamics of inflation, which will lead to a gradual deflation of the real estate bubble, he added.
Source: UniCredit Bank and CTK
