After a big drop in sales of new flats in the second half of last year, the housing market is reviving significantly this year. The largest residential builder Central Group estimates that it will sell at least 50% more apartments this year than last year. That is why it is now preparing another 2,700 flats for construction in eleven locations in the metropolis. However, it expects construction companies to offer significantly lower prices than last year to make construction worthwhile in the current difficult times.
Last year, in the second half of the year, sales of new flats almost stopped. This was mainly due to expensive and unaffordable mortgages, which traditionally drag down the housing market. Their price has climbed to around 6% a year, triple what they cost not long ago. The slump in demand was compounded by unsustainably rising prices for building supplies and expensive commercial loans, which often reached up to 10% per annum. This ‘triple whammy’ of negative factors completely froze the housing market.
“The construction industry is in a deep crisis. The key problem now is the exorbitant prices of many building contractors, who are still not accepting the new reality. Other problems are the overall poor state of the economy, the downturn in demand and extremely high interest rates on commercial loans and mortgages. According to our analysis, building contractor prices need to drop at least 15% from last year’s “nervous” prices. Otherwise, investors will continue to postpone most of their upcoming projects indefinitely because it simply does not pay to build in these complicated times,” says Dušan Kunovský, founder and head of Central Group.
The whole economy is in a difficult situation, especially because of expensive credit financing, which the Czech National Bank is using to tame high inflation. Expensive loans are completely changing the economics of investment projects. The big advantage of Central Group is that it does not take any loans and builds with its own money. Therefore, the company is not bothered by expensive commercial loans. However, expensive mortgages for those interested in new apartments remain a problem. Their interest rates are still high, but they are already slowly decreasing. That is why demand, although still below the level of last spring, has increased significantly, and with interest rates falling we can expect even stronger growth in interest in new flats.
