The profitability of investments in residential real estate decreased in September after two months of growth. This follows from data provided by UniCredit Bank. Its indicator, which represents the net annual rental yield from which the average of mortgage and government bond interest rates is subtracted in August, fell 13 points month-on-month to minus 3.62 percent.
“After two months of growth, the value of investments in residential real estate turned deeper into the negative again. The reason for the decrease in the indicator was mainly the re-growth of yields on ten-year government bonds by a significant 46 points, which outweighed the opposite effect of only a slight drop in mortgage rates (by five points) and the continued gradual growth of the gross rental yield (month-on-month by eight points to 3.78 percent),” said the bank’s analyst Jiří Pour.
According to him, the gross rental yield for the average regional cities of the Czech Republic increased due to the month-on-month drop in real estate prices and continued, albeit slower, growth in rent prices. The ‘mortgagors’ and ‘savers’ wedge closed in September as a sharp rise in 10-year government bond yields put housing at a disadvantage in savers’ eyes, while for people taking out mortgages the downside of real estate eased slightly thanks to a slight fall in mortgage rates.
Of the regional cities, the least disadvantageous properties were still in Ostrava and Liberec, and at the opposite end of the ranking, Brno maintained its lead, followed by Prague. Month-on-month, the indicator fell the most in Ostrava (by 35 points), Jihlava (by 28 points) and Brno (by 28 points), which were the only regional cities where there was a month-on-month decrease in rent prices. On the contrary, the indicator increased especially in Liberec (by 16 points) and in Pardubice (by 12 points.
Pour expects that real estate prices will continue to fall in the order of one percentage point on average for the rest of this year, and that year-on-year price growth will slow to zero. According to him, this will happen both due to a reduction in demand for unaffordable owner-occupied housing and an increase in the supply of apartments for sale as part of the owners of investment properties realize that the best time to sell properties has already passed.
Source: UniCredit Bank and CTK
