Almost four-fifths of Czechs live in their own apartment or family house. According to a survey by the Institute of Sociology of the Academy of Sciences of the Czech Republic, half of those who currently live in rented accommodation also plan to buy their own home. The deferred demand for new flats, especially in Prague, is huge. According to a survey by Central Group, more than half a million people plan to buy a new flat in the metropolis in the next five years, which corresponds to the need to build more than a quarter of a million new flats.
However, a quarter of a million flats to meet demand over five years would mean building more than 50,000 new flats a year in Prague. That is roughly ten times more than is being built now. However, this is not realistic due to the very lengthy permitting process for new flats. Therefore, the demand will continue to exceed the supply and therefore the prices of new flats will remain high. The only way to get more supply and cheaper housing is to speed up permitting and build more new housing.
According to Eurostat statistics, 77% of people in the Czech Republic live in their own flat or family home, while only 23% rent. In this respect, we are above the European average, despite the fact that the Czech Republic is at the tail end of the housing affordability rankings.
More than half of people living in rented accommodation want to own their own home.
Owning a home has historically been deeply rooted and preferred to renting. This is confirmed by the recent survey “Prosperity and Financial Health Index”, jointly conducted by the Institute of Sociology of the Czech Academy of Sciences, Česká spořitelna and the Europe in Data project. It shows, similarly to Eurostat statistics, that only about a quarter of Czechs live in rented accommodation, but more than half of them want to move into their own place.
“Interestingly, according to the research, property ownership is preferred even by members of the youngest generation, who are said to prefer the sharing economy to ownership. People, even the young ones, realise that owning a flat is a secure home with increasing value and it is better to have your own flat, even after years of mortgage payments, than a box full of rent bills,” says Dušan Kunovský, founder and head of Central Group.
More than half a million people plan to buy a new apartment in Prague
The high level of future demand for new housing is confirmed by a survey commissioned by Central Group, the largest Czech residential builder, through Ipsos in April this year. Its results show that 19.2% of the Czech population plans to buy a flat in Prague in the next 5 years, and more than a quarter of them plan to buy a brand new flat.
“There is a huge deferred demand for new apartments in Prague. According to the survey, more than 540,000 people plan to buy a new apartment within 5 years. This corresponds to the need to build about a quarter of a million flats, i.e. 50 thousand flats per year. This is roughly ten times as many as are being built annually now,” Kunovský comments on the survey results.
Mortgage payment cheaper than rent
However, with very expensive mortgages and continuing uncertainty, people are now postponing their purchasing decisions and waiting for the situation to improve. Although the market for new flats is already seeing a recovery and sales in Prague have been rising for two quarters in a row, these are still not the results the market was used to in recent years. Another slight recovery will be brought about by an improvement in mortgage affordability thanks to the abolition of the DSTI indicator, but the main impetus will only come from the fall in interest rates to around 3%. With the current rapid rise in rents, it is precisely at mortgage rates of around 3% p.a. that the amount of monthly mortgage payments will converge with the level of rents, leading to a return of deferred demand to the market. According to economists’ analyses, this could happen as early as the turn of 2024/2025.
However, a necessary condition for market recovery is also a substantial acceleration of new construction. “Unless the permitting processes are simplified and accelerated, interest rates fall and prices of building supplies are reduced, the supply of new apartments will not be sufficient to meet the high demand, and this will put further upward pressure on prices,” concludes Kunovský.
Source: Central Group
