Prague residential market
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Prague's residential market showed a reasonable rebound in 2010 from its crisis year of 2009. Furthermore, the Czech capital city reveals much better development prospects than most other markets within Central & Eastern Europe. |
Prague is one of the largest and at the same time one of the most stable residential markets within Central and Eastern Europe. The annual scale of dwelling starts and completions leveled at approxi-mately 6,000 to 7,000 units during the past couple of years. Within the region, this is a scale which has only been topped by Warsaw and Budapest on a longer term perspective. The major portion of housing construction in Prague concentrates on apartments in multi-dwelling buildings. Within the Czech Republic, the share of Prague with its satellite cities and other suburban areas comprises approxi-mately 50% of all apartments built in the country. In addition to a large primary market offer, Prague possesses relatively well devel-oped rental and secondary housing markets. Beyond the reasona-bly strong local demand and demand formed by migration into the city, the Czech capital also proved to be a haven for both domestic and foreign property investors, foremost, due to the city's gateway function for international companies into the region and also be-cause of its attractiveness for tourists.
The residential market of Prague demonstrated a much better per-formance in 2010 than in 2009, which seems to have marked the bottom of the bust cycle. The most positive development trend dur-ing 2010 was observed in the increase in sales. As a matter of fact, the Czech banking sector remained firm and expanded by 15 per-cent against 2009, thus supporting the growth in property transac-tions. In addition, the Czech Republic recorded one of the highest proportions of fully compliant real estate loans, along with Slovakia and Poland. Prague also noted relatively stable price levels. Having said that, price negotiations were still par for the course throughout 2010. However, the housing market of Prague is still off from the heydays of 2006-2007. The annual level of dwelling starts fell to a ten year low. On the other hand, the number of apartments in the market offer is still high and the share of ready, yet unsold units within the overall market offer might be a reason for concern. More-over, the proposed VAT increase from a reduced rate of 10%, rele-vant for the majority of apartments, to 20% is upsetting the market.
Construction statistics
A recent release of the Czech Statistical Office stated that more than
6,100 dwellings were completed in 2010. Out of this, almost 4,700
units were apartments in multi-dwelling buildings which confirmed the
expectations of our market monitoring conducted in mid-2010. This
level fits into the long term average scale of Prague's primary market.
It should be noted though that completions are a result of investment decisions taken a few years before, meaning that the completions of
2010 still partially reflect the market's boom period. In contrast, a little
less than 2,900 dwellings started was the weakest performance within
a decade. Thus, statistics indicate that new market activity remained
low in 2010
Supply and market offer:
The market observed a growing trend of new market supply towards
the end of the year, which eventually indicated a return of optimism at
least by some residential development companies. During the last half
a year, we monitored approximately 40 housing projects, containing
about 1,800 apartments, newly launched to the market within Prague's
administrational borders. In total, the market offer in Q1 2011 exceeded
7,000 apartments offered for sale in more than 300 residential
development projects, subdivided into more than 350 phases. About
2,600 apartments remained unsold in completed buildings, i.e. a critical
share of 37% of the entire offer. |
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Demand and pricing
Demand was on the rise again in 2010, though at a gradual pace.
Banks provided individuals with more than 50,000 new mortgage loans
countrywide, whereas the largest amount of loans concentrated on
Prague. The volume of mortgage loans increased by 15% year on
year, but is still far from the volume reached between 2006 and 2008.
According to our market monitoring about one fourth of the total market
offer was sold during H2 2010, which in the long term must be viewed
as highly unsustainable. Still, it meant an upturn compared to 2009
results. The majority of sales were recorded in the lower priced market
segments, leaving more high priced units in the offer. As a consequence,
the average price increased slightly. The distribution of units
per price brackets show, that mode as well as median were considerably
lower than the market average.
Market outlook
The residential market of Prague continues to be recognized as a stable
market and should be able to continue attracting the interest of
property investors and developers. However, developers will only expand
their activities, once land sellers are willing to revise their price
expectations on investment plots. Limited new supply may prove an
opportunity to sell off the ageing market offer, provided that developers
reduce prices in this market segment which is highly unadjusted to
demand in terms of pricing, unit sizes and quality. The proposed VAT
increase may well hit hard on both homebuyers and developers.
