NewsDeloitte: Number of new available apartments in Prague increased, but prices continue to rise

  • The price of a square meter of a new apartment in Prague is currently CZK 17,000 higher than a year ago.
  • During May and June again developers sold more apartments than they newly supplied to the market

Prague, 8 September 2017 – The situation on the Prague residential market remains gloomy. While a total of 4,259 new apartments were for sale at the end of June, which is 178 more than was available for sale two months ago, the average price for the same period grew by 2.4% to a total of CZK 92,600/m2. This represents a year-on-year increase of CZK 17,000/m2. These are the conclusions made in the Deloitte Develop Index.

“The prices of new apartments being placed on offer keep increasing, due to the rising prices of land and construction work as well as the tax burden attached to the residential market. But demand remains high despite the increasing prices,” says Petr Hána, a senior manager in Deloitte’s real estate services team.

“The most frequently traded apartments are the smaller ones since they account for the largest number of apartments and increased prices also reduce the buyers’ possibilities. People most often also make the purchases as an investment. So the demand for smaller apartments is affected simultaneously by a number of factors. Czech clients remain the most frequent buyers of smaller apartments and their structure is very heterogeneous. However, the share of foreign buyers also keeps rising. Given the low supply and stable demand the vast majority of apartment purchases are executed ‘on paper’ these days, ie in a condition when they are not yet developed,” says Milan Roček, statutory executive of the portal.

Over the last two years, always more than 7,000 new apartments were sold in Prague each year, new projects are currently being developed very slowly, leading to demand outpacing supply and the market being sold out. In May and June alone 16 new development projects were introduced to the market that will supply the market with 655 new apartments. However, 832 apartments were sold over the same period. In total, 4,259 apartments were available at the end of June, 178 more than two months ago.

“While a short-term positive fluctuation occurred in terms of available apartments on the market, this cannot be seen as an indication of the improvement of the long-term pessimistic situation,” said Tomáš Kadeřábek, Director of the Association of Developers, commenting on the current data. “By contrast, a clear signal indicating another negative development is the low number of projects in the pre-development stage. This suggests another period of decrease in available apartments, and hence also the environment for another increase in the already high prices and massive moves of families outside the current Prague boundaries,” adds Kadeřábek.

In the reported period, prices grew in all Prague districts, except for Prague 2 where they fell by 4.2% to CZK 118,400/m2. The steepest increase in prices was reported in Prague 8 where prices rose by 8.1% to CZK 99,900/m2 on average. The highest prices of apartments are in Prague 1, amounting to CZK 168,200/m2 on average. By contrast, the lowest purchase price is in Prague 10 (CZK 71,500/m2).

“The prices of apartments increased because of three key factors. Firstly, the tax burden on apartments has substantially grown (over ten years by CZK 500 – 900 thousand on an average two-room flat). Secondly, applicable standards have become more stringent, increasing construction costs by tens of percentage points. Thirdly, and most importantly, not as many apartments as would be necessary are being developed. Unless these three aspects change, the price level will remain unaffected even by a potential slow-down of economic growth,” says Tomáš Pardubický, CEO of FINEP.

In the reported period, 832 apartments were taken off the developers’ offer, most of the apartments were sold by Central Group (151 units), followed by Finep (61) and AFI Europe (50). The average offer price of sold apartments stood at CZK 84,900/m2.