Huge cash cuts to the programme funding the refurbishing of panelaks are set to create a government-led demand for new build apartments in the Czech Republic.

Government subsidies to the Panel Programme have been cut by two-thirds, forcing a freeze on refurbishment applications and exclusion altogether from the scheme for people under the age of 35.

Property Secrets Investment Director, Steve Desmond's view - 'We are going to see a government created demand over the next five years for modern, new build apartments.

Overstretched market

'The market is already overstretched with demand exceeding supply, so with this added pressure it is likely to explode.

'The effect of cutting the refurbishment programme is that it will give people an added motivation to move out of their panelaks.

'With little prospect of repairs and refurbishments, a lot of people will be encouraged to release the huge pent up equity in their panelaks - as much as 60% of the cost of a new build.

'Basicallly, the government has incentivised people in the public housing sector to move into the private sector.'

And this is particularly the case for people under 35 who can now get a subsidised loan - enough to pay a deposit on a new build - which will enable them to get on the property ladder.

Instead of applying to the refurbishment fund, they can ask for a CZK300,000 loan, equivalent to around £8,400, with a rate of 2% over a 20-year term.

Huge numbers of prefabs

There are an estimated 750,000 prefab flats in the Czech Republic - most of them crumbling - and only one in every five has been repaired, with the rest waiting for work on a variety of areas including balconies, roofs and exteriors.

'Only 7%-10% of the current housing stock is new build and the decision to cut the refurbishment programme is going to drive the market by increasing demand for a limited supply of new builds and raise prices,' said Steve.

The demand for repairs was underestimated by the state-run SFRB Fund for Housing Development, which manages the programme.

It estimates it has a CZK2 billion shortfall just to meet current repair requests.
The resulting funding crisis also means the SFRB will not accept any requests this year for the construction of new municipal and co-op flats or for the modernisation of municipal flats.

'This was an inevitable situation because there is a limited amount of subsidy you can give for housing that is 30 to 40 years old and at the end of its life span. The costs just become a bottomless pit,' Steve added.

The common problems in unmodernised panelaks are old heating systems and outdated electrics as well as broken lifts, poor water pressure and security issues on the ground floor.

With the prospect of no repairs in sight, there is only so long that many people will put up with no running water and walking up eight flights of stairs.

Demand boost

"For the property investor this means there will be further demand on the market from a segment of local people who have now been given a push by the government to go to the private sector - to either rent or buy - so they can enjoy a better standard of livings,' said Steve.

So, good news for anyone invested in or considering investing property in the Czech Republic - the government has, in effect, delivered a boost to already excess demand for new build property.

The question has to be then - which CEE country will be next to essentially run out of funds to prop up the panelaks?

Romania, Poland, Slovakia, Bulgaria?

The answer is almost certainly ALL of them.

Posted by Andrea Harper and Robin Bowman