I found this article on Czech real estate prices recently. It appears to indicate only moderate increases in prices especially in the short term. Anyone got any thoughts? The housing market’s big picture By: Ji??l, 08. 01. 2007, More by this author The new-era, post-1989 housing market in the Czech Republic has, to a fair degree, stabilized and is already a well-developed market of property developers, financial institutions and construction companies. The market is also thriving from a large number of realized business transactions. However, government housing policies — and also the actions of municipalities — are lacking overall concepts and fail to deal with the real problems facing the housing market. In some cases they’re even undermining it. The regrettable regulation of rents, the obsolete Civil Code, nonspecifically targeted subsidies and municipalities substituting for activities that should be performed by private entities, are just a few examples of phenomena negatively affecting the housing market. Compared to other European countries, the Czech Republic’s housing supply is, in many respects, satisfactory. There’s no lack of housing in any of the country’s regions. In addition, housing construction continues to rise, with an annual increase of about three housing units per 1,000 inhabitants. In comparison to other market statistics, such as the average surface area of a housing unit (76 square meters), the Czech market proves to be above-average. However, Czech flats tend to have unsuitable layouts. With an average of 2.9 rooms per housing unit, the Czech Republic lags behind most other European countries and the number of larger flats is extremely limited. Moreover, most flats are relatively old and haven’t undergone much-needed renovations. The effects of panel? High-rise housing projects (panel?) — which make up almost one-third of the entire housing supply — are a well-known and acknowledged problem. In certain cities, high-rise housing projects completely dominate the local housing market. The primary problems with these prefab buildings are their defectively designed steel components — which often corrode and consequently threaten the entire stability of the buildings — and poor thermal and sound insulations. However, in contrast to many other European cities, these buildings don’t provide the social benefit of low-income housing; rather, the composition and demographics of their inhabitants cross socio and economic boundaries. The internal debt resulting from the poor and deteriorating mechanical and technical states of the Czech housing supply — particularly with regard to the high-rise projects — is estimated at about K?00 billion (€ 18 billion). A major apportionment of the Czech Republic’s housing stock is held privately. It’s dominated by single-family houses that make up about 38 percent of the housing market. There’s also a continuing strong representation of cooperative flats — 17 percent — while flats under private ownership have a similar percentage of the market. Additionally, flats with administratively regulated rents still represent a significant proportion of the rental market. Regulated rents haven’t increased since 2002 when, for example in Prague, their level was frozen at around 20 percent of all contractual rents. However, according to the new law — effective Jan. 1, 2007 — rents for such regulated flats will gradually rise, every year, until complete deregulation of rent in 2011. These yearly rent increases can’t, with a view to the low base points, be seen as dramatic by any means. In general, regulated rents will be increased by 20 to 30 percent per year. Until this market distortion — which has persisted for the last 17 years since the fall of communism — is completely removed or dissolved, it won’t be easy to balance the housing supply against the prices of flats and rents, so as to assess the adequacy of our housing supply. Without doubt, the effect of this step-by-step deregulation will be a further gradual lowering of contractual rent prices — and, consequently, a lowering of residential real estate prices in general. Housing loan effects Mortgages — further growing both in number and in volume — are a substantial driving force behind the housing market. The number of granted mortgages has almost reached the 250,000 mark, and contractual principals totaled more than K?20 billion. Interest rate levels and the overall availability of loans to purchase dwellings are among the main factors that directly influence residential property prices. In 2005, some 32,863 new homes were constructed throughout the country, and the number of dwellings under construction is perpetually rising. One-family houses — commonly part of the suburbanization taking place in zones surrounding larger cities — make up the largest proportion of newly constructed housing. However, as a result of the greater numbers of new building projects, in certain localities the market is becoming saturated. The threat of this arises mainly where smaller towns and cities are concerned, as in the Central Bohemian cities of Kol? Pod?ady and Nymburk, for example. In light of the great number of new development projects, there is a marked increase in competition, and saleability has protracted to a period of around 1.5 years. Some developers are starting to experience problems on the market. Along with the raising of the so-called regulated rents, the gradual decline of contractual rents is set to continue in the near future. A state of relative equilibrium could be reached around 2012. Where other property price developments are concerned, it’s expected that the gentle price increases for single-family houses will continue. In terms of flats in private ownership, the situation will, on the whole, stabilize, with moderately rising prices where sought-after, high-quality flats are concerned — this is because of the smaller supply in this category. The prices of housing properties will be most affected by the level of real wages, and by interest rates for property loans. From a demographic perspective, the number of people who are around 30 years old will fall, somewhat alleviating the pressure on demand. Nevertheless, the motivation to own a house will remain strong. With the falling levels of contractual rent prices, and the prospective movement in the level of mortgage interest rates, one can expect the over-30 age category to show increasing home-owner interest. For younger Czechs rental housing will probably prevail, while the focus will shift toward larger, family-style apartments. At the same time, there will be increasing demands placed on the structural and technical states of, and higher levels of provided services for, properties offered for rent. VAT effects The influence of potential changes of value-added tax (VAT) on housing prices will remain limited. Very often the VAT tax on construction work is confused with VAT on real estate transfers (sales). VAT on selling prices is only charged within the three years following the final building approval date or the acquisition. Therefore, the majority of real estate transfers are not subject to VAT and the tax burden isn’t a fundamental influence on real prices. If it so happens that, regarding some localities, the fear of a shift in the tax rate becomes a reason to increase housing prices, then a similar development can be expected as that which followed the Czech Republic’s accession into the European Union: the rise in prices and trade volumes was subsequently superseded by a slacking off of demand and temporary price decreases. Privately owned flats are a little publicized problem and, therefore, an even greater problem for the Czech Republic’s housing environment. Although there’s great demand for such apartments, only a few owners are actually capable of both owning properties of this kind and being aware of the responsibilities and obligations that go with the ownership. Awareness is also low toward what ownership constitutes with respect to the other apartment owners in the building. Flat ownership is a dual form of ownership comprising occupancy of the flat itself, in addition to the shared ownership of the communal areas of the apartment building. Securing the joint care of the property can often create considerable problems. Co-owners are frequently unwilling to resolve problems and issues arising from the upkeep and administration of apartment buildings; owners fail to realize that the extent to which a building’s owner community is functioning can be a key indicator of the future value of its private apartments. Despite the somewhat contradictory assortment of information on apartment property price increases in the Czech Republic, it is safe to conclude that the prices are not developing at double-digit percentage rates in the short-term. When examining the prices of Prague apartments over the last few years, we discovered that they rose only very slowly, and that they emulated the growth in the population’s real income. The influence of foreign investors on the apartment and single-family house segments of the market is very small, and there’s no reason to expect any profound changes in this area any time soon, if at all. Properties aren’t the same as goods that can be traded across the state border. The measure of influence on Czech flat and house prices by real estate prices in other European countries is negligible.

Martin, thanks for posting this - very interesting. The content seems to support PS's own extimates of increases in Czech developments - I think 14% at Zelene for example, which is less than spectacular compared to other investments. It does have a marked difference in opinion to PS over the impact of the proposed VAT increases. It would be interesting to have PS's response on this. The rental market (in Prague) seems solid and I'd settle for a 10% per year average over a 10 year period. I think there are more exciting areas to invest currently, however. Huw