MonitorPlus
Crisis pushes prices of new flats down
By VLADIMÍR KALÁB, OLGA SKALKOVÁ / HOSPODÁŘSKÉ NOVINY / Published 23 September 2008
Translated with permission by the Prague Daily Monitor
Crisis pushes prices of new flats down
The real estate crisis which has already reduced demand for overpriced prefab flats, is now affecting the market for new flats. In order to boost stagnant sales, some developers have started to offer discounts or financial bonuses to buy equipment.

"We're offering to cover one year of mortgage payments up to CZK 100,000 for the clients of our residential project Romance Uhříněves, for example," says Ondřej Šuch, spokesman for developer Skanska Reality.

For some of its other projects, the company offers discounts ranging from CZK 50,000 to CZK 150,000 on kitchen equipment, or a free parking space in a garage, worth up to CZK 300,000.

Such practices only confirm speculations that demand is falling and new flats take longer to sell than a year ago. But developers refuse to talk about price cuts. They are afraid the real estate bubble might burst.

"These are only exceptions, registered mainly in Prague and Central Bohemia. On the other hand, prices of new projects in Brno are growing. But companies are offering more bonuses, which push the prices of flats down," says Jana Hrabětová, director of the housing site Kdechcibydlet.cz.

For example, property developer Benett offers a free parking spot under its residential project in Prague 10 – Uhříněves, as well as for selected flats in its project in Prague 9 – Vinoř, Na Dlouhých.

Glöckner Praha offers a 10% discount on its two-room flats with floor area of 77 square metres, originally sold for CZK 3.327 million. The future owner of a flat in Stará Boleslav – Na Panském – will thus save CZK 330,000.

Pavel Kosman, head of real estate financing at Česká spořitelna, confirms the decline in prices of some development projects.

"Prices of flats in some real estate projects have already been adjusted. The reason is the slowdown of the market, which the developers must react to. Their autumn marketing campaigns, which have never been as tempting as they are this year, only prove this trend," says Kosman. He says that completed flats are often sold for the same prices as when the project was launched. In the past, completed flats were always more expensive.

Property developer Prague Marina, which is scheduled to finish its project on the Vltava river bank in Holešovice next month, is offering discounts from CZK 40,000 to CZK 170,000 on condition the buyer pays a deposit of 35% of the final price. The discounts concern 61 flats. The most expensive 200-square-metre flat is now sold for CZK 17.59 million, CZK 177,000 less. The discounted amount would be enough to buy a five-seat Dacia Sandero car.

Analysts say the decline in prices of some new flats is the first reaction of developers to the cooling demand. If demand for new flats does not grow in the coming months, prices of flats in some locations may continue to fall. "It's a new situation. Further developments are difficult to predict," says Kosman.

The US mortgage crisis has slowed down the booming flat market this year. Czech banks, alarmed by the development, have tightened the rules for financing real estate projects. The banks demand a minimum deposit worth 30%, while some flats must be sold before the project is completed.

The banks have also tightened rules for providing mortgage loans to buy a flat. Compared with last year, the banks require a higher income, which has lowered the number of people eligible for the mortgage. The volume of new mortgages fell by 20% year-on-year in the first half.

Plot prices also down
The decreasing demand for flats will also reduce land prices. "Land prices make up about 10% of the price of a flat and developers can't agree to gradually increase the prices as new projects would become less profitable once the price growth slows down. I know of a case when the owner asked CZK 1,700 per square metre of undeveloped land on the outskirts of Prague. He would not change the price for a year and now he sold it 20% cheaper," says Ekospol CEO Evžen Korec.

He adds that prices of flats in attractive locations, namely in green areas and with good public transport accessibility, will stagnate. "This includes well-equipped flats sold for CZK 45,000 to CZK 55,000 per square metre," Korec says, adding the prices of flats in less attractive locations, without cultivated surroundings and with insufficient infrastructure, which now cost about CZK 70,000 per square metre, may fall by up to 10%. "I estimate the major crisis may last about half a year, while the weaker phase would last about a year," he says.

With some projects, prices and demand do not decrease. "Demand for new flats is growing regardless of tax reforms. It has increased by 15% compared to last year. Prices are slightly up, by about 5% on the year. Of course, the increase is a result of a higher demand," says Petr Illetško, director of the real estate agency AAAbyty.cz. The company sold 341 homes in July and August this year.

Illetško adds not all new properties are interesting for buyers. Customers are more demanding and selective. They consider the price, quality, location, architectural concept and other such factors.

"Overpriced, low-quality projects of poor architecture design can be found in some complicated locations. The times when customers would buy almost anything are gone," he said.

Russians saving the market
A slower decline in sales – but not in prices – this summer has been confirmed by Jakub Sedmihradský, vice-president of real estate firm Lexxus. The company is among the largest dealers in new flats in the Czech Republic.

"Prices of flats in our projects are still growing slightly. This is because falling demand from Czech customers has been offset by clients from abroad. These are no longer Italians or the Irish as was the case in the past years, but customers from the East, primarily from Russia," says Sedmihradský.

The real estate firm Sting also registers increasing demand from foreigners. The volume of such transactions carried out by one broker in the firm's office in Brno has increased from one to five a month, while the volume of flats leased to foreigners has grown from three to five a month.

"Ukrainians are looking for flats, while Slovaks and the Vietnamese want family houses. Foreigners looking to rent a place most often include Romanians, Bulgarians, but also the Vietnamese and Ukrainians," says Sting's regional manager Lucie Klimešová.

Austrians are interested in flats in Znojmo, while properties in Hodonín, Břeclav and Uherské Hradiště are mostly demanded by the Vietnamese and Slovaks. Flats in the Olomouc region are also increasingly often demanded by foreigners. Belgians and the Dutch are interested in holiday estates in the Vysočina region.

"In the last three years, foreigners' demand for flats has grown by about 30%," Renata Holaňová, head of Sting's office in Prague, said to comment on the situation in the capital city.