Czech real estate market finally stabilising

Since the Velvet Revolution the Czech real estate market has experienced enormous development. Now experts claim that all major changes are over and prices of new apartments should stay stable. Even Czech accession to the European Union, they say, should not bring anything new.

The real estate market in the Czech Republic and especially in the capital Prague has been growing significantly in recent years. This was partly caused by low interest rates, which made mortgages less expensive. Another significant factor was the widespread expectation that property prices would rise significantly after EU accession. Many Czechs live in apartments with regulated rent. They expect that the state will end regulation and that they - the tenants - will have to pay the actual, market price. But mortgages can currently be even slightly lower than the expected deregulated rent. Many people therefore decided to buy their own apartment.

Michal Kocian, the head of the board of directors of one of the major developer companies, Finep&partners, explains that clients in Prague are especially keen to buy small apartments with two rooms and a kitchen. He says that the Czech real estate market has undergone a major change.

"The supply is growing - compared to the situation ten or even only few years ago. There were only few developers on the market and actually there was no options for the clients. They could buy apartments only in certain locations. Today the supply is much higher, there are many new developers and the choice is much bigger, concerning both, location and price."

I also asked Mr Kocian what changes does he expect after the EU accession in May.

"Things that could have changed has changed already, one or two years ago. That was caused by the expectations, clients expected the growth of prices. I believe that the market is now creating a balance between supply and demand. I don't expect any changes now, the real estate market will stay stable for two or three years, at least to the year 2007. In the end of that year we expect the growth of VAT for construction work from 5% to a higher level. That will definitely influence the prices."

But the European Union could bring more money for regional development and therefore positively influence the real estate market outside of Prague, which is currently lagging far behind, because people outside the capital have much weaker purchasing power.

However Mr Kocian believes, that it will take the Czech real estate market some time to catch up with the rest of Europe.

"There is huge deficit on the Czech market compared to the European community in supply of new apartments. But added to this deficit, clients cannot always afford new apartments. So I believe, that as soon as the standards of living of the Czech population and their financial situation gets better, this will definitely disappear. Hopefully in five or ten years we will have the same amount of construction work as in European community."