Flat building up but demand still outstrips supply

New apartment construction has grown sharply this year. But not enough to meet supply and curb fast rising prices.

Photo: Khalil Baalbaki

The number of new apartments under construction in the Czech Republic grew markedly year-on-year in the first half of 2017. However, demand is still outstripping supply and prices in des res locales in particular are growing fast, iHned.cz reported on Thursday.

In the first six months of this year, developers began constructing just over 3,500 new apartments in the Czech Republic. This is almost 50 percent more than in the same period in 2016.

However, this seemingly major increase has not given flat hunters many reasons to be cheerful, iHned.cz wrote.

Analysts say the shortage of apartments in the most in-demand locations will only increase, causing a further rise in prices.

This is particularly visible in the capital. Construction began on just over 1,000 new flats in Prague in the first half of 2017. But far more would be needed to meet demand.

Indeed, Denisa Višňovská of real estate firm Lexxus told iHned.cz that the number was “completely inadequate” in view of the needs of the market.

Huge demand is being driven by interest rates that are still very low despite some recent rises as well as confidence in the economy.

Between January and July developers in Prague sold over 3,000 apartments. The majority were off-plan, meaning that the completion of projects is as yet not having much impact on the market, iHned.cz said.

A study conducted by the Prague Institute of Planning and Development in conjunction with the Chamber of Commerce and Deloitte suggests that the ideal number of new properties coming onto the market in the city every year would be around 6,000.

Brno, photo: Benoît Rouzaud

That annual figure was achieved prior to 2008. However, this year the total number is unlikely to exceed 3,000 and pent-up demand means no price correction can be anticipated this year, ČSOB analyst Petr Dufek told iHned.cz.

The cost of freshly built properties in the capital is rising fast due to the bottleneck in supply. The average price per square metre was CZK 86,511 in June – a full one-quarter higher than in the same month in 2016.

The situation is similar in the country’s second city, Brno. There the price per square metre of new apartments grew by 9 percent in one year, from CZK 56,000 to CZK 61,000.

The inadequate pace of construction is blamed on excessive red tape. It can take up to a decade to receive all the documentation required for a large project, iHned.cz reported.

A recently approved amendment to the law on construction is aimed at speeding the process up.

Meanwhile, the big cities are readying moves of their own, with Prague and Brno planning to allow construction on brownfield sites, iHned.cz said.