Real estate firms cast doubt on property market recovery

Photo: Filip Jandourek

After four years of decline, prices of Czech apartments rose slightly last year. According to figures recently released by the Czech Statistics Office, apartment prices rose on average by 0.5 percent nationwide in the second quarter of last year. In Prague, however, the increase was considerably higher. The statisticians believe this is a sign that the whole market is recovering – but the real estate sector remains highly sceptical, expecting prices to stagnate at best for years to come.

Photo: European Commission
Following the bursting of the Czech real estate bubble in 2008, prices of residential property shrank by over 12 percent year-on-year. In the following years, the decline was less marked – by 1.2 percent in 2012, for example – but prices have failed to bounce back.

Last week, however, the Czech Statistics Office said that for the first time in four years, prices registered very moderate growth. Drahomíra Dubská is chief analyst for the office.

“According to our analysis of last year, we saw that in the second quarter of 2013 there was 0.5 percent growth in residential property prices. This was mainly caused by developments in Prague where, in the same period, prices rose by 3 percent.”

Elsewhere in the Czech Republic, residential real estate prices have been stagnating. Ms Dubská says the Prague increases were fuelled by the recovering Czech economy; she believes that with increasing purchasing power and the stabilization of the labour market, those rises will spread to the rest of the country, as so often happened in the past.

“We should take note of the fact that trends registered in Prague usually spread to other regions of the country as well. That’s our experience from the last decade or so when Prague was the leader in residential property prices.”

But some in the real estate industry are rather sceptical about both the slight rise registered last year and the prospect of increasing prices across the Czech Republic. Blažena Polahárová is the owner of Happy House Rentals, a Prague-based real estate agency specializing in a largely foreign clientele.

“We did not experience any rise in selling prices over the last years. We can only say that our company is now selling more houses and apartments than in the same period last year. I only know the market in Prague, but I don’t expect any increase in prices this year, either.”

Photo: Jiří Němec
Some of Ms Polahárová’s colleagues are also cautious about potential rises in the prices of residential real estate. Re/Max is the biggest real estate agency in the Czech Republic; Jan Zachystal is a manager for Re/Max Alfa, one of Prague’s branches of the international franchise.

“The increase of 0.5 percent was hardly noticeable. For any conclusion, I would rather see the data for the whole last year. But from my point of view, I don’t see any major price increase. The increase in the second quarter of last year could have been caused by the sale of a few very expensive flats in central Prague.”

The Czech Statistical Office points to an improved economic environment as the reason behind the expected rise in property prices this year. What do you think?

“I expect that in 2014, prices will be stagnating.”

Why do you think the prices will not grow?

“Because there are no demographical and macro-economic factors that would cause the prices to rise again. Recently, the strong generation of the so-called [president Gustáv] Husák’s children started their families and had their children in the period around 2006 and 2008, and that caused the huge real estate bubble in the Czech Republic. But there is no baby boom expected in the country right now.”

However, the stagnation or very low rise does not apply to asking prices, according to the real estate website Between March 2013 and the same month this year, these prices have climbed by 8.1 percent in the capital but the growth has been even higher in other places: in Karlovy Vary, prices have risen by over 13 percent and by nearly 12 percent in Plzeň.

Ondřej Novotný,  photo: archive of Ondřej Novotný
I discussed the Czech real estate market and its prospects with Ondřej Novotný, associate director of the Czech branch of Jones Lang Lasalle, an international real estate consultancy.

“I think the decline period is over, and we are getting into the phase of stabilization of the market where the prices are oscillating around zero percentage level of increase of decrease.

“Over the past two years, we have registered minor increases as well as decreases of the average price in Prague. That is mainly influenced by new supply and by sales. But I would not say that we are currently seeing any significant price hikes on the market. These are rather small changes which could be referred to as stabilization of the market.”

What makes the prices stagnate?

“There are several factors. It’s of course the current economic situation – we are still facing significant economic slowdown which is affecting people’s purchasing power.

Another thing is that the supply over the past few years has been relatively big and we saw quite a few new projects coming on the market. So there is still plenty of competition.

“The third reason why there is no significant increase in the prices is that people are still very cautious about the price levels. They are afraid there might be some drop in the prices, similar to what we saw during the crisis of 2009.”

Do you expect the economic recovery will have any immediate effect on the real estate market this year?

“I assume that with the improvement of the economy, we will see an improving appetite of the local buyers from the point of view of both investment and residence.

“I assume there might be some price corrections and price increases in the coming years but I would not expect them to be very high.”

Photo: Filip Jandourek
Over a longer term, do you think we have reached a balanced situation, or can a substantial price increase be expected in the future?

“I actually think we are in a relatively balanced environment and price levels. Unless there is a significant increase in the purchasing power or the purchasing level, there is not much space for increases, especially if there is strong competition which will be pushing the prices down.”