Property Futures

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Property Prices in The Czech Republic Will Continue As Stagnant in 2013

Article: Although stagnant so far this year, there may some prospect for growth in Czech property in the second half of 2013.

2013 should see flat property prices in the Czech Republic, or a miniscule growth at the very best. The first part of the year should see continued declines with buyers taking advantage of low interest rates (should the situation improve).

Czech real-estate investment market analysis

Czech investment property market analysis

A look back at 2012

In predicting the outlook for 2012 for real estate in the Czech Republic, it was expected that, overall, Czech property prices would decline by around 4%.  However, the decline for the first 3 quarters was only around 2%

There may be several reasons that the decline in the Czech market was lower than expected:

1. There was an expectation that developers would stop holding out for higher prices.  Though there were some pre-sales at low prices, developers did not offload existing inventory in a fire sale.

2. There was also an expectation that the holding companies of Czech banks (most of which are Euro zone banks) would withdraw capital from their subsidiaries.  As a result, lending criteria were expected to be much more stringent. The withdrawal did not happen, though, and the European Union has not guaranteed that the banking system would not be destabilized.

A major negative factor was the decrease in real wages (wages adjusted for inflation) over the first 3 quarters of 2012.

  • In fact, the data suggests that real wages have deteriorated over the past decade and that in 2012, the average take-home pay was less than in 2011.
  • Not only does this mean less disposable income for housing, but it also that many households would be reluctant to take on additional financial burdens (such as a mortgage).

The outlook for 2013

The fall in housing prices made residential real estate more affordable.

  • The Czech National Bank (CNB) attempted to stimulate growth by reducing the base interest rates throughout 2012. Mortgage rates have followed suit and are now the lowest rates in history.
  • These low rates resulted in a substantial volume of refinancing in 2012 and this is expected to strengthen the housing market in 2013.
  • The substantial savings that citizens currently hold in bank deposits are expected to find their way into the real-estate markets starting this year.

The crisis in the Euro zone means that the average consumer is reluctant to undertake large investments, such as property. Once the situation improves, thoughthere is bound to be higher investor confidence.

The economy looks to be in better shape than the neighboring countries and unemployment continues to look relatively good.

  • Debt to GDP has risen a little bit but is still at an acceptable figure.
  • The Euro zone crisis has meant that developers have less access to credit which, combined with falling prices, means a reduction in the number of new housing units being built.  2013 will probably see the record low for housing starts.
  • Other than population growth, demand for housing is increasingly being influenced by the smaller sizes of households, resulting in higher demand.
  • Finally, there is the need to replace an aging and obsolete housing stock.

All this indicates that housing supply is going to tighten, which should have a positive impact on housing prices.

The bottom line

In spite of flat prices in 2013, there is the possibility of growth in the latter half of the year, which should offset some of the declines.

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