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2015 Czech Property Forecast (Prague, Brno, Ostrava, Hradec Králové, Zlín and Olomouc)

Excitement.

If I was to use one word to describe the Czech property market right now it would be excitement. Excitement from existing owners, excitement from buyers and excitement from real estate agents, developers, building contractors and all who make their living through property.

After years of stagnating or falling property prices the tables have finally turned and 2014 was a year of growth. Not spectacular growth but real, tangible and taste-able growth. Especially was this the case in the two main cities of Prague and Brno.

Let’s take a quick look at what happened in 2014 and then have a look at the major factors which will influence the market in 2015.

In the rear-view mirror

Property prices have moved solidly forward in 2014. By the end of Q3 the HBIndex was showing an increase of 2.8% for apartments and 7.2% for houses. I expect another 1% will be added when the numbers for Q4 are thrown into the mix.

Most of this gain has been made in the cities of Prague and Brno with the smaller cities not yet seeing the buying pressure.

Factors for the year ahead

What are the biggest factors we expect to see influencing Czech property prices in 2015? In the order of importance and whether they will be a positive or negative influence I would list them as follows:

1. record low mortgage interest rates (++)
2. increasing real wages (++)
3. EU and global economic uncertainty (- -)
4. acceptance that property price declines are behind us (+)
5. low level of building starts (+)
6. decreasing unemployment (+)
7. property as the investment of choice (+)

Let’s go through them one at a time.


1. Record low mortgage interest rates (++)

Like a game of limbo interest rates are seeing how low they can go.

November 2014 saw an all time record of average mortgage rates at 2.44%.


With oil prices down we don’t expect there to be too much pressure on the Czech National Bank to raise the rates anytime soon.


2. Increasing real wages (++)

Czech households felt the pinch of declining real wages in 2012 and 2013. This was a huge psychological factor which affected citizens’ willingness to take on debt.

All that has changed in 2014 as inflation decreased significantly and salaries increased. A survey of Czech companies and their wage forecasts for 2015 showed this trend should continue and strengthen in 2015.


If forecasts hold true, this, combined with a regard for property as the investment of choice, will fuel demand for smaller investment property.


3. EU and global economic uncertainty (–)

The biggest headwind for real estate prices will be what happens with Czech Republic’s biggest trading partner, Germany.

Uncertainty is the bane of investors so expect mediocre or negative economic news to influence some to proceed cautiously.


4. Acceptance that property price declines are behind us (+)

If there are any doubters out there they should be almost silenced now. The property recovery is solidly in progress and doesn’t look to change directions.

We should see the majority of the cautious ones finally change their opinion.


5. Low level of building starts (+)

With housing starts in 2014 looking to be the second lowest since 1998 we expect this lower supply to strongly affect property prices.

Just as overcompensation is a typical driver problem on icy roads it was also a problem with developers and banks financing new projects in the recession. With the average development project typically taking 6 to 7 years from beginning to end it is difficult for developers to quickly ramp up the number of units for sale.


The recession has caused an over-correction to the downside and expect that to impact prices in 2015. Developers will be scrambling to get new projects off the ground.


6. Decreasing unemployment (+)

Employment has been surprisingly strong, is much better than the EU average and is forecast to improve. Real wages and employment are two huge factors required for the Czech consumer to feel confident enough to purchase property.


Low unemployment and higher real wages has resulted in the highest consumer confidence in 7 years.


7. Property as the investment of choice (+)

Czechs love property as an investment with a full 70%, according to a recent HB survey, viewing property as their investment of choice.

This has fueled a huge demand for small rental properties in Brno and Prague in 2014. We would estimate that average prices for studios in Brno jumped 15% in 2014, mostly due to investor demand.


Conclusion

Because of the above factors we would give the following estimate for property price increases in 2015 forward. This is the average overall estimate for flat prices in all the major cities including Prague, Brno, Ostrava, Hradec Králové, Zlín and Olomouc.

We expect the growth to be strongest in Prague and Brno with Ostrava beginning to show signs of life this year.



by Nathan Brown (Google+) - nathan@czechpoint101.com - owner and managing director of Czech Point 101  - "You’re in good hands whether buying, selling or managing property in the Czech Republic."      

 

 

 
 
 
 
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