To the surprise of most experts in the Czech real estate market, the sale of property has not slowed down thus far in 2008.
The Czech Institute for Regional Information reports that Prague saw an increase of 3.4% in housing prices over the last four months. Continuation of the trend puts the figure at over 10% for the year. Ostrava real estate is reported to have had 5.7% growth over the same period meaning a full year would be around 20%.
With the increase of the VAT rate on new construction flats increasing from 5% to 9% on January 1 2008, there was a flurry of activity late 2007 as buyers tried to save the 4% difference.
Those who were sitting on the sidelines thinking of buying 2008/2009 put their plans in high gear. Developers said demand was extremely strong.
Because of this explosion of demand in late 2007, most expected that early 2008 would see a marked slowdown, like a sailboat when the wind suddenly dies.
Instead, to date developers talk about the unabated demand for property through January and February 2008. In fact Skanska, one of the biggest developers in Czech Republic, was reported to have said that this January they sold more flats than in January 2007. Other major developers such as Ekospol, Finep and Orco all reportedly confirmed this demand.
CZK currency growth
According to a Bloomberg ranking, the CZK is the strongest growing currency in the world.
Previous optimistic estimates put the CZK at 25/1 EURO by 2012. However, this goal point has already been reached and surpassed. The CZK has also set continuous records against virtually every other currency including USD, GBP and CDN (this is the one I really watch!).
Merely since the beginning of 2008, the CZK has strengthened some 6% against the EURO, 7.5% against the USD and 9% against the GBP.
If you are a fortunate investor who already owns property in Czech Republic, you can count ROI of at least 5 to 10% in 2007 based alone on the currency exchange rate. If you are a prospective investor, this rise in the currency not only makes things much more expensive but also creates a certain amount of nervousness, in case the trend reverses itself.
What are the forecasts for the future? Is this expected to continue?
Many authorities are saying that the escalation of the CZK is due primarily to speculation. Although this may factor in some of the rise in value, the economy continues to steam along. Early calculations put GDP in 2007 at a record 6.6%. With inflation for 2007 at around 6%, it also raises the likelihood of interest rate increases from the current level of the lowest in Europe. January 2008 saw a record high inflation of 7.5%.
What can the CNB do in order to slow down this rapid increase of value of the CZK?
They seem to be stuck between a rock and a hard place. Rising inflation demands response in a raising of the interest rate. Raising the interest rate to control this, in turn, puts pressue on the value of the CZK to other currencies. Also, Western countries are currently in the trend of lowering interest rate as they see the indications of economic slowdown on the horizon.
Forecast: More growth for CZK in the years ahead.
Updated/Aktualizováno: July 22, 2014,
