Our 2014 Czech Property Forecast is now available.
Watch the video (4 min 53 sec) or keep reading for the print version!
A look back at our 2012 forecast
In our 2012 forecast we felt that Czech property overall would go down by 4%.
According to the HBIndex, an index of actual sale prices compiled by one of the largest mortgage banks, prices moved down 2% in the first three quarters. We will see what happens in the fourth quarter but another percentage point or two is possible.
So we were pretty close on that call but looking back what would we say we got wrong in our analysis of the major factors?
One thing that we had felt would be a big factor in 2012 was that developers would finally decide they were tired of holding out for 2007/2008 prices. Although we have seen new developments pre-selling, particularly in Prague, for astoundingly low CZK/m2, those developers selling off existing stock did not go into fire-sale mode.
We also had expected that mother companies of the Czech banks would withdraw capital from their subsidiaries. Since over 90% of Czech banks are subsidiaries of eurozone banks we had expected lending criteria to tighten considerably. In fact this did not happen and now the Czech Republic has received a ‘guarantee’ from the EU that this would not happen to the extent that it destabilized the banking system.
However, let’s not look backwards but forward at the major factors for 2013.
‘Real’ Wage Decrease (- -)
One of the strongest negative factors we see moving into 2013 is that ‘real’ wages in Czech Republic fell through the first three quarters of 2012. ‘Real’ wages are wages which are adjusted for inflation.
In fact, looking at the history of real wages we can see that they have steadily deteriorated through the last ten years.
In 2012 the average earner took home less than 2011 (CSU – 2012 Q4 estimated)
Less take-home salary means less money for housing and less confidence in households to take on a serious commitment like a mortgage.
Of course, as property prices have decreased since 2007 while ‘real’ wages have had a net increase, the affordability of housing has increased over this time period.
(References: Czech Statistical Office – Salaries)
Record low interest rates (++)
In an effort to stimulate economic growth the base rate was lowered through 2012 by the Czech National Bank (CNB).
Mortgage rates have, thankfully, followed step and now are at the lowest rates on record.
Average mortgage rates 2003 to 2012 (Fincentrum)
These super low rates prompted a big round of refinancing by existing mortgage holders in 2012 and we expect it will have a huge boost on the housing market in 2013.
The stated purpose of the CNB has also been to get the high amount of savings that citizens carry out of the banks and into investments such as property.
(References: Fincentrum Hypoindex, Singer: CNB is Lowering Rates to Bolster Housing Market)
Eurozone crisis (- -)
Deer in the headlights – the effect that the eurozone crisis has had on most consumers.
Until the media headlines stop plastering doom and gloom the average consumer is going to feel insecure about their financial situation. Their risk tolerance will not allow them to take big steps such as purchasing a property.
Once the tide turns we expect the effects of this drag on the housing market to be quickly reversed or even eliminated.
Overall Economic Strength (+)
Many will argue that Czech Republic’s overall economic strength cannot be given a ‘+’ since it really is not performing well.
This is true but all things need to be taken into context.
In an article in October 2011 I had bragged that Czech Republic had a better outlook going forward than many neighbors because of, among other things it’s low debt to GDP and unemployment rates.
On these basic criteria Czech Republic has deteriorated slightly but it still looks good in comparison to it’s neighbors, even the ‘wealthier’ ones.
Unemployment in 09/2012 still looks good compared to the EU and neighboring countries (Eurostat)
Debt to GDP in 2011 rose slightly but is still excellent in comparison (Eurostat – Click to enlarge)
Long-term we still feel that Czech Republic’s economy is in a good position for above average growth.
(References: Eurostat – Government Debt vs GDP, Eurostat – EU’s Unemployment Rates, OECD’s Forecast for Czech Republic GDP/Person in 2060)
Real estate transfer tax change from seller to buyer (+)
As of the date of this writing there is a plan for the real estate transfer tax (going up to 4% in 2013) to change from being the responsibility of the seller to that of the buyer in 01/2014.
If this does become law I personally expect this to have a bit of a positive impact on real estate prices in the final half of 2013.
Sellers may begin pulling their property from the market in the summer thinking that they’d rather list their properties again in 2014.
Conversely buyers might be in a bit of a rush to buy in 2013 not knowing what the real estate transfer tax will do to prices.
Some will argue against this prediction pointing to previous VAT changes which seemed to have no impact on the market. However, I would counter that these VAT changes affected only those purchasing newly built properties which are a fraction of the overall market, while the transfer tax will affect all transactions.
More buyers and less sellers could mean an increase in actual sales prices in the second half of the year. Perhaps listed prices will not change but sellers may be less willing to negotiate on their price.
Decreasing supply of new developments (+)
With the financial and eurozone crisis came reduced credit being extended to developers. This, together with falling property prices, has caused a gradual decrease in the number of dwelling units being built.
2012 (projected) looks to be the lowest year for building starts on record (CSU)
Conversely net population has grown strongly from 2005 to 2011. 2012 seems to show a slowing of this trend.
However, population growth is only one part of the demand for new dwelling units.
A big trend in Czech Republic and most of Europe for that matter, is increasingly smaller household sizes. This is due to people living longer and more often without a partner (think of 20 to 30 year olds, divorcees, single parent families, etc.) increasing the demand for living units beyond mere population growth.
We are still waiting for the data from the 2011 census but the data from the 1991 census vs the 2001 census showed an increase of single person households at about 17% over this period. This will probably greatly accelerate for the period from 2001 to 2011.
Finally there is the need to replace housing stock which becomes unusable due to aging or other factors.
All of these stats together point to a tightening housing supply which will certainly positively affect housing prices in the near future.
(References: Czech Statistical Office – Housing Construction, Czech Statistical Office – Population Changes, Trends in Census Households – 1991 to 2001)
End Conclusion – Short Term (2013)
In view of all the above statistics we feel that 2013 will see stagnation to a very slight growth in property prices.
The first part of the year will most likely record declines as the eurozone crisis continues to dominate the headlines. As soon as this is cleared we expect to see a rush of buyers taking advantage of the historically low interest rates.
Because of this we feel we will see growth in the second half of the year which negate the declines in the earlier part of the year.
End Conclusion – Longer Term (2014/15)
Over the longer term we expect the declining number of constructed dwelling units to play more and more into the equation.
Add into this the comparative health of the economy and over the long term we are positive on the prospects of the real estate market.
| 2013 | 2014 | 2015 |
| 1% | 3% | 4% |
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Updated/Aktualizováno: December 8, 2014,