The domestic residential market could start to bounce back from an imaginary bottom in the spring and summer of 2023. In August, the trio of Prague developers Central Group, Skanska Reality, and Trigema published their estimates, according to which sales of new apartments in Prague jumped to 1,000 units in Q2 from 650 in Q1. Moreover, the level of 1,000 units is also above Q2 2022, and we can say that the market has already breathed a sigh of relief in terms of volume after several weaker quarters.
The reason for this development has been both the increasing volume of mortgage allocations, but also the continued interest of institutional investors such as funds and churches in entire apartment complexes. Meanwhile, the average selling price of new flats did not fall any further and remained virtually unchanged compared to the beginning of the year, slightly above CZK 150 thousand. CZK per square meter. This year, therefore, we can speak of a stabilization of the real estate market.
What development can be expected next? We believe that at present the market conditions are not such that prices could return to the rapid growth to which we have been accustomed for years. First, we expect the Czech National Bank to cut interest rates rather slowly. Whether the first cut from the current 7% will take place this year or in the new year, the pace of cuts will be cautious in our view, as inflation will remain above the Bank's 2% target for a long time to come. This will prevent new mortgages from growing from the current volume of around 10bn a month to earlier levels above 20bn and will not create new upward pressure on prices.
At the same time, however, we do not see strong reasons for a significant decline in prices either. Part of the missing demand is being filled by more prominent institutional investors. They have a long time horizon, want to hold apartments for rental purposes, and are betting on the trend of rising rents. There are good reasons for this, such as the unavailability of owner-occupied housing, net immigration to the Czech Republic, or the growing proportion of singles in the population. In our view, the demand of these investors will prevent a more significant price decline in apartments. Overall, we expect residential property prices to stagnate in the near term.
The residential market is going through a healthy correction this year, which came after a surge in previous years. However, the scenario of a residential market crisis with falling prices, which we have read about repeatedly, is not materializing and there are no expectations for it in the coming quarters.
Sources: Pavel Ryska,
Analyst
J&T Banka, a.s.
Analyst
J&T Banka, a.s.
