Prague's residential market is seeing record construction this year, with more housing starts, but demand for apartments is slowing down. On the other hand, however, the growth of housing prices is slowing and mortgage interest rates are rising. This is also why the share of vacant flats supply in the Prague residential market has increased too, says JLL's regular report.
The construction in response to the strong demand of last year is at a record high, the number of housing starts has increased, but demand has seen a drop. At the end of the first half of the year, there were approximately 14,400 flats under construction in Prague. This is approximately 4,000 more than a year ago. The number of completed apartments was 17% higher (2,260) than in the first half of 2021. By the end of the year, according to the currently published timetable, another 4,200 apartments are expected to be completed, marking the strongest supply of new apartments since 2017. In contrast, however, high interest rates, tighter mortgage lending conditions and record prices have led to a decline in sales. Only 1,900 homes were sold in the first half of the year, half the number of the previous year. This could affect both future supply and price growth.
Rising prices and the impact of higher interest rates
New-build apartments have become more expensive again, up 18% year-on-year, but the rapid growth that dominated the market in 2021, when prices jumped by more than 30% year-on-year, is now a thing of the past. Compared to the second half of 2021, apartments in new-builds rose by just 1% to an average of CZK 124,887 per sqm (€5,090/sqm), which is the price excluding VAT for the net internal area.
Of all apartments that have started construction in H1 2022, 40% are in the price category of CZK 100,000 - 120,000 per sqm (€4,000 - 4,900/sqm). Compared to 2020, when these apartments represented the top segment of the market, they are now the second cheapest category, which is gradually being displaced by more expensive apartments. In contrast, the cheapest apartments on offer, which start at an average price of CZK 80,000 to 100,000 per sqm (€3,300 - 4,000/sqm), have almost disappeared from the market. On the contrary, apartments with a net average price above CZK 140,000 per sqm (€5,700/sqm) have increased their share in the supply of newly launched projects to 32%. The price shift is therefore still noticeable.
"The favourable conditions on the apartment market that accompanied the previous two years have now turned around. The sharp rise in interest rates and the overall reduced availability of mortgages have cooled demand, which has started to be reflected in the offering of various discounts and special promotions to potential buyers. Compared to the turn of the year, when some of the price lists were not even available because buyers' interest was enormous and prices were rising day by day, a certain nervousness and an effort to make the offer more attractive can be observed. This is not a decline in interest in housing, but its unavailability. In this context, it is reasonable to expect that some of the demand that would have been met by buying a flat will shift to rental housing. The institutional rental housing sector, so popular in Germany or Austria, is already responding to the situation and more than 2,500 rental apartments are now in the pipeline and should be delivered in the next three years," commented Blanka Vačková, Director of the Market Research Department
The share of the supply of vacant flats has increased, and the interest in 2+kk flats continues to persist
The good news for those interested in buying property is that weaker sales and a higher number of apartment starts have contributed to the fact that there are now 1,300 more apartments on the market than a year ago. The number of new flats on offer at the end of the first half of this year rose to 4,110, which is comparable to the five-year average and indicates a stabilisation of the market after record low levels of supply in 2021. The average size of new flats on offer has decreased by 6 sqm over the last five years and now stands at 62 sqm.
The most popular type of apartment for sale remains the 2-bedroom layout. This layout accounted for 38% of all flats sold, while only 18% of those interested bought three-room flats (3+kk). The second most sold category of flats was the smallest flats, i.e. 1+kk, which accounted for 27% of total sales. "For the second half of 2022, we expect a further decline in sales due to tighter mortgage market conditions and high prices. In terms of prices, the rapid growth of previous periods will slow down. Already in the first half of this year, we have seen only a very slight increase in offer prices, while in the second half of 2021 prices rose by around 16% on a half-yearly basis, between January and June 2022 prices almost stagnated and increased by only 1%." Blanka Vačková, Director of Market Research at JLL, added.
