The condition of the housing markets in Hungary, the Czech Republic and Slovakia remains good, but high interest rates have reduced the availability of mortgages, which has affected the demand for flats. Poland has broken out of this pattern, where, despite high financing costs, developers are breaking sales records. However, all these countries have one thing in common - the low activity of players in the PRS market, whose offer could be an effective response to the low creditworthiness of buyers. These are just some of the conclusions reached by the participants of the residential panel at CEE Property Forum 2023, which was organised in Vienna in September.
According to Rudolf Riedl MRICS, Managing Director at SÜBA, PRS activities in Hungary are hindered by dysfunctional, derelict rental law: „The Hungarian market was developing in a positive manner even during the pandemic. The supply of new units was between 14,000 and 16,000 a year and we wouldn't need more than 20,000 to fulfill the needs of the market. As for the demand side, we have government subsidies for the individual buyers. But the problem is that we have only buyers in Hungary. There's no institutional rental market. We have an unfortunate rental law, which protects the not-paying renters from being evicted. It is a major problem for the investment funds and other entities. We simply don`t know, if it is going to change in the foreseeable future. Especially at the moment, we see a significant slowdown in the market. All the new projects were stopped, and only running projects are being continued. The only new investments are the luxury projects”. His words were confirmed by the moderator, Radek Kucera, Partner and founder at Grafton, who observed a similar phenomenon in the Czech market. „The ultra-luxury segment, which is dominated by the cash buyers, is going very well in the Czech Republic. And so is the segment of flats to €200,000 euro. People are still afraid of inflation and continuously consider the qualitative, residential property as a safe and liquid asset”, said Kucera.
Ján Krnáč, CEO of Cresco Real Estate said that the current, main problems of the Slovakian residential market are low availability and low affordability of the apartments. Both are the effects of the persisting, high inflation. „In Slovakia, there are currently not many new developments that are being planned or under construction. The developers are selling their current stock or the units that will be completed this and next year. Obviously, they’re trying to do some incentives or make it cheaper for the clients. Driving the prices down is an obvious move. Some companies are trying smart marketing and are subsidizing the mortgages to the clients. We have also introduced a special offer – a rental with an option to buy after 24 months. We feel that in the next two years, the situation will change. Either the mortgage rates will drop a little, or wages will increase, so the apartments will become more affordable. We have fixed the price for two years, it is also a benefit in these turbulent inflation times”, said Krnáč.
In Poland, on the other hand, the problem is not the low availability of housing loans, but the low availability of units, which translates into very rapid price increases. As a result, a large proportion of buyers are leaving developer sales offices with nothing. They would be natural customers for PRS fund clients, but these are faced with the problem of high rates and low availability of suitable products. „Poland is still a big market. After a slow 2022, we are recovering rapidly. The demand, boosted by the „Safe Mortgage 2%” government programme, outpaces the supply. In the last six months, the sales in the six biggest cities in Poland were about 36,000 units. New production in that period was 27,000, which means that the stock was reduced by almost 10,000 units in just half a year. The prices are surging – in the last year, they rose by 10% on average, in Kraków it was 20%. Residential property is considered a very good investment for private individuals. Unfortunately, the PRS market is currently on hold because of the high interest rates, not only in Poland but in the eurozone as well. But I really hope that along with a decrease in interest rates, it will become more active. Unfortunately, we're following the path of Western European countries where people are not able to buy apartments in the city, like in London, Berlin, or Vienna. The healthy, thriving PRS market is a least a partial solution to that problem”, predicts Mariusz Mroczek, Director of Corporate Finance, CEE at Colliers.
To make matters worse, the availability of the product for PRS funds may be further diminished due to changes in spatial law, said Piotr Staniszewski, Partner at Dentons law firm: „From the legal point of view, Poland is actually on the brink of a major change that will come from new zoning law. its impact on residential properties can be quite big because it will significantly limit the amount of land available to be developed. In the longer run, it would probably increase the pricing and will make the development processes more complicated and costly. This is also the reason, why the developers in Poland prefer to sell the apartments to individual buyers, who can pay more. The PRS funds will always demand a discount for the portfolio purchases. Also, PRS funds operate in Poland in a typical forward-funding scenario, which does not give the developer any flexibility in shaping the prices. The investor expects the fixed price, and the price fixed today may not be the best price when the investment is materializing in two or three years time”.
Can anything but radical interest rate cuts and greater availability of funding for PRS funds reverse this trend? Marek Blaha, CEO of Dostupné bydlení České Spořitelny, a Czech affordable housing developer claims, that the government's help is something essential. „The long-term affordability of housing will soon be a political topic that will bring politicians under a big pressure. And if you look at Vienna, which is the showcase of how to bring good quality to the people and to the city, it is clear that if you want the investors to still make regular and fair profit, and the residents to pay fair rents, you need a municipality to get involved. And you need state financial instruments with some subsidized loans for that. So I think this is the next step ahead. In 5-7 years, the municipalities will have to play a more active role in zoning and permitting. Either the government can grow the salaries or offer some subsidizing to the buyers, otherwise, they will not be the government anymore”, said Blaha.
