The Q2 2024 residential market report in Prague has shown growing appetite by buyers. Real estate is the largest asset class in the world, yet real estate decisions are often made intuitively rather than based on the data, declares Martin Decký, Harvard Alum and Co-Founder & CEO at BuiltMind. Property Forum has taken a closer look with him on the outlooks of the Prague resi market for the upcoming months.
Up to what figures can the appetite grow in terms of units sold per quarter of the year?
We expect a brief summer slowdown, followed by growth in the fall with sales reaching 1,600-2,000 units per quarter. However, the current macroeconomic conditions might prompt the Czech National Bank to cut rates more aggressively, potentially boosting demand further.
What is a reasonable number of sold residential units in the Prague market so as not to overheat the market? Where do you see the threshold for prices?
This figure should consider the existing "shadow supply"—a substantial number of units that can quickly enter the market due to existing permits. This shadow supply acts as a buffer, preventing the market from overheating too quickly. Given its size, we don’t expect significant market overheating within the next year. Prices have been rising since the start of 2024 and are likely to continue climbing. The rate of increase will largely depend on how major developers choose to release or withhold units from their shadow supply. However, especially in high-demand areas with limited availability, prices may see the steepest increases due to scarcity and strong demand.
What is the average price per sqm? What size of residential unit is the most popular?
The average listing price for newly built units in Prague is CZK 156,000 (€6,194) per square meter. Although all layouts have seen growth, 3-room units have been especially popular in recent months. Additionally, larger units within a given layout, such as 50-55 sqm 2-room apartments, have also experienced significant demand.
Who are the buyers? What is the share of investment purchases? Which segment of clients attracts the developers most of all?
Buyer profiles vary by location. In more lucrative areas, buyers are predominantly individuals planning to live in the properties, while less lucrative areas with lower prices attract significant investment interest. Overall, both segments—end users and investors—have made a strong return to the market, with developers targeting both groups depending on the location.
The location is the top priority, no doubt. What are the other important features the buyers consider nowadays besides the price?
Location remains the top priority, but beyond price, buyers are considering other key attributes. In 2023, the market was driven by marketing incentives like guaranteed interest rates and direct discounts. However, as these discounts fade, buyers are now more focused on well-designed floor plans and the project's qualitative attributes, including the completion timeline, materials used, and required down payment. These factors have become central to their decision-making.
Does sustainable certification of the project matter for the clients? Do operation and maintenance costs matter? Does the unit size matter? Can you see any interesting trends in clients' preferences? What is a market standard for new developments in terms of technologies, special features and bonuses?
All of these factors matter to buyers, but their impact varies depending on the price category of the project. In mass-market projects, the final price often overshadows other considerations.
Over the past nine months, we've noticed a growing appetite for larger units, particularly 3-room apartments. As interest rates decreased, demand for these units has increased, driven by end-users returning to the market, as these units have typically been less attractive to investors.
The market standard for new developments is also evolving. Features like air-conditioning and underfloor heating are becoming increasingly common, reflecting the growing demand for enhanced comfort and modern living standards.
Can you see any rising star locations in Prague or any hot development locations?
Rohan has quickly emerged as a rising star location in Prague, with thousands of units planned in the coming years. Additionally, the future of Prague's real estate market will likely be shaped by the continued transformation of brownfields into residential districts, as seen in areas like Vysočany and Žižkov. These locations are becoming hot spots for new development, offering significant potential for growth and investment.
Up to what extent is the second-hand market and the price difference between new and second-hand resi units an option worth considering for buyers?
The second-hand market is particularly appealing to two types of buyers. First, those who prefer living in fully developed areas with little to no space for new developments. In locations like Prague 1, where new construction is extremely limited, the secondary market often becomes the only option for buyers looking to live or invest in these prime areas.
Second, buyers who are open to refurbishing units find the second-hand market attractive. However, this option can be a wild card, as purchasing costs with renovation costs might exceed the investment required to purchase a new unit. This makes the second-hand market a viable but potentially risky option depending on the buyer's willingness to undertake refurbishment.
What impacts of the new Czech construction code can you see on the Prague residential market?
It's challenging to determine the precise impacts of the new Czech construction code on the Prague residential market at this time. The market is currently influenced by multiple factors, including decreasing interest rates, the return of delayed demand, and the influx of new projects. As a result, the effects of the new construction code are still unfolding and remain to be seen in the context of these other influences.
