Experts have warned that limited housing construction in the Czech Republic is likely to hinder the decline in prices of new properties in the market. This analysis comes in response to recent findings from the Czech Statistical Office (ČSÚ) regarding the construction sector.

The key reason behind the year-on-year decline in the initiation of housing construction by 23 percent in August and completed units by 22 percent is attributed to low construction activity in Prague and the Central Bohemian Region. Experts argue that this is a direct consequence of lower demand, which has been driven by high inflation and mortgage loan rates, leading to investor uncertainty and a reluctance to start new construction projects.

Petr Dufek, an economist at Creditas Bank, pointed out that developers are exercising caution and restraining themselves from initiating new projects, even in regions that have long faced housing supply shortages and experienced significant price increases. This restraint is a rational response to the current economic climate, with rising interest rates increasing construction costs and financing expenses for consumers.

To improve the situation, independent real estate investor Libor Váka suggests considering reforms in the permitting process and increasing investments in regions outside Prague and the Central Bohemian Region. Váka suggests that repurposing existing structures into residential units in these regions could accelerate construction, reduce costs for new housing, contribute to area revitalization, and lower overall energy demands for buildings.

In addition to high inflation and loan rates, experts also attribute the price increase to the rising costs of construction work and materials. Michaela Tomášková, the CEO of Central Group, noted that construction supplier prices would need to decrease by 15 percent compared to the previous year to stimulate residential construction.

Addressing the challenges faced by the housing market in the Czech Republic will be essential to ensuring that property prices become more affordable for consumers and that housing supply meets demand in the future.

Article by Prague Forum