Prague, 24. 1. 2024 – Demand for new apartments in Prague has increased every quarter in the past year, reaching its long-term average of 1,300 units sold in the last quarter. In total, 4,000 new homes were sold last year, a 29% increase year-on-year. Supply remains stable, but remains insufficient for a metropolis the size of Prague. Sales prices fell slightly by 2.7% quarter-on-quarter in the fourth quarter mainly due to capped vendor incentives and the projection of a reduced VAT rate in advance for part of the market. Bidding prices continue to be above the 150,000 CZK/sqm mark, having risen by 1.4% quarter-on-quarter. This follows a market analysis by developers Central Group, Skanska and Trigema.

In the last quarter of last year, 1,300 new apartments were sold in Prague, a year-on-year increase of 136% and 24% more than in the previous quarter. All last year, Prague’s new apartment market was characterised by a gradual growth in demand, and the most recent data from the residential market show that sales are returning to pre-pandemic levels. In total, 4,000 new homes were sold in the capital last year, an increase of 29% compared to 2022.

The increased demand is mainly due to the stabilisation of the economic situation and confidence in its further positive development. Inflation is steadily declining and the mortgage market is also waking up. According to current information from ČBA Hypomonitor, the interest rate on new mortgages dropped to 5.65% in December, a positive signal was also sent by the Czech National Bank at the end of the year, which lowered the base rate to 6.75%. Temporary sales incentives, marketing bonuses, introductory prices in newly launched projects and a reduction in the VAT rate from 15% to 12% for apartments up to 120 m2, which some vendors reflected in prices before the end of the year, also had an impact on demand growth. Given the further expected easing of conditions for obtaining a mortgage and the gradual lowering of interest rates, a higher interest in new housing in Prague is to be expected this year.

“The revival of the new housing market has been felt since the second half of last year. After a period of waiting, we see the return of buyers to new apartments as a safe investment and the number of mortgage customers is growing, helped by the already obvious easing of mortgage conditions and lower rates. Institutional investors are also active, building their rental and co-operative housing portfolios. We are therefore returning to the traditional market pace in the sale of new apartments,” said Petr Michálek, Chairman of the Board of Directors of Skanska Residential a.s.

Prices of new apartments on the Prague market remain stable. The average sales price decreased slightly by 2.7% from the previous quarter to 142,511 CZK per sqm, a 6% decrease in the year to Date. The offer price, on the other hand, rose slightly by 1.4% to 152,482 CZK per sqm quarter-on-quarter, but there was also a reduction of less than 2% year-on-year. The lower average sale price is mainly due to higher sales of cheaper residential units in Prague 9, where the average price is around 130,000 crowns per square metre. But this is also due to the marketing incentives, action bonuses and introductory prices of newly launched projects, which also featured in a number of projects in the last quarter of last year, and the aforementioned adjustment in the VAT rate. If the supply is not complemented by new projects in the future, the low supply may escalate further price rises for new apartments in Prague. The CNB also foresees price increases of up to 5% this year in its latest financial stability report.

“Last year was the year of marketing bonuses, from which buyers could benefit significantly. An entirely different situation is to be expected this year. I anticipate that as the supply of new homes gradually decreases in the market while demand rises thanks to cheaper and more affordable mortgages, housing prices will start to rise again from the spring of this year. And they could be 10% higher next year than they are now. And there will certainly be a significant reduction in client bonuses,” Dusan Kunovsky, Chairman of the Central Group, comments on the market situation.

There were 5,500 new apartments available in Prague at the end of last year, i.e. 2% less quarter-on-quarter and 8% more year-on-year. Last year, delays to some development projects caused by the slow sales pace of the first half of the year and high construction costs, mainly the price of building materials, limited supply. The transformation of part of the projects into rental housing and the persistent slow permitting of new construction have also had an impact. According to the latest CSO data, only 3,608 residential dwellings were allowed in the capital by last November, or 12.6% less year-on-year.

Supply was around 5,000 flats on long-term average throughout last year, but in order to sufficiently saturate the Prague market, supply would have to be at least doubled and regularly supplemented with new residential projects. Last year, however, about a third fewer projects reached the market compared to the long-term average. The small influx of new housing units is therefore not good news for further developments in the new housing market. If the needs of the new building code are not met next year, we cannot expect more significant positive developments in the form of faster building procedures, subsequent additions to supply and long-term sustainable and predictable end price developments.

“The supply of new housing is stagnating on a long-term average that is insufficient. Fewer homes have gone up for sale in the last year than before. The ever-growing rental market is also draining some of the supply. In view of the complications surrounding new construction, the supply will not grow into the long-rumoured 10,000 new housing units per year, which will entail further price increases, not just in the primary market,” said Marcel Soural, chairman of the Trigema Investment Group.

Joint market analyses by Skanska, Central Group and Trigema provide an accurate picture of developments in the market for new apartments in Prague. They are always up to date, delivering results in the standard quarterly cycle in both a comprehensive view and in detail. The methodology helped cultivate and professionalize the market.

JK