Figures don’t add up on Prague new flats market

Demand is clearly outpacing supply in the market for new flats in the Czech capital. That and other factors have pushed up prices - by around a fifth since the start of the year - but the buyers don’t appear to be deterred for now.

Illustrative photo: Štěpánka BudkováIllustrative photo: Štěpánka Budková There are two basic and striking statistics for the Prague market for new flats in 2016: sold flats around 6,500, newly built flats around 1,000. While this year appears to have been one of the best for sales with the figure around 5 percent up on 2015, the number of completed flats over the past 12 months is at the lowest level for a decade.

Clearly, there is something fundamentally wrong with the market. Developers are essentially selling off their stock of new build projects, sometimes when they are still on paper and before they are built, and apparently having little in the pipeline in spite of the strong demand. Prague by the way accounts for around 60-70 of total flat development projects in the country. The problems in the capital are mirrored to a slightly lesser extent in the second city, Brno,

The developers complain of a long and difficult paper chase to get projects completed. On average the time taken from development plan to completion is 10 years, a slow process by international standards mirrored in the rest of the Czech construction sector.

That situation has encouraged the industry grouping, the Association of Developers, to drop its previous agnostic stance on lobbying for a more pro-active approach towards new legislation. In particular developers had been looking to Prague’s new metropolitan plan, which should be in place by 2021, to ease the planning headaches. Concerns about the plan also focus on whether it will take into account development projects which are already underway.

Others point out that Prague has some of the oldest housing stock in the country, meaning that around 6000-7,000 flats should be built ever year just to keep pace with wear and tear but not factoring in any upturn in demand.

Developers expect demand in the Prague market to stay strong in 2017, thanks to rising wages and the continued dearth of new flats coming onto the market. Mortgage rates are expected to start climbing partly because of a new law on consumer loans and a rise into international borrowing rates. But that does not seem to be a big turnoff for now.

The new law on consumer loans which took effect from the start of December allows borrowers to pay back up to a quarter of mortgages without penalties during a year. Previously fairly stiff penalties had applied to discourage the practice which undermines long term bank earnings. As a result, the banks have across the board hiked up their mortgage rates to cover their losses.