The share of owner-occupied housing in the Czech Republic is approximately 50%
The country's main bank – the National Bank – reported that the Czech Republic outpaced EU countries in housing price growth in 2017 by an average of 16%. Experts believe that the cost of Czech real estate is overvalued by an average of 15%. This year, growth has slowed, due to an increase in mortgage interest rates and a decrease in their availability.
Compared to other European countries, the slowdown has been significant. As many experts believe, simply because the cost has reached its ceiling. According to the latest Eurostat data, taking into account the state for the second quarter of 2018, the Czech Republic moved from first to seventh position over the period under study, yielding in price growth to Latvia, the Netherlands, and Hungary. The most rapid increase in the cost of apartments and houses is currently observed in Ireland and Slovenia. Nevertheless, the fact that the Czech Republic ranks first in the EU ranking of countries with the most unaffordable real estate for residents is discouraging.
"In the Czech Republic, unlike other European countries, real estate prices did not rise for a very long time, but on the contrary, even slightly decreased at a certain period, which increased its affordability. However, at the time of acceleration in the growth of the Czech economy, around 2015, a significant increase in prices and demand in the housing market also began. And all this is reflected in the dynamics of prices for Czech real estate, which is approaching prices in other European countries," analyst Viktor Zeisel of Commercial Bank informed Czech Radio.
The affordability of owner-occupied housing is not necessarily related to the economic level of a particular country, many experts conclude. According to data from the consulting company Deloitte, purchasing a new apartment in the Czech Republic would require over 11 annual nominal salaries, if they are not spent on anything else.
The price increase is also due to the fact that little housing is being built. Developers do not have to fight particularly hard for clients. At the same time, the low interest rates on loans for the purchase and construction of housing offered by banks in recent years have prompted many to solve the housing issue in this way. That is, to acquire their own apartment or plot for building a house. Naturally, in a situation of significant excess of demand over supply, prices begin to rise like yeast.
"Czechs generally prefer their own housing to rented housing. The share of owner-occupied housing in the Czech Republic is approximately 50%, while in the European Union states, the share of those living in their own apartments and houses is much lower than ours. For example, in Germany, as far as I know, only 18% of the population has their own housing," notes Ondřej Mašín, executive director of Bidli Reality.
As Radio Prague reports, the Czech National Bank is increasing the base rate on loans and setting stricter criteria for granting mortgage loans. From October 1, the monthly payment must not exceed 45% of monthly income after all taxes. Borrowers can count on a loan not exceeding nine times their salary.
Banks have been obliged to more thoroughly examine the financial capabilities of clients who want to take out a mortgage. After the new recommendations of the national bank come into force, it can be assumed that 10% of potential mortgage borrowers whose capabilities do not meet the given criteria will be weeded out.
A big problem is the length of time it takes to obtain a building permit, the process of which in the Czech Republic is one of the most complicated in Europe and takes about 8 years. Another reason for the rapid rise in housing prices is the fact that apartments are purchased as investments. Moreover, not only for long-term rental, but also through the Airbnb platform. In Prague alone, according to the AirDNA portal, owners rent out almost 13,000 apartments to tourists.