The Czech real estate market has undergone significant changes in the years after the “Velvet Revolution” in 1989 (the downfall of the Communist Regime). New legislation, restitution, privatization, the emergence of the mortgage loans market, the arrival of development and real estate companies, and other factors that influenced its development came gradually until it reached today’s vibrant and relatively well-functioning market.
The American “mortgage loans” crisis that came about in 2007 caused a global financial crisis, and also impacted the Czech real estate market. It took a few years for a recovery, but since 2014 we have enjoyed near continuous growth, with many transactions and investments in the Czech Republic with great focus on the capital city – Prague. Prague is also a very interesting place to invest for many foreigners.
There has been a continuous rise in prices of flats in Prague. Today, the average price of a flat in Prague hit 100 000 CZK per m2 (4760 EUR per m2), which is a very high price for Czech citizens when compared to the average wage in the Czech Republic (34 835 CZK= 1659 EUR per month). Since 2013/2014, the price of the real estate in general has risen continuously – the prices of flats, houses, offices and commercial buildings, and also agricultural land.
The economic crisis and decline in economic performance caused by the COVID19 crisis will cause mortgage repayment problems. This can force them to sell their property. The volume of housing loans in the Czech Republic is currently CZK 1,336 billion (figure as of 31 January 2020). Source: Czech National Bank (CNB). The size of average household debt has more than doubled in the last 10 years. People are thus more vulnerable now than during the last crisis between 2009 and 2012.
The question now is whether the government and the CNB will prepare a rescue plan for people who find themselves in a difficult financial situation. Some measures have already been adopted – e.g. moratorium of 6 months for payment of loans was enacted for debtors (natural and legal persons).
In the short term, the real estate market shows the rigidity of supply and demand. People are waiting and it may take several months for the real estate market to take a new direction. Sellers are not willing to reduce property prices in the short term because they believe that life will get back to normal. Buyers are not willing to make purchasing decisions in the short term because they believe that prices will fall.
We assume that the situation will be similar to what it was during the last economic recession. People who want to sell or buy, and are not forced by circumstances to sell or buy will choose a waiting strategy in the first months. Therefore, the market is expected to slow down significantly, and we cannot expect any significant fluctuations in real estate prices in the following months.