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Real estate market struggles to cope with crisis

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There are currently 60,000 flats available for sale in the Czech Republic. That is approximately the number of flats on offer at and Most of the real estate companies advertise on both websites and so one can only estimate the actual number of flats for sale.

“The number of flats on offer is approximately the same as in the previous years, but the demand is lower. Before, a flat would only remain on offer for three or four months, but last year the period started to get longer. Now it takes half a year or even a year before the flat is sold,” said Jaroslav Novotný, president of the real estate agencies association.

“There used to be times when the projects sold before even the carcass of the building was finished. Today it is only the combination of good prices, high-quality materials and a location with good transport connections that stands a chance,” said Evžen Korec, CEO of developer Ekospol.

Real estate agents agree that flat sales fell by half in January 2009 year-on-year. “It is not the lack of money but the negative mood on the market. People are daily fed with news about falling prices and that’s why they are waiting. Only those who need housing immediately are buying now,” said Jakub Sedmihradský, Lexxus vice-president.

Owners reluctant to lower prices

Majority of agents, however, consider the financial crisis to be the main reason. The banks have restricted mortgage conditions and a number of people need to search for further securities and money to get the loan.

Another reason lies in the fact that the people who really needed a flat, got it in 2007 before the VAT increase.

Owners, of the older flats in particular, are also playing a role in the drop in demand, since they are reluctant to lower the prices. “In Prague the ideas of those selling and buying are the most removed one from another. While those buying are waiting for lower prices, those selling have until recently refused to hear about discounts,” said René Doležal, manager of the Prague branch of the real estate office Sting. He considers it a success that after long negotiations he convinced sellers who sought out his services to lower their prices by 5%. A 2+1 flat for CZK 2.3 million is therefore CZK 100,000 cheaper in February.

The head of Ekospol is expecting the current price drop to stop this year. “A significant number of housing projects has been suspended. The offer of new flats will drop by approximately one half. That will cause a lack of new flats on the market and prices will go up,” Korec said.

A housing project takes at least three years to complete. The projects that are already rolling cannot be stopped without a loss. If some of the companies are now postponing their projects, it will be reflected in the lack of flats and a price increase. But that would only continue into next year. Last year, 38,000 flats were finished, more than 30,000 should be built this year. There are currently 176,000 new flats being built.

A drop in demand does not only affect older flats, but also new projects. Many developers have therefore started to take advantage of special offers to boost the demand. They offer cheques for kitchen equipment, free front gardens, storage units or parking spaces. And most recently also cars.

Mercedes for a villa, Škoda for a flat

CPI Group is offering a small A-Class Mercedes to go along with a CZK 6 million villa. Central Group is giving away a variety of Volkswagen models with flats and Finep is offering Škodas. Finep no longer considers the word “discount” a taboo and is lowering its prices. A special offer includes lowering of a CZK 9.8 million flat to CZK 9 million, which can be easily overlooked, but they also lowered the price of a CZK 3 million flat by CZK 740,000.

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