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Most older flats getting cheaper

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As a result of the financial crisis, the decline in the prices of older homes is likely to spread all over the country.

Stricter conditions that banks have recently started to apply to mortgage loans will fuel the downward trend as well. “Prices of older homes, in particular in pre-fab houses, will go down in reaction to the situation. This will not be the case with new homes. Their prices will remain stagnant or grow,” said Petr Bárdoš, marketing director at the real estate agency RE/MAX.

When comparing the prices of standard flats (an older flat with 68 square metres of floor space in a standard location), the institute recorded the largest decline, of 5% to CZK 1.8 million, in Olomouc. Next came Zlín with a 3% decline to CZK 1.7 million. In Prague, where data are available also for October, prices dipped by nearly 1% from June to CZK3.4 million. Housing prices increased in all locations in the first half of the year, but in summer this only concerned five large towns.

The only thing that keeps growing is the average market rent. Between June and August, it rose by almost 10% in Jihlava, by 6.6% in Plzeň and by 4.4% in Prague (from June to October). Market rents only decreased in Olomouc and Zlín.

“The future trend will be a rising demand for rented housing, owing to increasing mortgage loan installments,” the real estate company Realitní společnost České spořitelny said in its analysis in the spring of this year. The growing demand for rented homes and the ensuing growth in market rents has been confirmed now.

The financial crisis, provoked by the collapses of international banks, was not among the factors that influenced housing prices before the end of August. The decline in some towns came as a result of a lower demand earlier this year.

“The wave of euphoria, in which economically active citizens from previous baby booms invested, is over to a large extent. Now they think that the future is not as promising as they expected, and are postponing their decisions to buy flats,” said Arnošt Hejduk, the CEO of property consulting company Rooney & Bennett.

Those who wanted to buy a home tried to do so before the end of last year when a 5% VAT rate was still in effect. Demand was enormously high at that time. The government introduced a 9% VAT rate on housing as of January, and banks have come up with stricter conditions for mortgage loan seekers in reaction to the US mortgage crisis. Some people do not ask for a mortgage loan at all because they feel the future is uncertain.

“Many flats were overvalued. A developer might have repaired and modernised a house in a good location and could ask CZK 5 million for a flat, and his neighbour might have wanted a similar price – but in a house that was not repaired,” said Arnošt Hejduk of Rooney & Bennett.

The price moves monitored by the IRI institute concern the supplier prices of older flats, namely, the secondary market. But there are no price lists on the secondary market and the actual purchase price may differ from the one advertised.

Cautious developers
The prices of new flats, which are available on the internet, have not decreased. The only exception among developers is Orco that has cut prices of flats in Kolín and Vrchlabí, as well as at its Prague 4 project Tyršův vrch, which is scheduled to finish in the summer of next year. There were 43 flats still available in the project, with prices ranging from CZK 2.5 million to CZK 7 million.

“Central Group has announced a decline in demand of as much as 25%, and Ekospol some 15%. But property prices have decreased significantly too, by as many as 15%. It will be much easier to buy land, but much harder to sell flats. We have to take it into account and especially must not panic,” said Evžen Korec, the CEO of the developer Ekospol. “The decline in demand was likely to come, we were ready for that. Flats and property in general still remain a very good investment with decent yields and a lower rate of risk compared to, for example, depositing financial resources in banks. This is especially true in the current situation,” he added.

The extremely high housing prices caused by a huge demand in the last three years are now among the factors that keep interest in flats low.

In 2002, the average price of a flat in Ústí nad Labem equalled CZK 257,000, which represented 17 average monthly wages. Now the buyer would need 42. The gap between wages and housing prices has widened the most in Ostrava, where twenty average wages of CZK 15,866 sufficed to buy a flat in 2002, but now sixty average wages of CZK 22,840 are necessary for an average-priced flat. Housing in Prague was and still is the most expensive. Six years ago, a flat in the capital was available at 91 average national wages, and now 149 wages are necessary.

Renting better than buying?
“If you compare the prices of flats with the rent you would pay there, you often find that renting it is more advantageous,” Hejduk said.

Prague currently has the highest market rents, at CZK 165 per square metre on average. Rent in a typical flat with floor space of 68 square metres reached an average of CZK 11,220 in October, up CZK 500 from June. Market rents in Plzeň and Hradec Králové have risen by more than 6% to CZK113 and CZK 114 per square metre, respectively. Jihlava recorded the biggest increase of almost 10% to CZK 101 per square metre. Olomouc showed a 1% decline and Zlín registered a 4.3% decrease to CZK 111 per square metre.

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