A year ago, residential sales in Prague had hit rock bottom as interest rates, inflation and fears for the future peaked. So, with falling inflation and improvement on interest rates, an uptick in sales for Q1 this year wouldn’t have been surprising. The thing is, they more than doubled according to the regulator monitoring of Trigema, Skanska and Central Group. From January to March, developers in Prague sold 1,600 new units, which is 2.5 times more than in 2023. That’s more than just about every quarter from 2017 until the pandemic (when resi sales went crazy).
Falling interest rates are key, according to the study, which points out that mortgages fell from 5.65% on average in January to 5.19%. Just as important, loan restrictions have loosened, which increases the potential pool of buyers. Lower VAT rates have also given sales a bump.
JRD’s CEO Jan Sadil says prices have stabilized and are beginning to rise together with renewed sales activity. “The initial shock connected with the fall in demand is gone and delayed demand is beginning to come to the market,” he says. In Q2, he predicts that the average price for new units in Prague will climb just over CZK 150,000 (including VAT). The slowly improving mood should continue to drive prices up to between CZK 158,000 and CZK 160,000 by the end of the year.
Source: JRD
But what’s coming next? This first burst of new sales may continue for a while, but how long will it last? Interest rates are still double what they were a couple years ago, when the market was well and truly overheated. The real question is whether the sort of demand we saw from 2016 until the pandemic are a good guide. Mortgage rates were far lower at that time as well and developers were almost guaranteed to sell anything they built.
We’re in a new era now. Margins are tighter, labor is more expensive, energy-saving standards are higher and money is far more expensive. And on that last point, interest rates are not going to fall to the levels we saw in the previous decade. Investors still have lots of low-risk options where to put their money. The returns on a state bond are a lot lower than you can get by backing a developer. But they’re a hell of a lot safer.
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