Annual Digest for 2024 year
Description:
▶ Mortgages
▶ Construction and architecture
▶ Economy and investments
▶ Pricing and sales
Today we are going to sum up the year 2024 on the real estate market of the Czech Republic. We will analyze the most significant changes in various market and economic segments, highlight the most important trends and draw conclusions for each area. We have divided this eventful year into five thematic sections: Mortgages, Construction and architecture, Economy and investments, Pricing and sales. This approach will allow us to cover each topic in detail and allow you to choose the most interesting section to read.
MORTGAGES:
At the end of 2023, when mortgage rates hit an 18-month low and in December, Czech banks issued more than 15 billion crowns in housing loans, at an interest rate of more than 5 per cent. The market began to recover, and this was largely helped by the Czech National Bank’s softening of rules for obtaining mortgages, a slight reduction in interest rates and pent-up demand, which stimulated activity in the property market. Thus, experts predicted an increase of interest in mortgages in 2024. This was also due to the fact that the gradual reduction in interest rates will increase the refinancing of existing mortgages for those people who have already taken out and obtained a mortgage.
The beginning of the year brought only a slight decrease in mortgage rates, the most significant and tangible decrease was recorded in mortgages for young people up to 36 years old, where banks offer more than 80% of the mortgage value. And the most affordable on the market were the popular five-year fixed mortgages – 5.74 %. The downward trend in mortgage rates continued throughout the first quarter of 2024, which increased the affordability of housing for the population and, consequently, interest in buying property, but nevertheless the process remained restrained. The Czech National Bank has been cautious in this context, as the Czech economy is also influenced by the actions of large foreign central banks such as the ECB and the FED. This has somewhat limited the speed of the rate cuts in the Czech Republic. Mortgage experts and advisers predicted a smooth rate cut mainly for short-term fixed mortgages, expecting a return to the 5% level, with smaller banks expected to be the first to offer such terms, followed by larger banks. Banks have also been quite cautious and have not been in a hurry to cut rates in order to avoid massive refinancing, which brings additional costs for banks and a significant workload. According to Hypomonitor, mortgage lending rose about 21 % to 15.8 billion CZK in February. In March 2024, the Czech National Bank (ČNB) retained the current mortgage lending rules: the maximum loan amount was 80 % of the value of the property (90 % for customers under 36 years old). Banks were recommended to be careful in issuing loans for renovation or energy saving not directly related to the purchase of a home. Also discussed in this meeting was the introduction of a new measure for banks: an additional 0.5 % reserve to protect against structural risks associated with global and geopolitical changes. The Czech National Bank will also reduce capital requirements for banks from 1.75 % to 1.25 %, reflecting the reduction of risks in the banking sector. All this is planned to be implemented as early as 2025.
Summer months showed a moderate decline and then a halt in the fall of key PNB rates. In July, for example, the average mortgage rate stood at 5.49%, down just 0.88 percentage points from its peak of 6.37% in February 2023, while the key rate fell by 2.25 percentage points. Mortgages for households remained expensive, but banks held back on further rate cuts due to mortgage tourism fears, and many also introduced early repayment fees. Savings for the public on the average monthly mortgage payment of 3 500 000 million CZK, which went down to 21 475 CZK in July, was in reality only about 1 000 CZK less than at the beginning of the year. The correction of lending conditions in the following months took place cautiously and without any rush. Looking at the figures, Czech banks issued a total of 23.8 billion CZK worth of mortgages in July, twice as much as in July last year.
The average rate on new loans rose up to 5.07%, the first increase since May 2023. The average mortgage size reached 3.77 million crowns. In addition, interest in financing abroad has increased, especially in Croatia, Montenegro and Spain. This year also recorded the absence of the “vacation season”. Despite the fact that usually in the summer months the demand for mortgages drops, this year it remained high and people wanted to buy real estate. Even changes in construction regulations and a level of uncertainty as to how it would affect the speed of real estate construction and what innovations it would bring did not stop people from applying for a mortgage. This made the banks fear whether they could cope with such a volume of applications and whether the overload of financial institutions would slow down interest rates. At the beginning of fall, banks and building societies in Czech Republic issued mortgage loans for 32 billion crowns – and it was a record since January 2022. Interest rates fell below 5%, reaching 4.98%. On a year-on-year basis, mortgage volumes rose by 130%, according to Hypomonitor data. The growth was driven by a recovery in housing demand and an amendment to the Consumer Credit Act, which caused many customers to seek contracts before the end of August to avoid new early repayment rules. New mortgages without refinancing rose by 31% to 25.7 billion crowns and the number of transactions increased by 25% to 6 498, the highest since March 2022. In parallel, experts from 4Fin noted a steady increase in demand for housing, including investment properties and mortgages for foreigners, especially in the major Czech cities of Prague and Brno.
Banks have kept mortgage rates just below 5%. And despite analysts’ predictions and customers’ expectations at the end of 2023 that interest rate cuts will be rapid – it’s not happening yet. And there are 3 main reasons for this. First, banks are in no hurry to reduce rates because of the high demand for loans. The market has revitalized, banks have already fulfilled their plans for the year, and only by the beginning of 2025, with the decrease in applications, we may see changes. The second reason is the rising cost of resources in the financial market. While at the beginning of 2024 so-called “long money” was cheap, which provided banks with high margins, since March its price has increased by 0.8%, which has reduced profitability and slowed down rate cuts. The third reason is the banks’ innovations, new rules requiring customers to pay compensation to the bank of 1% of the remaining debt on early repayment, which have been in force since September. This has led to the addition of a “risk margin”, which raises rates by 0.3-0.5%. We can expect a more substantial, noticeable reduction in interest rates most likely in early 2025, provided that the cost of resources remains stable.
In November, the Czech National Bank (CNB) cut the two-week repo rate by 0.25 percentage points to 4.0%, the discount rate to 3.0% and the Lombard rate to 5.0%. The main reason was stabilized inflationary pressures, although prices of services and foodstuffs are still rising. Inflation is slightly above the 2% target, but is forecast to return to low levels in the long term.
At the end of 2024, the mortgage market is facing a pent-up demand for real estate; people who have been putting off buying real estate have started buying it. For banks, this means an increase in the volume of new mortgage loans. Banking analysts assume that the decline in interest rates will be gradual, that we are moving towards an average mortgage rate of 4%, but we will probably reach it only in a year, given that the National Bank will not change its policy. The CNB continues to maintain a tight monetary policy and will probably not cut rates sharply until it sees a sustained decline in inflation. Deputy Governor Jan Freit suggested that the prime rate could fall to 3-3.5% by the end of 2025, but a more realistic estimate is around 4%.
CONSTRUCTION AND ARCHITECTURE:
In the commercial space segment, construction has stopped almost completely, and there are not enough finished projects for everyone, but what about residential projects?
The spring showed a trend of rising supply.
Strict conditions from banks forced out small companies, as it was difficult for them to find financing, and large companies stopped construction of new objects.
The 2023 turned out to be challenging for major investors. It is all about the fact that banks began to require a higher percentage of pre-sales (or rentals), on average up to 30 percent of apartments that have not yet been built.
The relatively difficult year for construction in 2023 was for small developers and companies that were dependent on foreign sources and did not have enough own funds to build. Bank financing became difficult to get and the real estate market was flooded with offers of selling projects that owners could not finance on their own.
In April, the government tried to make an effort to improve the situation among developers by adopting an amendment to the Construction Law that would speed up the process of obtaining construction permits. This amendment included the possibility of creating a digital management of the process, this was supposed to simplify and speed up the whole complex system of obtaining building permits.
This was also not the only change in the law, in July the Ministry of Regional Development (MMR) presented a proposal to change the conditions for building of parking spaces in the Czech Republic and this has placed more pressure on private developers as well as making the threat of apartment prices go up. The requirement was to build more parking spaces in residential projects. Even though real estate experts criticized the plan, the Ministry was defending it by explaining that ” The housing issue is not the only problem in our country, it is just as important to solve the parking issue if we don’t want cars everywhere on the streets”. Adoption of this proposal in practice means that for any apartment with an area of more than 70 square meters will have to equip 2 parking spaces.
Sales and issuance of new mortgages increased in the fall, and slowly interest rates began to decline. Only new buildings kept their value. On a year-on-year basis, prices for new apartments in Prague increased by 3.5%. The demand for new buildings in the long term is almost twice as high as the supply and experts have begun to predict that soon there will be only a few of them left, and new ones are not coming to the market yet, which means that real estate prices will rise even more. In addition, people are getting used to the prices and will soon be ready to invest in new housing.
Indicators of the total volume of construction and issuance of building permits at the same time are 9.1% lower than the previous year.
In October, experts’ preliminary predictions began to come true and there was a real threat that there would be limited availability of choice to buy in the future. Even though Czech families are already used to higher mortgage interest rates and are more inclined to invest in buying new real estate than before. Also in the fall increased the volume of mortgage loans for the purchase of real estate by 90% compared to the previous year. And not even half of new apartments are being built, as it was in the times of the biggest boom, but much less.
ECONOMY AND INVESTMENTS:
At the end of 2023, the Czech National Bank (CNB) forecasted GDP growth of 1.4% for 2024 and reduced its inflation forecast for the first quarter of the year to 2.3% (down from 2.6% in February). The Czech economy began recovering in December of last year, and this growth has continued into 2024. Real household incomes are also recovering as inflation declines. In March, inflation in the Czech Republic stood at 2%, the lowest level since December 2018. A major factor in slowing price growth has been the decrease in food prices, which fell by 6%. At the same time, costs for housing, apartment rentals (up 7.1%), water supply, and electricity increased. Gas and solid fuel prices, however, declined. The decrease in inflation was also driven by lower prices for items like flour, pork, and yogurt. In March, the Harmonized Index of Consumer Prices in the Czech Republic increased by 2.2%, lower than the eurozone average.
Throughout the year, inflation remained at 2–2.2%. Fuel prices continued to drop, while the decline in food prices slowed. Specifically, prices for goods increased by 0.5%, and for services by 5%. The housing sector continues to have the greatest impact on price growth: housing costs, rent, and utilities all rose. Food prices, in contrast, decreased by 1.8% compared to the previous year. There has also been an increase in prices within the hospitality and restaurant sectors due to high tourist demand over the summer. The CNB has pursued policies aimed at maintaining inflation at the target level of around 2%. However, despite signs of recovery in external demand, the Czech economy remains below its potential.
In terms of investments, the Czech real estate market has seen a rise in both sales levels and interest in micro-housing — small apartments, particularly in major cities, purchased for investment purposes. This trend has been stable and has only strengthened since the beginning of 2024. For example, in Prague, apartments in the Prosek residential complex ranging from 9 to 19 m2 are both sold and rented out. These units are popular among managers and students. In the Chodov district, small apartments are also being developed, many of which are former hotel rooms. Such apartments are often purchased by private investors or parents for their children. For instance, apartments under 30 m2 are quickly rented out, and listings for micro-housing in Prague and other major Czech cities are sold within hours, making such properties highly sought after. In mid-2024, a 20 m2 apartment in Prague cost an average of 5.5 million CZK.
Municipalities are also beginning to build starter apartments for rent by converting old buildings, recognizing the investment potential and seeing this as a solution to the housing shortage in the Czech capital. Large companies, developers, and real estate agencies are following a similar investment strategy. For example, Central Group has introduced a new investment product within the Harfa Invest project in Prague 9 — apartments for long-term rent with a guaranteed return of 5% per year for 2.5 or 5 years. Investors can benefit from rental income and the appreciation of property value, which has grown by 149–162% in Prague over the past decade. The project includes professional property management and rental services, making the process efficient. This approach also benefits the state by preventing tax leakage from rental income.
Currently, about one-third of apartments on the Prague market are being sold as investments. The share of rental housing transactions in total real estate investments has continued to grow since 2023. In the first half of 2024, it accounted for almost 18%, and in the second quarter, 22%. These deals mainly involve rental housing projects like Vysočanský Mlýn, Nová Elektra, and others. The rise in investments is also linked to high mortgage rates, which have driven ordinary buyers away from the market, leading developers to sell entire residential blocks to institutional investors. Moreover, foreign investors are returning to the market, and investment activity in 2024 has significantly increased across all sectors and property types.
In the second quarter of 2024, the total investment volume exceeded €440 million, 23% more than the previous year. The majority of investments were directed toward office buildings (39%), rental housing (26%), and industrial properties (17%). Major transactions included the purchase of a building on Václavské náměstí for €140 million, 306 apartments in the Vysočanský Mlýn project, the sale of the Nový Opatov G1 residential project, and investments in Garbe Park, with totals exceeding €100 million. Czech investors continue to dominate the market, and despite a higher number of smaller deals, the market remains strong. Gradual declines in interest rates are further boosting capital inflows into real estate.
In 2024, interest among smaller investors in crowdfunding platforms for real estate investment continues to grow. According to expert forecasts and publicly available data, crowdfunding in the Czech Republic is expected to grow by 56% annually through 2030. The likelihood of this forecast is quite high, as last year Czech crowdfunding platforms generated over 300 million CZK for their clients and financed dozens of construction projects, speeding up their implementation.
This relatively new investment product for the Czech market, which allows investments starting from just a few hundred CZK, is becoming increasingly popular. The Czech National Bank’s licensing has played a key role in building trust in this type of investment, adding transparency and reliability. All statistical data about financed projects are published on the platforms’ websites, ensuring transparency.
Crowdfunding creates opportunities for rapid funding of construction projects and accelerates the development of new real estate properties.
PRICING AND SALES:
At the beginning of 2024, most developers, real estate agencies, and market experts anticipated a recovery in the real estate market and increased demand for new apartments. It was expected that mortgage interest rates returning to around 4% would act as a trigger, stimulating interest among investors waiting for better loan conditions. However, the growing interest from investors was already noticeable in the last two quarters of 2023 and intensified further in 2024.
Developers were optimistic about the year ahead, with sales for some companies, such as Neocity, increasing by approximately 40% at the start of the year. Many developers prepared both postponed and new projects for construction and market release. The trend of rising sales and property values was observed in both primary and secondary markets. A slight decrease in prices and mortgage rates, though modest, supported renewed interest in the real estate market, helping to close the gap between housing costs and family incomes.
It is worth noting that the Czech Republic remains one of the EU countries with the highest real estate price growth dynamics, with an increase of 125% over the last decade. Many Czechs who had postponed home purchases in hopes of mortgage rates falling below 4% in early 2024 started showing renewed interest, further driving price increases. According to experts and real estate agency employees, when rates drop below 4%, the market will accelerate even more, with housing prices expected to rise by 12-15% within a year.
Indeed, despite higher mortgage rates than five years ago, most aspiring homeowners in 2024 stopped delaying purchases, realizing the market had stabilized somewhat, making it a potentially advantageous time to buy. In Q1 2024, 1 520 apartments were sold — nearly three times the number sold during the same period last year, according to Ekospol. As inflation gradually stabilized, market sentiment improved, bolstered by expectations of further interest rate reductions and the persistent desire of many to own a home.
Mortgage lending increased, driving a rise in real estate transactions. Developers such as JRD reported a significant increase in project sales, with demand for ready-to-move-in apartments up by 80% and some projects seeing a 100% increase. Analysts predict that prices in the primary market will not decrease in the near future but will grow moderately as the economic situation improves and housing demand strengthens.
In 2024, sellers’ positions in the real estate market grew considerably stronger. Over the past two years, buyers had the upper hand, negotiating discounts from developers, including perks like built-in appliances or parking spaces. This has now changed, allowing developers to raise prices and remove such bonuses. For instance, Skanska Residential announced price increases, particularly for projects in the Prague districts of Kbely and Malešice. Prices for three-bedroom apartments in these areas are expected to rise by 200 000 CZK per square meter. Skanska’s Chairman, Petr Michalek, noted that Q1 2024 was highly successful, with apartment sales in the first three months increasing 2.5 times compared to the previous year.
While minor price fluctuations were observed in six cities’ secondary markets over the past year, quarterly data showed price increases across the board, for both new builds and secondary properties. Renovated older properties also saw significant price hikes in most cases. According to the Czech Banking Association, housing demand increased by 10% nationwide and 20% in some regions compared to last year, with the average time to sell an apartment in Prague dropping from 109 to 84 days.
The average price of new apartments in Prague rose by 1.4%, reaching 152 425 CZK per square meter during the summer months. New build sales grew significantly, with supply rising by 5.4% to nearly 6,000 apartments by mid-year. Rental prices in Prague also increased by 6% over the year. In the first six months of 2024, 3,500 new apartments were sold — a 112% increase compared to the same period last year. By the end of 2024, new apartment prices in Prague exceeded 160 000 CZK per square meter for the first time, driven by high demand and the release of more expensive projects.
Developers reported that the market reflected pent-up demand from the past two years. In the first nine months of 2024, 5 350 new apartments were sold, nearly double the amount sold during the same period last year. This included 1 850 units sold in Q3 alone, according to market analysis by Central Group, Skanska, and Trigema.
The housing market growth is closely tied to the mortgage market, where the volume of issued loans grew by over 90% compared to last year, according to Hypomonitor by the Czech Banking Association. By the end of 3d quarter of 2024, the average listing price for new apartments reached 160 720 CZK per square meter — a 6.8% year-on-year increase. The average sale price similarly rose to 152 184 CZK per square meter.
Furthermore, prices are expected to continue moderate growth due to high demand and limited supply, as the impact of the new construction law and its effect on future permit issuance rates remain uncertain, potentially slowing real estate market development further.
Recent housing market data continues to confirm the active return of deferred demand, which has nearly doubled compared to last year. High demand is reflected in rising prices for new apartments, with both listing and sale prices reaching new highs of over 160 000 CZK and 152 000 CZK per square meter, respectively. Interest in new housing remained strong even during the summer months. This year’s sales figures are approaching the record levels of 2021, when residential projects were nearly sold out. Prague’s real estate market is showing signs of revival, with rising prices and sustained interest in both new builds and secondary properties.