News for March 2024
Description:
▶ Real estate prices are expected to increase significantly this year.
▶ The Czech National Bank is likely to reduce mortgage rates. How much will borrowers save?
▶ The government will provide subsidies for the installation of solar panels.
▶ Refinancing of mortgage loans will become more popular.
▶ The volume of real estate investments in 2024 may increase by up to 22%.
▶ Last year Czechs invested over 3 billion crowns in real estate through crowdfunding investments.
▶ Now is the optimal time to purchase real estate – prices are expected to rise again in the future.
Real estate prices are expected to increase significantly this year
Czechs who are looking to purchase their own homes are waiting for mortgage rates to drop below 4 percent. Over the past two years, the real estate market has been under pressure due to expensive financing. High interest rates, combined with the conditions set by the Czech National Bank for obtaining housing loans, have led many buyers to carefully weigh their investments and consider whether now is the right time to buy. According to Frantishek Krupa, a realtor at Archer Reality, this year is expected to see significant growth not only from the buyer’s perspective.
«The real estate market anticipates significant growth from both the demand and supply sides. Over the past two years, sellers have also been waiting for a more favorable period for transactions,» says Frantishek Krupa. Despite the growing interest in new deals, investors are still waiting, he says.
«When mortgage rates drop below four percent, I am confident that there will be a significant movement, and the market will come alive again,» Whether it’s apartments or private homes, real estate prices are expected to rise again.
«We see that people want to buy and are looking for new homes. It is clear that real estate will start to appreciate again. I think that just this year, real estate prices could increase by 12 to 15 percent,» — says Krupa.
The Czech National Bank is likely to reduce mortgage rates. How much will borrowers save?
The real estate market is eagerly awaiting further interest rate cuts. Experts say banks are awaiting an impulse from the ČNB. For clients, rate cuts mean a discount on their monthly payments by hundreds of crowns. According to the chief economist of Patria Finance, Jan Buresh, central bankers are likely to decide to cut the rate by 0.5 percentage points again, as was the case at the February meeting. Mortgage experts believe that a rate cut by the ČNB will also affect the housing market. Mortgages will become cheaper again.
«The reduction in interest rates in major banks should mainly occure on shorter fixation periods. I expect the 0.5 percent to be overcome,» said Roman Sejk, a mortgage consultant from Hypobanka, a Broker Trust partner.
According to David Eim, a mortgage expert from Gepard Finance, the anticipation of rate cuts is so strong that banking institutions may already partially take this reduction into account in some of their loan products. However, in his opinion, there should be only a slight decrease in mortgage rates.
«I would expect a decrease of around 0.25 percentage points. The decrease will start primarily in smaller banks. The larger ones may join in two to three weeks,» said the mortgage expert.
The greatest reduction will occur in the capital, where, due to higher real estate prices, the average mortgage loan amount is the highest. With a rate decrease of 0.3 percentage points, a client with a loan amount of 3 850 000 crowns will save over 700 crowns on their monthly payment. According to Roman Sejk, lower rates will lead to an increase in the number of mortgage loans.
«Thanks to the decrease in interest rates, there should be a revival in the market. On the other hand, the cost of real estate plays an important role here, which may start to rise along with increasing demand,» said the expert.
According to data from Hypomonitor of the Czech Banking Association, the mortgage market is already growing. In February, banks and building societies provided families with loans for housing purchases totaling 15, 8 billion crowns. The volume of issued mortgage loans increased by 21 percent month-on-month. However, despite the steps of the Czech National Bank, banks will approach rate cuts on loans quite cautiously. The sharper the interest rate decline, the more clients will consider refinancing existing loans.
«The whole market is waiting for this turning point, and banks are afraid of the consequences; these changes cost the bank additional money. The slower the interest rate reduction in the market, the fewer clients will consider refinancing their mortgage loan. Therefore, I think that banks will approach rate cuts quite conservatively,» said David Eim.
The government will provide subsidies for the installation of solar panels
There is a huge interest among private homeowners in installing solar (photovoltaic) panels. And this is not surprising, given the high energy prices. This interest is also supported by numerous subsidy programs that provide people with significant financial assistance for installing a photovoltaic system, which can be enhanced by combining it with other systems. The main subsidy option for installing solar panels for private homeowners is the “New Green Economy” program. Other subsidy options are always limited by something. For example, boiler subsidies, while providing more significant support for replacing non-ecological heat sources than NZÚ, apply only to heating. The “New Green Economy Light 2024” program is intended only for low-income families and can be used only for insulation or solar water heating. This program now also allows those installing solar panels to receive an additional financial bonus for insulating the house.
«The main support is limited to 50% of the total expenses and a maximum of 160 000 crowns. The bonuses are not taken into account and are added to the total payment,» explains Barbora Dolezhalova from S-Power.
«If someone wishing to receive a subsidy for solar panels wanted to use the maximum possible subsidy, as it was under the old conditions (200 000 crowns, and 220 000 crowns for preferential municipalities), it would be beneficial for them to use another program, for example, for the reconstruction of inherited housing,» adds Dolezhalova.
With each installed kilowatt of solar panels and with each kilowatt-hour of battery, the subsidy for solar panels increases. The minimum subsidized installation is 2 kW of solar panel power. A bonus of 10 000 crowns can be obtained for solar panels used for water heating. Subsidies for solar panels can be combined within subsidy programs with other products.
«In the NZÚ Light subsidy program, you can apply for a subsidy for window replacement together with a subsidy for solar water heating. However, if a request has already been submitted only for windows, then, for example, after a few months, you cannot reapply for a subsidy for solar panels,» says Roman Kubalek from Vekra.
«If the applicant within the reconstruction of a private house will implement several measures, they are entitled to a combined bonus. When installing a solar system and controlled ventilation with heat recovery, you can additionally receive 10 000 crowns. In the case of new construction, which will use subsidies from the NZÚ program, the installation of recuperation is even mandatory,» warns Ondrey Syrinek from Zehnder.
From the New Green Economy program, it is clear that the state does not provide a subsidy automatically to everyone, and its provision depends on meeting certain requirements. The conditions that the direct applicant for a subsidy from the NZÚ program must meet are as follows: they must be the owner or co-owner of the property, it can be a person or a company, they must remain the owner of the property for the entire duration of the subsidy administration. Also, some conditions must be met by the property for which the owner and subsidy applicant intend to purchase solar panels: a private house with a maximum of three residential units, a country house intended for permanent residence (the applicant or another person must have had a permanent place of residence here for at least the last two years), a farm with at least one registered residential premises, or new construction with a floor area not exceeding 350 square meters, with a maximum of two floors (in addition, the house may have a basement and an attic). Even if the applicant wishing to receive a subsidy meets the requirements of the state, their property also meets all the necessary conditions, and has all the necessary documents, the implementation of solar panels can still be a problem for them. And this is due to financial reasons.
«This fact can be a significant limitation for many people. They have the finances to purchase solar panels, but they do not have enough funds for a one-time payment for the entire implementation. Therefore, more and more people are using financing through a loan, and after receiving a subsidy, they use the received funds for a one-time repayment of the loan,» describes Zikova. Therefore, some panel suppliers have teamed up with banks and also offer the necessary loan arrangement.
«Before the planned reconstruction, you can consult with one of the energy specialists certified by the Ministry of the Environment. They will determine the energy class of the house and its individual parameters and based on this will be able to determine the most suitable measures for a specific building and what subsidies can be obtained for them,» recommends Veronika Skorunkova, an energy specialist from V-System Elektro.
Refinancing of mortgage loans will become more popular
With cheaper mortgage rates in the Czech Republic, there will be active refinancing of loans. Financial consultants, who receive rewards from banks for attracting clients, support the flow of clients in the mortgage lending sector. This increases the expenses of banks and reduces the availability of mortgage loans. When banks lower mortgage rates due to the low rates set by the Czech National Bank, some clients try to get rid of high interest rates by switching to another bank, often before the end of the fixed period. They seek help from a financial consultant who organizes refinancing. This money distribution model is not liked by banks. In addition to frequent client movements from one bank to another, which costs them large sums, most of them also have to pay a commission to intermediaries – consultants.
«Financial intermediaries who are financially motivated to do so operate here. Until large banks stop using intermediaries, the situation will not change,» said Tomash Spurny, CEO of Moneta Money Bank, noting that this model ultimately makes mortgages and their interest rates more expensive.
The use of intermediary services, according to Zdenek Tuma, former head of the Czech National Bank, is extremely high in the Czech Republic compared to other countries. Some banking institutions are now making changes. Moneta Money Bank terminated cooperation with credit intermediaries in January of this year and is preparing to offer products independently and digitally. A similar step was taken this year by Modrá pyramida, which abolished the commission payment to intermediaries who brought in a client. According to Zdenek Tuma, co-founder of IRQ Funds and former head of the CNB, changes in the distribution model across the entire Czech banking services market can be expected in the near future.
«This will be a change in the commission scheme structure. Each bank will probably solve this a little differently, but changes in the model will definitely occur. Undoubtedly, digitization will also play a significant role,» he said.
Cheap transitions of clients from one bank to another have so far been ensured by existing legislation. However, the rules for paying off a mortgage before the end of the fixed term will change from September of this year. While it was enough to pay a symbolic fee for an early exit from the fixed period, now there will be a “penalty” of up to one percent of the remaining loan amount, but not exceeding 50 000 crowns. According to banks, even such a “fee” will not cover their expenses, and the change will not stop the so-called mortgage tourism.
The volume of real estate investments in 2024 may increase by up to 22%.
According to research by Savills, the volume of real estate investments in the Czech Republic in the first quarter of 2024 will be around 350 million euros, and the volume of real estate investments in Europe will be around 34 billion euros. Savills predicts that by the end of the year, the volume of investments in the Czech Republic will exceed 1.5 billion euros. This will signify a significant revival in investment volume by 19%, respectively 22% compared to the 1, 25 billion euros recorded in the Czech Republic in 2023. Fraser Watson, Head of Investment at Savills CZ & SK, stated:
«Since the beginning of the year, there have been many more property owners who have decided to sell. The main reason is that the rise in interest rates is slowing down, which brings a greater degree of confidence to the market. Along with this, there have been enough other deals that provide confidence in the current price level, and among investors there is a sense that the market has already reached its bottom.»
The international real estate consulting company believes that the expected reduction in central bank interest rates will boost investment activity by the end of this year and stabilize income from mid-2024 onwards. Savills also expects that the yield in the Czech Republic throughout 2024 will remain at the current level, with the yield forecast for premium office real estate remaining at 5.25%, for premium industrial real estate also at 5.25%, and for premium residential real estate at 6.5%.
«I think the fear of missing out will return to the market in 2024, probably in the second and third quarters, as investors see others showing more activity, which will prompt them to return to the market,» Fraser Watson adds.
Last year, Czechs invested over 3 billion crowns in real estate through crowdfunding investments
Available analytical data shows that crowdfunding is expected to grow by approximately 56% annually until 2030. Just last year, Czech platforms earned over 300 million crowns for their clients. Additionally, Czech investments helped finance dozens of construction projects and expedite their implementation. This young type of investment product allows investing from just a few hundred crowns.
«Crowdfunding investments are relatively new for us. However, they are developing rapidly, and the numbers are growing. One of the factors was the issuance of a license by the Czech National Bank, which added trust to this investment product among ordinary people. In addition, one of the rules under the license is the mandatory publication on their website of all statistical data on funded projects. Thanks to this, it is a very transparent way of investing. It is also important that people help us and other market participants implement construction projects because we can provide them with quick financing. Just last year, there were over 100 of them in the Czech Republic. This year, we expect it to be three times more,» says Alan Pok, co-founder and CEO of one of the three licensed crowdfunding platforms in the Czech Republic.
Compared to 2022 and 2023, people invested 300% more in this product. And the amount of investment is growing monthly according to available data. Rapid growth is expected in the coming years as well. The situation in the Czech Republic also shows that people here like investments backed by tangible, physical assets. Crowdfunding, or mass financing, can also bring other benefits besides financial returns. For investors, developers, and society itself, this can be one way of further development. In addition to investments, it has an almost unlimited range of industries to focus on. Well-known examples include charitable actions, support for artists or developers, as well as the implementation of real estate projects.
Now is the optimal time to purchase real estate, prices are expected to rise again in the future
If someone has been postponing the purchase of their own home for a more favorable time, it has arrived. Experts from the real estate and mortgage industries agree on this. They recommend not delaying the purchase of real estate, even if it involves a more expensive mortgage loan. On the contrary, those considering selling should wait a bit longer. Comparing the last two quarters of 2023, apartment prices rose by several percentage points in most major cities in the Czech Republic. The only exception is Usti nad Labem, where they fell by an average of 1%. Prague and three other major regional cities saw an increase of 2%. This is according to an analysis by the company FérMakléři.cz.
«By mid-year, mortgage interest rates will be slightly above 5% per annum, possibly around 4.7% by the end of the year,» expects expert David Eim, whose forecast applies to major banks, which constitute the majority of the market.
Rates this year are unlikely to drop below 4.5%; however, some smaller banks already offer rates significantly below 5%. A widespread reduction in mortgage rates below the psychological threshold of 5% per annum could signal a turning point in the real estate market and lead to a more vibrant market. Nevertheless, the best time to buy real estate is now.
«It seems that the decline in real estate prices has stopped, and in most major cities, apartment prices are already rebounding from their lows. But the market is still awaiting a decisive impulse, which could be cheaper mortgages,» believes Lumir Kunc, CEO of FérMakléři.cz, who thinks the market is currently favorable to buyers.
«At present, demand is weakened, so there is plenty to choose from, buyers are not under pressure, and there is an opportunity to negotiate a better price,» adds Lumir Kunc.
However, this situation is likely to change completely over the year. With the decline in interest rates, demand for mortgages and, consequently, real estate purchases will increase
«With the real estate market picking up, the situation will shift in favor of sellers, as prices will rise again. For those who have been waiting for the best time to sell real estate, this is likely to happen this year,» suggests Lumir Kunc.
«When choosing a short fixed term, you can most likely refinance the mortgage under significantly better conditions in the coming years. Therefore, it doesn’t make sense to delay the purchase,» recommends David Eim.
According to him, with an average mortgage of 3.3 million crowns for a term of 30 years, a change in the rate by a tenth of a percentage point will result in a change in the monthly payment by approximately 200 crowns.
«With an interest rate of 5.69% per annum, the monthly payment is 19,132 crowns; with an annual rate of 5.19%, the payment will decrease by approximately one thousand crowns to 18,100 crowns per month. By the end of this year, the payment on the average mortgage with a rate of around 4.7% could decrease by 2,000 crowns per month,» adds David Eim.