Real estate news in Europe – November 2023

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▶ Long-term rising prices for construction costs are preventing the return of affordable apartments лучше
▶ Sales of new buildings in Prague are on the rise. Apartments with a smaller floor area take a particular place.
▶ Czech Republic loses up to 850 million euros annually due to unregistered stays through Airbnb and other rental platforms.
▶ People are favoring smaller houses in an effort to save money.
▶ The title of “Construction of the Year” was awarded to the Štvanice Bridge, the Pelchřimov Hospital and the building of the Vsetinska Sports Arena.
▶ The state will monitor rental prices. The first sketches of the price map for the city have been created.
▶ Apartment rents are rising and will continue to rise, which makes the residents of the Czech Republic need to look for alternative housing options.

Long-term rising prices for construction costs are preventing the return of affordable apartments

High prices for construction work and materials have become one of the main reasons for the worsening affordability of housing. Their rapid increase in the past has also affected the prices of new buildings. According to current data from the Czech Statistical Office (ČSÚ), unfortunately, this trend is not easing. Construction work prices in October, according to ČSÚ, rose by 3.6 percent compared to the previous year. At the same time, prices for materials used in construction have decreased slightly by 0.7 percent. Although we no longer see the dizzying double-digit growth in prices for construction work and materials as in previous quarters, the continued rise does not promise anything positive. The pressure on the entire construction industry persists.
According to other ČSÚ statistics, the number of issued building permits is decreasing, while the total cost of permitted construction has increased significantly. In simpler terms, much less is being built for much larger amounts of money. Now, every investor must invest significantly more than a year ago. In the case of residential homes, we are talking about millions of crowns, and major infrastructure projects have increased by hundreds of millions of crowns. However, there is a certain way to navigate this situation. Investors in large projects, whether residential or infrastructure, can benefit from economies of scale and negotiate more favorable prices with construction companies. An example of such a solution can be seen in the Výhledy Barrandov II project, which, due to this approach, offers high-quality new apartments at significantly lower prices. This could be the way to reintroduce affordable apartments to the real estate market.

Sales of new buildings in Prague are on the rise. Apartments with a smaller floor area take a particular place.

The Prague real estate market has gradually picked up in terms of sales volume over the past six months. This is due to the offering of guaranteed mortgages by developers and an increase in supply from projects that were withdrawn from sale last year, waiting for the right moment to re-enter the market.

“Previously in Prague, an average of around 1500 new apartments were sold per quarter. We are still a third below the usual figures. However, demand for apartments has significantly increased since the beginning of the year,” – says Michaela Tomášková, CEO of Central Group

Finally, new construction projects are appearing on the market. The year-long pause caused by an unstable energy situation, a significant increase in construction costs, and high inflation is coming to an end. Incentives from developers, who subsidize mortgage payments for their clients during the transitional (mostly two-year) period, motivate potential property buyers. This year, the most sales were made in Prague 9. This city district accounts for almost 30% of the total number of apartments sold, especially because of prices that are the lowest in the capital. For instance, projects like Central Group, Tesla Hloubětín, and Harfa Living are currently being sold for 130 and 115 thousand crowns per square meter, while the average price in the market is 150437 crowns per square meter. That’s why both of these projects are among the best-selling in the entire city. The trend of increased interest in new apartments is expected to continue until the end of the year. This year, the total number of newly sold apartments in Prague could reach around 4000. A more significant increase in demand will bring a substantial decrease in mortgage interest rates, which may happen as soon as next year.

“The Czech National Bank left interest rates unchanged at its latest meeting, but it published a new forecast, predicting a base rate of 3.4% per annum by the end of next year. Thus, mortgages are expected to significantly decrease as early as next year, leading to an even more substantial interest in buying apartments. The question is whether there will be anything to buy. There are far fewer apartments coming onto the market mainly due to high construction costs than before” – concludes Michaela Tomášková.

Czech Republic loses up to 850 million euros annually due to unregistered stays through Airbnb and other rental platforms.

The Ministry of Regional Development has developed amendments in the tourism sector based on the European regulation, which European deputies are expected to adopt in the autumn of this year. The amendments are aimed at tightening the conditions for providing accommodation through platforms like Airbnb, Booking, and others, which act as intermediaries between tenants and property owners. According to the ministry’s calculations, up to 70% of such guests remain unregistered, and a plan has been devised to change this situation, including the creation of a registry of all property owners offering short-term accommodation services. In this registry, they will receive a registration number, without which they won’t be able to provide accommodation services at all.

“According to the ministry’s estimates, the state loses up to 792 million crowns annually in taxes, and municipalities lose 54.9 million crowns annually in accommodation taxes because the regulation of rental platforms such as Airbnb is improperly set. Although rental platforms are already obliged to provide information about tenants upon the trade authority’s request, the ministry acknowledges that this does not happen in most cases. As for apartment owners, these individuals are actually entrepreneurs, confirmed already in 2021 by the Municipal Court in Prague, so they need to obtain an entrepreneurial license and pay taxes in accordance with the income tax law,” says tax consultant and partner at BDO consulting company Jan Tuchek. The tax calculation differs from the classic long-term lease of property; the main emphasis is placed on providing accommodation services. Moreover, rental income is also subject to mandatory health and social insurance contributions. The platforms will not restrict their users; they prefer to take risks and limit themselves to administrative penalties, which they can easily avoid because they have their headquarters abroad and do not have any assets inside the country that can be confiscated. It is expected that the new measure will come into effect around the middle of next year and will affect all Airbnb property owners, estimated to be around six and a half thousand in Prague according to Airdna company data. In addition to tax payments, the goal of this law is to increase municipal fees that can compensate, for example, for higher expenses related to increased tourism. And finally, the state will gain a more complete understanding of foreigners staying in its territory while also planning to prevent foreigners from staying without registration.

“For short-term rental accommodation offers on all rental platforms, the state plans to create a unified eTourist registry by the end of next year.

“According to the proposal, short-term accommodation hosts will be required to specify in the eTourist registry the start date of their business in this area, the location, the maximum number of beds, excluding extras, their personal and contact information, and other details,” enumerates Jan Tuchek from BDO. Landlords will have to provide data about their guests. Within 24 hours of their placement, they must provide their personal details, similar to staying in a hotel or guesthouse.

“Owners who do not comply with reporting obligations for guests may face an administrative fine of up to one hundred thousand crowns. For the platforms themselves, a penalty of up to ten million crowns may be imposed for failure to fulfill the obligations arising from the innovation,” – says Jan Tuchek

People are favoring smaller houses in an effort to save money.

There’s a third decline in the construction of new homes and an increase in demand for smaller plots observed in the Czech Republic. These are among the major trends in Czech construction that influence high interest rates and rising prices of construction materials. People are seeking ways to save money when building a new home. Unlike in the previous decline, they now prefer smaller properties and lean more towards using wood rather than stone in construction. They choose wood not only as a construction material but also as a source of heat. The energy crisis combined with the country’s economic slowdown also urges residents to pay closer attention to methods of heating their spaces.

According to the Czech Statistical Office, while 11,551 private houses were started in the first half of last year, only 7,753 houses have been started in the same period this year. Experts commonly cite rising interest rates, more expensive building materials, and generally less willingness among Czech citizens to invest in housing as primary reasons. For instance, according to Petr Dufek, the chief economist at Creditas Bank, families in the country worry not only about the further development of the economy but also about their financial situation. Alongside reduced investments in housing, they’re also accumulating their savings. The increasing gap between the rise in new construction prices and a family’s overall income, as per Dataligence’s data over the past three years, contributes to this trend. This is why, according to Hypoteční Banka’s data from the second quarter of this year, the highest interest is drawn towards cheaper private houses, modular wooden structures, container homes, and mobile houses.

Currently, the popularity of wooden constructions is also altering people’s initial property preferences. According to Ondřej Pondelník from Easyhomes, many people already have designed stone houses and opt to convert them into wooden structures, mainly due to financial reasons as the prices for such constructions have slightly decreased. Moreover, the faster construction speed for this type of property plays a significant role.

“We have been witnessing a trend towards savings in the Czech real estate market since last year. The rising energy prices have only accelerated consumer interest,” – stated Martin Vašek, CEO of Hypoteční Banka

The impact of utility prices at the start of the heating season is reflected in the savings plan, especially in the heating sector.

“Since the beginning of the energy crisis, we have observed a growing preference for heating with wood, which, from a financial point of view, is the most profitable option. This applies to both existing and newly built houses. Construction materials are expensive, interest rates are high, and people are seeking heating options that will help save money in extremely tight budgets,” noted Richard Dorazil, managing Hoxter, a company engaged in producing fireplace and heating systems.

One significant factor presently is the rise in land prices and their costs, according to Hypoteční Banka. In the second quarter of this year, they increased on average by 2 percent compared to the first quarter and by almost 16 percent compared to the previous year. Some brokers suggest that people are increasingly searching for smaller plots.

“In the end, this means that besides the plots for real estate, the real estate objects themselves are decreasing in size. People do not want to invest heavily in a plot and often prefer smaller new constructions that will be less costly in terms of heating,” mentioned Richard Dorazil. A similar sentiment is echoed by Tomáš Petru, co-owner of NEMO Report, a company providing comprehensive real estate risk assessment. In his opinion, many middle-income individuals find themselves in a situation where they want to buy their own property, but their financial situation does not allow it.

“The key factor is the uncertainty and high inflation that led to the rise in prices for construction materials and, primarily, construction works, sometimes up to 100%. Therefore, people are forced to save somewhere, for example, by buying a smaller plot, building a smaller house, or purchasing land in a cheaper area or opting for a cheaper type of house. This trend of increased demand for smaller plots, apartments, houses, and also mobile homes has been observed over the last 12 months,” – highlighted Tomáš Petru.

The title of “Construction of the year” was awarded to the Štvanice Bridge, the Pelchřimov Hospital and the building of the Vsetinska Sports Arena.

As we approach the end of the year, experts have once again singled out the most successful architectural achievements of the current year. The title of “Construction of the Year 2023” was awarded, for example, to the Štvánice Bridge in Prague, which was opened in the summer, and the new bridge in Litomyslí, which has been repeatedly recognized. Awards were also given to the authors of several other public buildings in the competition organized by the Foundation for the Development of Architecture and Construction. On the Štvanice Bridge connecting the banks of the Vltava between Karlin and Holesovice, the jury emphasized the durability of the structure, which is twice as long as the standard. The award was also given to the bridge in Litomyslý, which connects two parts of the city.

“The Crystal сup” was also awarded to the family care pavilion at the Pelchřimov Hospital, where the jury praised the solution of the facade that changes under the influence of sunlight. The multifunctional sports complex Kapka in Vsetin, the residential building Oasis in Liberec, the medical center of the Faculty of Medicine of Charles University in Plzeň and the competence center of Baumit in Brandis nad Labem also received awards.

The experts also noted other public constructions such as the reconstruction of the Church of St. Margaret in Jaroměřice nad Rokítnou, the visitor center of the Bernard Family Brewery in Humpolc, construction work on the Červenský Church in Olomouc and the reconstruction of the Slovany tram depot in Plzeň.

“Foreign Construction of the Year” was the Milohov Tunnel on the section between Žilina and Puchov in Slovakia. Among the public, the residential building Mytka in Stará Boleslaví and St. Louis Airport in Senegal were also winners. The Ministry of Regional Development evaluated the construction of a new university campus on the black field in Ostrava, the Ministry of Industry and Commerce recognized the urban highway Křimická in the Karlovy Vary Region and the administrative building of Klobocka lesná in the Zlín Region.

The experts also selected the leaders of construction and architecture of the current year, which were architect Josef Pleškot and designer Vladimír Janata.

The state will monitor rental prices. The first sketches of the price map for the city have been created.

The state officials will soon have a clearer understanding of the actual cost of rent throughout the Czech Republic. A price map will assist in determining rental rates for vacant properties and possibly in allocating housing subsidies.
The Ministry of Finance has unveiled initial details of the upcoming rental price map project. In the future, this review of actual rental prices in the Czech Republic should determine the pricing level, for instance, for housing benefits, as well as contribute to defining social and affordable housing. According to Martina Ziber, an advisor to the Minister of Finance and co-author of the price maps, who discussed the details during a debate held by the Rental Housing Association, the project is currently in the testing phase. The data on the price map, she mentioned, is planned to be updated twice a year and will be based on real estate portals displaying rental price offerings.

“The rental payment price map will be divided into three categories based on typical apartment sizes – 1-room, 2-room, and 3-room,” said Ziber. The price maps will primarily serve as a key tool for the Ministry of Regional Development, which is expected to start using them as early as next year.

“They will help, for example, in setting maximum rent rates for the construction of affordable housing, in which, according to the Ministry of Regional Development, municipalities will mainly participate, along with the private sector,” stated Petr Valecko, the press secretary of the Ministry of Regional Development. The proposed law on support in housing construction envisions the establishment of contact points that will use the price maps, for instance, to ensure that rental payments in apartments with guaranteed rent tariffs are not inflated.

“This also pertains to using price maps to establish norms when calculating housing subsidies,” -concludes press secretary Petr Valecko.

Apartment rents are rising and will continue to rise, which makes the residents of the Czech Republic need to look for alternative housing options.

People who prefer renting instead of owning their own apartment have faced an increase in rental costs. What was previously enough for a three-room apartment now suffices for an apartment with one less room. The price hike is particularly noticeable in Brno, and according to experts, significant change in this trend is not expected. Expensive mortgages, which caused thousands of Czechs to postpone their plans to acquire their own property, also contribute to the increase in rental costs. The price per square meter of residential space in rent has increased in several regions. The average price in the country in the third quarter of this year was 293 Czech crowns. According to Deloitte’s rental index, in recent months, prices have risen by 4.6 percent compared to the second quarter of this year.

“The trend that we’ve observed for almost a year continued during the summer. Persistently high interest rates make it difficult for people to acquire their own housing, hence their significant interest in renting apartments,” says Petr Gana, Director of Real Estate and Construction at the consulting firm Deloitte.

“Where demand exceeds supply, prices usually increase. Thus, the average rent in the Czech Republic has increased by more than four percent, which compared to previous periods, is quite a significant growth,” he adds. The most rapid growth in residential rental rates in recent months occurred in Brno (10.8%), Pardubice (7.3%), Liberec Region (6.5%), and Ceske Budejovice (6.1%). The most expensive rental payments continue to be in Prague, where the average cost per square meter of an apartment in rent was 388 crowns, which is 4.3% higher compared to the previous quarter. Although there is growth in most regions, at present, there has been a decline in four places, namely in the Karlovy Vary Region (-2.1%), Jihlava (-1.7%), Central Bohemian Region (-0.8%), and Pardubice Region (-0.5%). The increase in the average rental payment has also been tracked on the real estate portal Sreality.cz over the past six months.

“Many who wish to acquire housing are waiting and hoping for price reductions. However, this isn’t happening with well-appointed apartments, at least in larger cities. Therefore, these people prefer rental arrangements. There are more applicants, and landlords can demand higher amounts as they have a choice among interested parties,” comments Hanna Kontrish, Manager of the Advertisements Department at Sreality.cz, on the development. Notably, there’s a significant increase in expenses for ordinary families associated with inflation and rising energy prices. This leads to people postponing the purchase of their own housing and landlords considering their own financial needs in rental prices, which, of course, also reflect increased property management and maintenance costs. Due to the growing housing expenses in rent, Czech citizens are forced to lower their housing demands, according to research by Generali Investments. According to Frantisek Broz, spokesperson for Bezrealitky.cz, the number of people transitioning to rental housing will continue to increase, so significant decreases in the cost of rent per square meter should not be expected in the future, but rather the opposite. This not only results in a reduction in the area of leased apartments but also makes other housing alternatives more relevant.

“From our perspective, the market will respond more by supplementing new real estate offerings that provide lower prices, as well as other options. For example, for the second year now, the shared living market has been developing in the Czech Republic, offering rooms, parts of apartments, or even entire floors of duplex houses, with several hundred completely new possibilities,” states the spokesperson of the real estate portal.