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Housing Market: Difference in Pricing of Less Expensive and Luxury Housing is Growing

Prices of older apartments have gone down slightly down while the pricing of new developments remains unchanged.

• The difference between prices of less expensive and luxury housing is increasing.
• The market is specializing in affordable housing within the price range of 45 – 50,000 CZK/ sq m.
• The luxury housing market (60 – 70,000 CZK/ sq m) has entered a downturn.
• An increase in the development of new luxury housing within the price range of 100 – 140,000 CZK/ sq m.
• The average price of an apartment in Prague is 55 – 60,000 CZK/ sq m.
• The prices of older apartments have gone down slightly to 30 – 40,000 CZK/ sq m.
• Rents for apartments – newly built/ reconstructed apartments are preferred with rents starting at 250 – 300 CZK/ sq m.
• No major changes in pricing policies are expected in 2015 however pressure from over supply may affect prices in 2016.
• Regions typically offer smaller development projects, prices around 45,000 CZK/ sq m.
• Trends: the younger generation prefer leasing to ownership.

How is the residential market developing in Prague and in the regions? Are the prices of older apartments going down? Which new development projects should not be missed? Are customers interested more in affordable or luxury apartments? Is it better to invest in a lease or ownership? Are there any changes expected on the housing market in 2015?

Demand on the residential market has been changing. While in previous years supply and demand at all price levels was more or less the same the residential market has experienced dramatic changes in the past year.

“In the last one or two years, we’ve seen a certain polarization of the market, as the differences between less expensive and luxury housing are increasing. The market has begun to specialize in either less expensive and affordable housing on the one hand or on luxury housing projects on the other. The mainstream of high-quality housing is stagnating at the moment and we do not expect any major changes, even in the coming year,” says Jan Hospodář, Head of Sales & Acquisition at CBRE.

Older apartments have entered a slight downturn

During the last three to five years, older apartments have seen a slight downturn, although the final price is always a matter of location. Prices range between 30,000 and 40,000 CZK/ sq m.

Demand for luxury as well as more affordable housing

In practice, it means that the markets have started specializing in apartments within the price range of 45 – 50,000 CZK/ sq m while housing developments within the price range of 60 – 70,000 CZK/sq m have entered a downturn. On the other hand, there are luxury housing projects available within the price range of 100 – 140,000 CZK/ sq m.

The average price of an apartment in Prague is currently at the level of 55 – 60,000 CZK/ sq m. “However, it must be said that the average is currently influenced by the launch of several expensive development projects on the market. In the long term, the average price of an apartment in Prague does not exceed 55,000 CZK/ sq m,” adds Jan Hospodář. We do not expect any dramatic changes in the next year in terms of pricing policies applied by individual developers. Due to the high number of projects under construction, a slight excess pressure of offer over demand is expected in the second half of 2016.

The situation in the regions is a bit different as there are smaller development projects being implemented by local building companies with 20 to 50 housing units, the price of which does not exceed 45,000 CZK/ sq m.

Interesting projects - availability of community facilities is of key importance

The market offers some interesting projects, which are affordable and which are also kind of the point as Jan Hospodář says. They can offer future owners a good availability of community facilities and easy access to the city centre. This is the problem faced by the projects of satellite communities that were developed during the last two decades on the outskirts of Prague and in the Central Bohemian Region, where they usually do not offer any community facilities apart from housing. “If developers failed to sell the project apartments before the recession, it must be difficult for them to sell the project now. Today people think about housing in a far more comprehensive manner, considering the purchase within a longer horizon and requiring community facilities, in particular,” says Jan Hospodář.

Among the interesting projects available on the market is the Smart project at the Nové Butovice metro station.

The developers are betting not only on its interesting architecture, but also the sophisticated design. Another interesting project available on the market is the Residence Garden Tower in Žižkov and the Salomonka project in Prague 5 in the luxury segment.

Leasing or owning? Young people do not want to be bound!

It is difficult to find the answer to this question. In particular, it depends on the period of time for which the customers expect to use the flat and on the other hand the availability of mortgages to young families, for example. If the family grows bigger and a move to a larger flat/ house is expected, it is better to invest in a lease. “This will eliminate the resale and purchase of a new apartment in 2 to 3 years, for example. This situation is also typical for the young generation who do not want to be bound by long-term obligations and opt for leasing in most cases, as leasing offers them a certain freedom in life,” explains Hospodář.

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About CBRE

CBRE Group, a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees and serves real estate owners, investors and occupiers through approximately 350 offices in more than 60 countries worldwide (excluding affiliates). CBRE offers strategic advice and execution for real estate sale and lease, corporate services, facility and project management, real estate appraisal, development services, investment management and research. In the Czech Republic CBRE have nearly 350 employees. In the Czech Republic CBRE manages nearly 200 commercial premises with a total area nearly 1.2 mill. sq. m. Read more at www.cbre.cz.