A stagnant market, stable prices for quality properties, and an inflated price bubble in the rental housing segment—these were the key trends of the Prague Residential Market at the end of 2022, based on the results of the latest analysis conducted by the Svoboda & Williams real estate agency.
"A difficult year is now behind us. We experienced economic troubles caused by the energy crisis, the central bank grappled with runaway inflation, and the Czech economy fell into recession, all of which had a significant impact on the real estate market. The atmosphere is reminiscent of the tension just before the iconic shootouts in Sergio Leone’s westerns—actors stand stiffly, waiting for the next move, their nerves twitching," says Prokop Svoboda, owner of Svoboda & Williams.
Data from the last quarter of the last year indicates a cooling down in the demand for properties for sale, but it also clearly confirms that quality real estate is able to maintain its value even in uncertain times. In the segment that Svoboda & Williams has been monitoring for a long time, the average price for a property sold saw a year-on-year increase of 0.6 percent. "Each era generates winners who want to live their success in the here and now. At the end of the year, we concluded several important transactions that reinforced our belief in quality real estate as a stable base for investors in volatile times," confirms Svoboda.
In the third quater of 2022, clients of Svoboda & Williams paid an average of CZK 158,412 per square meter for a new-build and CZK 141,209 per square meter for a resale property. In Prague 1, the average price per square meter for a new-build was CZK 213,441, while the least expensive new-build property was in Prague 9, where it could be purchased for an average of CZK 119,981 per square meter. "For the first time in the history of our Market Reports, clients who took out a mortgage in order to buy a home accounted for less than 35% of all transactions," says Kryštof Kušiak, analyst at Svoboda & Williams. Almost 70% of Czech buyers purchased real estate with their own resources, which shows the purchasing power of the local population, for whom quality properties are a “safe haven" whenever inflation goes up.
The real estate market experienced another record-breaking increase in rental prices in the last quarter of 2022. "According to the Rental Price Index of S&W, rents in Prague saw a year-on-year increase of 23%, rents for small studios and one-bedroom apartments in the center of Prague rose by 40% up to an average of CZK 31,030, while the average rent for the entire city climbed to CZK 39,800," states Kušiak.
However, according to Svoboda & Williams' analyses, rents in Prague and Brno are starting to come face-to-face with the economic reality. "The usual end-of-year decline in demand for rental housing was even more pronounced last year compared to the boom in interest during the summer months," says David Šimeček, head of residential rentals. "We've noted that multinational corporations are cutting back on expat relocations in order to reduce costs ahead of the expected recession," he adds. Weaker interest is also affected by people's reduced purchasing power, which, according to the CSO, shrank by a tenth in the second half of last year. "We can therefore expect that the rental housing bubble will be corrected in 2023," concludes Prokop Svoboda.
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How Svoboda & Williams' Market Report Is Created
The analyses in the Market Report are based on data on sales and rental transactions generated by Svoboda & Williams' activities, which are supplemented by data on property sales obtained from the cadastre of real estate with parameters that match the sample monitored by Svoboda & Williams. The Market Report works exclusively with data based on achieved prices, the calculation of which takes into account the price for parking spaces and a proportional part of the exterior. To recalculate the exterior area, this methodology uses a specially developed algorithm that progressively reduces this area and takes into account its ratio to the interior area. Our Market Report is published four times a year. It compiles data from the two most recent quarters and compares real estate market developments over two consecutive six-month periods.
Another useful tool that allows for a more accurate interpretation of the rental market is the Rental Price Index by S&W + VŠE, which Svoboda & Williams developed in cooperation with the Faculty of Informatics and Statistics of the University of Economics in Prague. The data is sourced from the actually achieved rents of the apartments that were listed by Svoboda & Williams, and the Index compares the development of the rental market on a year-on-year basis.
