The real estate market proved its strength during the pandemic. This is, above all, the stability and permanent long-term appreciation of investments.
Moreover, this is increasingly the case for the fast-growing residential rental market – and there is no indication that it will slow down. The coronavirus pandemic has obviously affected real estate markets in the short term. Even before its outbreak, the economy indicated that the driving force of the previous boom was running out. Nevertheless, the decline in GDP in 2020 was only 5.6%, i. e. lower than the expected 8–10%. The year and a half long experience with coronavirus tames even overly optimistic growth estimates for the future. The estimates currently work with GDP growth of 3.1% for 2021. However, the trend remains positive.
Apartment prices are rising
What is also important from macroeconomic parameters is the development of unemployment. This affects consumption and purchasing power, which is reflected in the demand for residential housing. Current forecasts predict a slight increase in unemployment to approximately 4.4%. So, the decisive factor will be how fast unemployment really rises.
Otherwise, conditions in the real estate market are relatively stable and individual factors balance each other. This was visible in the rapid recovery from the original slump in prices, which occurred immediately after the outbreak of the pandemic and lasted only shortly; it was soon replaced by rising real estate prices not only in Prague, but across all regions and especially in towns. On the one hand, there was the influence of an insufficient offer, which is, among other things, the result of a complicated modification of the building procedure. Another significant factor was the increase in household savings during coronavirus combined with high inflation (3.2%) and low mortgage rates (about 2%).
Thanks to this, we can expect further growth and continuation of commenced projects in development activities as well as in sales. This also applies to the area of residential projects intended for rent, which has been promised for a long time. This is due not only to the rising price level of new apartments, but also to the stricter regulation of mortgages by the ČNB, which ultimately leads to an advantage in long-term rental over home ownership, especially among young clients or those whose savings do not allow larger one-off investments.
This model is also attractive for investors, as it generates a regular yield of 3–5% (depending on the location) with the current rise in property prices. Even before the outbreak of the pandemic, it was possible to talk about a stable market segment. We can see in the current development that this is still a promising investment area as the prices in this segment also quickly returned to their original level after an initial short decline.
Specifics of the Prague market
A special case in this respect is the Prague market, where development has been contributed to by the high concentration of investment apartments used for short-term stays via Airbnb-type platforms. The decisive factor in stabilizing prices will thus be how quickly can ordinary tourism, from which the profitability of such a model is derived, be restored. In central parts of Prague, long-term rental prices have dropped by 10% – and this transitional situation is, in principle, still ongoing.
Positive impact of legislative changes
There are also optimistic impulses. In total, the abolition of the real estate acquisition tax has a positive effect. This is negatively offset by the abolition of the possibility to deduct interest from the personal income tax base (does not apply to loans obtained before the end of 2021) and also by extending the time test for exemption of income tax from real estate sales from five to 10 years (for acquisitions after 1st January 2021). What is also expected is a relatively rapid increase in interest rates, the beginning of which we recorded in the growth of mortgage rates.
Bank and non-bank financing institutions also respond to market development. The optimism and relative stability of the real estate market is measured in the light of the fact that the pandemic is not over yet and investment prudence is certainly in place. There is a lot of room for lease financing of real estate. This provides a greater amount of security for the financing entity compared to traditional bank loans and allows for dealing more easily with more difficult situations that may arise on the part of clients – recently it was, for instance, the loss of rents due to government measures taken up in connection with coronavirus. The financial structure of real estate leasing thus makes it possible not to approach radical solutions and provides comfort for the long-term relationship that real estate financing represents.
Raiffeisen – Leasing projects
Raiffeisen – Leasing is a long-term leader in the field of non-bank real estate financing. They provide first class individual services to even the most demanding clients. This also applies to the area of development, where the client is assisted by a professional team that accompanies him throughout the financing period and helps in individual phases, from the preparation process to the completion of the construction. The quality of services is also evidenced by the fact that clients who have tried leasing financing of real estate repeatedly return to this solution.
The Prague projects financed recently by Raiffeisen – Leasing include, for instance, the Zátiší Rokytka residential project, and as for the non-Prague projects, the Farářství residential project in Hradec Králové.
PR / photo: shutterstock