Market in Depth

Despite economic uncertainty housing market still strong

Lalaine C. Delmendo | February 08, 2022

Czech Republic's housing market is still very strong, despite global supply chain disruptions and the economic uncertainty brought by Russia's invasion of Ukraine.

The average price of apartments in the Czech Republic surged by 26.3% (13.5% inflation-adjusted) during the year to Q1 2022, after y-o-y rises of 25.8% in Q4 2021, 22% in Q3, 14.6% in Q2 and 11% in Q1, according to the country's central bank Czech National Bank (CNB). In fact, it was the biggest y-o-y growth since the series begun in 2008.

On a quarterly basis, nationwide house prices rose by 5% in Q1 2022 (-1.2% inflation-adjusted).

During Q1 2022:
  • The average price of new dwellings rose by a record 29.8% (16.7% inflation-adjusted) – so that prices of new dwellings are now 128% higher than the previous Q3 2008 peak.
  • The average price of existing dwellings soared by 23.5% (11.1% inflation-adjusted) from a year earlier, or 101.5% above the previous Q3 2008 peak.

Nationwide house prices rose by more than 12% annually over the past six years, more than double the rise in wages. As a result, homebuyers in the Czech Republic need to pay 12.2 times average annual salaries to purchase a 70-sq. m. dwelling, the second least affordable housing among the European countries included in the 2021 study conducted by Deloitte.

“The Czech Republic recorded the second least affordable housing among the participating countries with an average of 12.2 gross annual salaries to purchase a standardised dwelling. In comparison to last year, this is an increase by almost two average annual salaries,” said Deloitte.

Despite this, demand remains robust. During 2021, the total number of apartments sold in Prague reached 7,170 units, up by 19% from a year earlier and 22% above the five-year average sales, according to JLL's H2 2021 Prague Residential Market. In fact, it was the best showing since 2016 when 7,700 apartments were sold in the capital city.

Dwelling starts rose by 28.3% y-o-y to 10,832 units in Q1 2022, following a 27.6% increase during 2021, based on figures from the Czech Statistical Office (CZSO). On the other hand, dwelling completions were up slightly by 1% to 9,110 units in Q1 2022, after a miniscule growth of 0.5% in 2021.

Czech annual house price change graph
The Czech Republic's housing market is expected to continue growing this year, albeit at a slower pace due to rapidly rising interest rates, the imposition of tighter lending regulations, as well as the erosion of purchasing power due to high inflation.

Economic growth is expected to slow to 2.3% in 2022, following a 3.3% expansion in 2021, amidst the Ukraine crisis and heightened inflationary pressures, according to the International Monetary Fund (IMF). The European Commission released a more pessimistic 2022 growth projection for Czech Republic of just 1.9%.


Analysis of Czech Republic Residential Property Market »

Rental Yields

Prague property is expensive, and rental yields are poor

Gross rental yields, i.e., the rental return on a property if fully rented out, before all expenses, are poor in Prague. Though some areas have higher yields, gross rental yields for apartments tend to be near or under 3%. Prague is the most expensive of any significant Czech city to buy or rent a property. Prices in Prague range from EUR 4,000 to EUR 6,000 per square metre (sq. m.).

In Prague 2, a district popular for expats with quick access to the city centre, apartment prices cost an average of EUR 6,335 per square metre (sq. m.) and rent is around EUR 16 per square metre (sq. m.), earning a rental yield of 2.94%. Property prices here are less expensive than in Prague 1, where a 60 square metre (sq. m.) apartment costs around EUR 6,799 per sq. m. and rents at EUR 15 per sq. m., generating a rental yield of 2.32%. Most expensive flats are located in Prague 1 and Prague 2.

Another district favoured by expats is Prague 5, one of the largest districts of Prague. A 60 square metre (sq. m.) apartment in this area typically costs EUR 4,991 and rents at EUR 14. Apartment prices here are much more affordable than in the city centre.

The largest Prague district is Prague 6 and has a very high cost of living. But there is a relatively available options like in our research where a 60 square meter (sq. m.) apartment cost around EUR 4,895 and EUR 12 for rent, generating a rental yield of 2.76%.

Rental yields in the first district of Prague are quite weak, at around 2.32% for a 60 square metre apartment. In district 5, the yield can amount to 3.29%. Yields have eased from three years ago, when property yielded around 3.14% to 4.73%.

Round trip transaction costs are moderate to high in the Czech Republic. See our Czech Republic transactions cost analysis and our Czech transaction costs compared to other countries.

Read Rental Yields »

Taxes and Costs

Rental income tax can be high

Rental Income: Rental income is taxed at a flat rate of 15%. Income-generating expenses are deductible from the gross income, with a maximum of CZK600,000 (€21,429).

Capital Gains: Capital gains are included in the aggregate taxable income and taxed at the normal income tax rate.

Inheritance: Inheritance received by a qualifying spouse or a close family member is not taxed.

Residents: Residents are taxed on their worldwide income at progressive rates, from 15% to 23%.

Read Taxes and Costs »

Buying Guide

Total transaction costs are moderate in the Czech Republic

Roundtrip costs in the Czech Republic are moderate at around 7.51% to 10.02% of the purchase price of the property. The buyer pays around 2.5% to 5% of the transaction costs. The seller pays the real estate acquisition tax at 4%.

Read Buying Guide »

Landlord and Tenant

Czech law is pro-landlord

Czech Republic Prague Vltava river apartmentsCzech law is kind to landlords (although 90% of the population still lives in the old, controlled rental sector).

Rents: Rents can be freely agreed between landlords and new renters of houses with vacant possession, and the parties may freely negotiate any contract length.

Tenant Security: At the expiry of the contract, the tenant must vacate; no notice need be given, and he is not entitled to substitute housing. There is no maximum deposit.

Read Landlord and Tenant »

ECONOMIC GROWTH

Economy to slow this year, inflation surging

The Czech economy expanded by 4.8% year-on-year in Q1 2022, up from the previous quarter’s 3.6% growth, buoyed by strong domestic consumption, gross capital formation and inventories, according to the Czech Statistical Office.

Despite this, economic growth is expected to slow this year to 2.3%, amidst the Ukraine crisis and heightened inflationary pressures, according to the International Monetary Fund (IMF). The European Commission released a more pessimistic 2022 growth projection for Czech Republic of just 1.9%, following a 3.3% expansion in 2021.

Czech gdp inflation
“Annual GDP growth reached 3.3% in 2021 and is forecast to slow down to 1.9% in 2022, driven by exacerbating supply chain disruptions resulting from new bottlenecks created in relation to the Russian invasion of Ukraine and lockdowns in China, as well as an elevated inflation rate caused by higher energy and commodity prices,” said the European Commission.

The Czech Republic enjoyed an average growth rate of 6% from 2004 to 2007. GDP fell by 4.8% in 2009 but bounced back immediately in 2010, registering growth of 2.3%, followed by 1.8% in 2011. However, the economy fell in recession in 2012-13 due to weak domestic demand.

Czech unemployment
An economic recovery in 2014 was followed by healthy expansions of 5.4% in 2015, 2.5% in 2016, 5.2% in 2017, and 3.2% in 2018, thanks to increased private consumption and robust growth in the real estate market. Economic growth slowed in 2019 to 2.3%.

In 2021, the government’s budget deficit hit a record CZK 420 billion (US$17.93 billion), the biggest shortfall since the establishment of the Czech Republic, as public spending surge to cushion the impact of the coronavirus to the domestic economy. The deficit was equivalent to about 5.9% of GDP in 2021, slightly up from the previous year’s shortfall of 5.8% of GDP and almost twice the EU’s mandated ceiling of 3%, according to Czech Statistical Office.

The deficit is expected to remain high this year and will surpass CZK 300 billion (US$12.81 billion), as Czech Republic takes in hundreds of thousands of refugees fleeing the Russia-Ukraine war, and as the state spends more on defense and increases pensions.

In April 2022, the general unemployment rate was 2.4%, unchanged from the previous month but down from 3.4% a year earlier, according to Czech Statistical Office.

Inflation accelerated to 16% in May 2022, up from 14.2% in April and the highest level since December 1993, driven by a surge in energy and commodity prices. Headline inflation is expected to reach 13.1% this year, based on the latest forecast released by the CNB.
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