As macroeconomic conditions improve, the Czech housing market demonstrates early signs of recovery in sales and lending activity, while the shortage of new supply puts upward pressure on prices.

This extended overview from the Global Property Guide covers key aspects of the Czech housing market and takes a closer look at its most recent developments and long-term trends.

Table of Contents

• Housing Market Snapshot
• Historic Perspective
• Supply Highlights
• Demand Highlights
• Rental Market
• Mortgage Market
• Socio-Economic Context

Housing Market Snapshot

According to the latest data from the Czech Statistical Office (CZSO), the Residential Real Estate Price Index in the Czech Republic increased by 1.18% year-on-year in Q1 2024, marking the first positive growth since early 2023. When adjusted for inflation, however, the indicator still fell by 0.89%, though this decline was significantly smaller than the average inflation-adjusted decrease of 11.15% recorded over the four quarters of 2023. Prices for residential units in new buildings increased by 0.92% (1.14% inflation-adjusted decline), while units in existing buildings saw a 1.23% increase (0.83% inflation-adjusted decline).

Czech Republic house price annual change:

In the Q1 2024 edition of Deloitte's Real Index series, the average price per square meter of residential units sold in Prague and the regional capitals of the Czech Republic was recorded at CZK 92,000 (USD 4,301), reflecting a 7.70% year-on-year increase. The performance across surveyed cities varied, with Ostrava (14.62%), Olomouc (14.53%), and Pardubice (11.88%) experiencing the highest year-on-year growth.

Housing price dynamic in Prague and the regional capitals:

Within the capital city of Prague, units in development projects were sold at an average price of CZK 132,928 (USD 5,757) per square meter, reflecting a 9.41% year-on-year increase. Prices in brick houses rose by 3.85% year-on-year to reach CZK 123,572 (USD 5,352) per square meter, while units in panel houses experienced a slight year-on-year decline of 0.39%, with prices recorded at CZK 99,513 (USD 4,310) per square meter.

Data Source: Deloitte CZ

The highest average selling price was observed in the Prague 1 district, where prices reached CZK 196,300 (USD 8,502) per square meter, accompanied by the strongest year-on-year growth of 19.55%. Other top-priced districts included Prague 2, with an average of CZK 147,300 per square meter (USD 6,379/sqm), and Prague 5, where prices averaged CZK 137,900 per square meter (USD 5,972/sqm).

Housing price dynamic in Prague's city districts:

Following the negative dynamic of 2023, the Czech National Bank (CNB) projects a gradual revival of residential house prices in the short-medium term with the house price index strengthening to just under 5% year-on-year growth by the end of 2024. In 2025, the upward trend in property prices is expected to continue, but the year-on-year dynamic is seen to remain relatively low compared to 2020-2021.

Historic Perspective:

Housing Cycles Affected by Central Bank Policies and Economic Shifts

Following its EU accession in 2004, the Czech housing market saw substantial growth, driven by economic integration and increasing foreign interest. Initially, restrictions on property purchases by non-Czech EU citizens limited foreign demand, which only fully materialized after these restrictions were lifted in 2009.

The years 2006-2008 marked peak housing construction, with over 43,700 new dwellings started annually. However, the 2008 global financial crisis ended this boom, causing a subsequent decline in both housing prices and construction activity. By the end of 2009, nominal house prices dropped by 6.76% year-on-year, with an even more substantial inflation-adjusted decline of 7.20%. Construction dynamics followed, with new dwellings starts bottoming out at 22,108 units in 2013.

The recovery was gradual, supported by low interest rates and government initiatives like the State Housing Development Fund, which provided affordable loans and funded social housing. The market began to stabilize, and by 2014, real house prices started rising again.

From 2015 onward, the market entered a phase of significant expansion. By the end of 2021, house prices surged by over 25% year-on-year, driven by strong economic growth, low interest rates, and increasing demand, particularly in urban areas like Prague. Construction also rebounded, with nearly 45,000 new dwellings started in 2021.

However, the rapid price increase led to concerns about market overheating. The CNB responded by tightening monetary policy from 2017 onwards, raising interest rates to cool the market. The COVID-19 pandemic initially caused uncertainty, but the market remained resilient due to continued demand and the CNB's measures temporarily relaxing lending rules and lowering key rates to support the economy.

By 2021, inflationary pressures prompted the CNB to hike interest rates again, which began to cool the market. By the end of 2022, while nominal prices still rose by 6.93% year-on-year, inflation-adjusted prices dropped by 7.58%. The trend continued into 2023, with both nominal and real prices decreasing, reflecting the ongoing impact of high inflation and increased borrowing costs.

20-year annual house price change (based on end-of-year CZSO house price index):

20-year construction activity dynamic (started and completed housing units):

Data Source: CZSO.

Supply Highlights:

Decline in New Development Likely to Continue in 2024

According to the CZSO data on residential construction activity, after strong year-on-year growth of 13.9% in 2022, housing completions fell by 3.4% year-on-year reaching 38,067 units in 2023. The negative trend continued into 2024, with the number of new completions contracting by 1.87% year-on-year.

Data Source: CZSO.

Over half (54%) of new dwellings put into use in residential buildings in the first two quarters of 2024 were family houses, 43% were parts of multi-dwelling developments, and 3% were other types of developments. These proportions are largely consistent with 2022 and 2023 annual figures previously reported by CZSO.

Geographic distribution of new development in 2023 (reported annually) was traditionally dominated by the capital region of Prague and Středočeský region (about 17% of all new units), followed by Jihomoravský region (14%). At the same time, according to the CZSO data, in year-on-year terms, the number of dwellings completed in Prague decreased by 2.5%.

The outlook for housing supply in the Czech Republic in the immediate future does not appear optimistic, as the number of dwellings authorized for construction continues to decline. In 2023, only 26,014 residential building permits were issued, reflecting an 18.6% fall compared to the previous year. This downward trend, albeit lower magnitude, carried into 2024, with a further 6.5% year-on-year decrease in housing permits registered during the first half of the year. Notably, Prague was the only region to record positive, even though modest, year-on-year growth of 1.57% in the first six months of 2024.

Data Source: CZSO.

A survey of Czech development companies conducted by the analytical firm CEEC in H2 2023 anticipates a 0.9% decrease in the supply of real estate in Czechia in 2024, largely due to the current shortage of new housing starts to positively impact next year's supply. Many investment projects appear to have slowed in execution or had their completion postponed. Additionally, about one-third of developers surveyed have converted their completed projects into rental housing, further exacerbating the already limited housing supply.

The CNB highlights the long-standing issue of insufficient construction of new apartments, particularly in larger urban areas like Prague, and the generally low and inflexible real estate supply as key factors contributing to the ongoing tension in the real estate market.

Demand Highlights:

After a Low Period, Activity is Gradually Returning to 2020 Levels

Demand for residential properties in the Czech Republic is showing signs of recovery. In 2023, just over 59,000 residential units were sold, reflecting a slight 0.39% year-on-year decline, according to insights from the Czech Banking Association (CBA), based on Dataligence data. Positive trends began to emerge in the second half of the year, with monthly figures showing year-on-year increases and extended into 2024. A total of 38,107 residential sales transactions were recorded in the first six months of 2024, marking a significant 43% year-on-year increase.

"The market was notably more active in the second half of 2023 compared to the previous four quarters. This suggests that we are gradually returning to the normal supply and demand dynamics seen before the war and the inflated boom of 2021. Current high year-on-year growth rates, however, should be viewed in the context of comparisons to the quarters with the fewest apartment sales in the last 20 years. Therefore, it's more accurate to say that we're reaching activity levels similar to those at the end of 2020," explained Milan Roček, CEO of Dataligence.

An even more pronounced recovery dynamic was observed in the Czech Republic's larger cities. According to the Deloitte CZ Real Index series, 24,141 units were sold in residential developments across Prague and the regional capitals in 2023, representing a 9.1% year-on-year increase, a reversal from the 23.2% decline recorded the previous year. Additionally, the aggregated transaction volume increased by 8.0% year-on-year, compared to the 15.1% drop in 2022.

Data Source: Deloitte CZ.

The momentum continued into the first quarter of 2024, with the total number of units sold increasing by 12.0% and aggregated transaction volumes rising by 21.3%. Growth was particularly strong in Prague, where the number of residential units sold increased by 16.7% year-on-year, with transaction volumes up by 24.4%. Nearly half of the demand (48%) was for units in development projects, followed by panel houses (31%) and brick houses (22%).

Experts cited by the CBA attribute the resurgence in demand to the recovery of the mortgage market, supported by lower interest rates and a narrowing gap between household incomes and property prices. Given the more favorable market conditions compared to the past two years, the CBA expects the positive trajectory to continue throughout 2024.

Rental Market:

Rents Increase Outpaced by Sales Prices

In their recent overview, Deloitte named the Czech Republic as the least affordable country for home ownership among the 18 surveyed European residential markets, noting that a standard new dwelling purchase requires Czechs to invest an equivalent of 13.3 gross annual salaries. In 2023, only 76% of Czech households were recorded as owners, with the remaining 24% registered as tenants. Compared to the 2022 figures, the proportion of renters increased by 1.10 points.

The Rental Housing Association (ANB) projects the number of renters to increase further, as renting remains more economically advantageous. In the March 2024 press release, ANB Vice President Jakub Vysocký stated: "The average monthly mortgage payment for an average apartment is currently 1.5 times higher than the average monthly rent. That's still a fairly large gap, and it doesn't look like the gap will shrink as quickly as interest rates are falling. Apartment prices have rebounded from their bottom, keeping the difference in the economic advantage of rental housing versus ownership high."

In the Q2 2024 edition of Deloitte's Rent Index series, the average price per square meter of residential units offered for rent in the Czech Republic reached CZK 305 (USD 13.16) representing an 8.54% year-on-year increase. Development dynamics in the surveyed cities varied with the highest year-on-year growth registered in Hradec Kralove (13.58%), České Budějovice (9.52%), and Prague (9.38%). Prague was also recorded as the most expensive city with the average rental rate per square meter reported at CZK 408 (USD 17.6), followed by Brno at CZK 345 (USD 14.9), and Zlin at CZK 277 (USD 12.0).

Data Source: Deloitte CZ.

Rental price dynamic in Prague and the regional capitals:

For the rest of the year, the ANB expects rent levels to continue to increase marginally being outpaced by sales prices. "The price of apartments will definitely go up faster than rents. At this point, the drivers of rental growth appear to be behind us. We don't expect anything dramatic," says ANB president Jakub Vysocký.

According to the research carried out by the Global Property Guide in April 2024, gross rental yields for residential units in the Czech Republic averaged 3.58 %, 0.37 percentage points down from 3.95 % previously reported in July 2023. Regional performance varied, with the highest yields of 5.11% registered in Ostrava, followed by Prague (4.05%) and Plzen (4.00%).

The profitability of rental housing in the country is generally hindered by high property prices, limited availability of housing in larger cities, and expensive mortgages.

Average gross rental yields by submarket:

Mortgage Market:

Eased Restrictions and Declining Interest Rates to Facilitate Growth in Lending

According to the CNB data, after peaking at 5.37% in September 2023, the average interest rate on new residential mortgages in the country has been on a downward trajectory in the last year, most recently registering at 4.92% in June 2024 - 0.21 p.p. down since January and 0.43 p.p. down since the same period last year, however not yet reaching pre-2022 levels. At the same time, the average interest rate on outstanding residential mortgages remained elevated at 3.24% in June 2024 against 2.79% a year ago and 2.40% two years ago.

Czech Republic's mortgage loan interest rates:

Interest rates on mortgage loans to households for residential real estate:

Data Source: CNB.

After a notable drop in the volume and value of new mortgages drawn in 2022-2023, brought on by the hike in interest rates, CNB restrictive measures to limit excessive lending, and overall economic uncertainty, the mortgage market appears to be picking up in the first half of 2024.

The Czech Banking Association (CBA) reported CZK 118.6 billion (USD 5.1 billion) in new mortgages provided by banks and building societies in the first six months of the year, which is 86% above the comparable period in 2023. Of those, CZK 100.1 billion are pure new loans, and CZK 18.5 billion are refinanced loans.

"The situation in the mortgage market is clearly influenced by year-on-year better rates, deferred client demand, and renewed growth in prices of flats and houses, the supply of which is not very wide, so quality properties are selling quickly," Martin Vašek, CEO and Chairman of the Board of Directors of ČSOB Hypoteční banka, commented to the CBA.

The positive dynamic in the market was also boosted by the central bank easing its earlier mortgage regulations. Starting from January 2024, CNB deactivated the limit on the debt-to-income ratio (DTI), maintaining, however, the loan-to-value (LTV) ceiling of 80% (90% for applicants under 36 years) in effect since April 2022.

Data Source: CBA.

As of 2023, the average weighted maturity of mortgage loans in the country was 26.6 years, with an average weighted LTV of 65.2%, according to the CNB reporting. The average size of a mortgage was most recently recorded by the CBA at CZK 3.77 million (about USD 163,000).

Based on the CBN data, the total value of outstanding residential mortgage loans in the Czech Republic reached CZK 1.72 trillion (USD 75.4 billion) by the end of 2023, showing a limited 4.1% year-on-year growth, compared to a more pronounced annual expansion of over 9%, on average, between 2016 and 2021. Of the total credit maintained, 1.9% was represented by mortgage loans to non-residents.

Data Source: CNB, CZSO.

According to the May 2024 survey by Ipsos and the CBA, 29% of current homeowners in the Czech Republic financed their housing with a mortgage, and a further 18% are considering taking a home loan in the next few years, nearly a half of those citing high inflation and unfavorable borrowing conditions as main reasons to have previously postponed the decision.

Overall, despite the recent drop in sales prices, home ownership remains difficult to achieve for a significant number of Czech households, even with debt financing. The July 2024 CNB analysis pointed out the notable decline in the estimated share of households that could purchase real estate without increased risks of loan default in the last decade.

At the same time, taking into account spring macroeconomic forecasts, the central bank expects to see a gradual revival of the real estate and mortgage markets over the course of 2024, facilitated by a moderate reduction in interest rates along with the monetary policy, improving consumer sentiment, and growth in nominal household incomes.

Socio-Economic Context:

Signs of Growth are Emerging as Inflation Drops

After a post-pandemic bump and moderate growth in the previous two years, the Czech Republic's real GDP declined by 0.4% in 2023, as high inflation eroded households' purchasing power and led to a contraction in private consumption. However, the resumption of positive quarterly growth at the end of the year and the improving consumer confidence indicator from the first quarter of 2024 are expected to drive activity in the course of the year, with GDP growth forecast by the European Commission to rebound to 1.2% in 2024 and 2.8% in 2025. The IMF projections are more conservative but also see the respective 0.7% and 2% growth in the next two years.

Nationwide inflation, measured by the Consumer Price Index (CPI), has fallen sharply from the record-high 15.1% in 2022 to 10.7% in 2023 and was most recently recorded at 2.2% year-on-year in July 2024. According to the European Commission analysis, a broad-based moderation in goods and energy inflation and high base effects are expected to bring headline inflation down to 2.5% in 2024 and 2.2% in 2025.

Data Source: IMF.

In the Czech labor market, unemployment is still at historical lows and among the lowest in the EU, however, due to weak economic activity, the unemployment rate increased slightly in 2023 and was most recently recorded at 2.9% in July 2024. Nominal wages increased broadly across all sectors but lagged behind inflation, resulting in a sharp fall in real wages. As shortages of skilled workers persist and population aging adds additional pressure, the European Commission expects the market to remain tight in the years ahead.

Data Source: CZSO.

The country's general government budget deficit increased from 3.2% of GDP in 2022 to 3.7% of GDP in 2023, reflecting higher expenditure on social transfers, such as indexation of pensions, and measures to mitigate the impact of high energy prices, but is forecast to drop notably to 2.4% and 1.9% of GDP in 2024 and 2025, respectively, on the back of expected expiration of energy-related measures and implementation of a government consolidation package that decreases expenditure and increases revenue.

Recorded at 44% in 2023, public debt in the Czech Republic is still low compared to the EU average and remains below the union's target threshold of 60%. The ratio is forecast to rise to 45.5% in 2025, driven by the negative headline balance, being partly offset by nominal GDP growth.

In general, with dropping inflation and renewed growth in real wages and purchasing power, the Czech economy is seen to be heading to a positive turnaround in the next two years, driven by re-emerging household consumption. The easing of financing conditions following the gradual cuts of the central bank's key rate and an increase in EU funds inflow are expected to support construction investments going forward. At the same time, according to the IMF assessment, economic activity and inflation in the country could be negatively affected by a possible renewed surge in global energy prices, new supply chain disruptions, or an increase in geopolitical tensions and potential broader geo-economic fragmentation.

Sources:

1. Czech National Bank (CNB)
   1. Monetary and Financial Statistics: https://www.cnb.cz/
   2. Central Bank Exchange Rate Fixing: https://www.cnb.cz/
   3. Commentary on Interest Rates of Monetary Financial Institutions (CZ): https://www.cnb.cz/
   4. The CNB kept the Binding LTV Limit for Mortgage Loans, Deactivated the Binding DTI Limit, and Kept the Countercyclical Capital Reserve at 2%: https://www.cnb.cz/
   5. The Czech Residential Real Estate Market: Yesterday, Today, and Tomorrow (CZ): https://www.cnb.cz/
   6. Macroeconomic Development and Real Estate Prices in the Czech Republic and the World (CZ): https://www.cnb.cz/
2. Czech Statistical Office (CZSO)
   1. Government Finance Statistics: https://csu.gov.cz/
   2. Inflation, Consumer Prices: https://csu.gov.cz/
   3. Residential Real Estate Price Indices: https://csu.gov.cz/
   4. Residential and Non-residential Construction and Building Permits: https://csu.gov.cz/
   5. Census 2021: https://scitani.gov.cz/
3. Czech Banking Association (CBA)
   1. CBA Hypomonitor: https://www.cbamonitor.cz/
   2. CBA Hypomonitor: Mortgage Activity Strengthened Further in July (CZ): https://www.cbamonitor.cz/
   3. 18 Percent of Czechs are Planning a Mortgage (CZ): https://cbaonline.cz/
   4. Real Estate Prices: https://www.cbamonitor.cz/
   5. The Real Estate Market in the Czech Republic is Reviving (CZ): https://www.cbamonitor.cz/
4. European Commission
   1. Economic Forecast for Czechia: https://economy-finance.ec.europa.eu/
   2. Debt Sustainability Monitor 2023: https://economy-finance.ec.europa.eu/
5. International Monetary Fund (IMF)
   1. Country Overview: Czech Republic: https://www.imf.org/
   2. Czech Republic: 2023 Article IV Consultation-Press Release and Staff Report: https://www.imf.org/
6. Eurostat
   1. Distribution of Population by Tenure Status, Type of Household, and Income Group - EU-SILC Survey: https://ec.europa.eu/
7. Rental Housing Association (ANB)
   1. In 2024, the Number of People Renting Will Increase, and People's Housing Expenses Will Rise (CZ): https://www.asociacenajemnihobydleni.cz/
   2. Despite the Drop in Interest Rates on Mortgages, Rental Housing Remains an Economically More Advantageous Option (CZ): https://www.asociacenajemnihobydleni.cz/
   3. The Second Half of 2024 Will Bring an Acceleration of Apartment Sales, an Unprecedented Amount of New Legislation, and Only Gradual Rent Growth (CZ): https://www.asociacenajemnihobydleni.cz/
8. Deloitte CZ
   1. Deloitte Real Index Q1 2024: https://www2.deloitte.com/
   2. Deloitte Rent Index Q2 2024 (CZ): https://www2.deloitte.com/
9. CEEC
   1. Survey of Czech Development Companies H2 2023 (CZ): https://ceec.eu/