Will the Real Estate Prices Drop in the Czech Republic?

At this moment we’re living through a historical event. Like any event of such a scale, it will affect many spheres of our lives. How badly would depend on several conditions: mainly on the type of limitations and their length.

The hardest and longest to my mind will be affected by the sphere of tourism. Dozens of thousands of people working as accommodation providers, guides, travel agencies, souvenir shops, etc. have now lost their source of income.

According to many experts, the boarders may stay closed long after the situation in the Czech Republic will stabilize. For many businesses even the one month shut down may mean the end of their existence: high bills and salary obligations will force many employers to start firing people. The longer the limitations will last, the more businesses will turn bankrupt.

These are the signs of the buying power drop-down of the population. Even those of us with uninterrupted income would be worried by the destabilization and uncertainty.

Would this affect the real estate market? Will prices go down?

The price level is determined by the demand and offer. The uncertainty will most probably cause the drop of interest to the real estate market: people would be avoiding making long term financial commitments.

The length will be the limitations, the more drop of the interest will last. Of course, there will still be people who simply cannot wait – maybe they are expecting another child and have to move to the larger flat. But if the impact on the society will be too long and too deep people may start releasing their own estate: foreign investors may start selling their investment properties because of the troubles in their own home countries, some locals may not be able to pay the mortgage anymore and would choose to downsize.

This will cause an increase in the offers on the market. Only in this case, we can expect the prices to react to a large number of offers. Though I’d say it’s a long term scenario.

Instead, the rental market will be affected much sooner. Many short term accommodation providers may decide to rent their places for long term putting to the market hundreds of apartments.

Being fully furnished in very good conditions in central locations such as apartments will create a big competition for the “normal” ones.

A large number of offers will affect the price level of rental apartments and finally, Prague will have a decrease in the rent prices.

The question is when it will happen.

By Alexandra Kurbanova