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Real Estate Market in the Czech Republic and EU Region under Influence of World Financial Crisis

Real Estate Market in the Czech Republic and EU Region under Influence of World Financial Crisis. Lubos Smutka, Ph.D. Czech University of Life Sciences Prague Faculty of Economics and Management Department of Economics. Brief introduction about the Czech Republic and Europe. European Union.

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Real Estate Market in the Czech Republic and EU Region under Influence of World Financial Crisis

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  1. Real Estate Market in the Czech Republic and EU Region under Influence of World Financial Crisis Lubos Smutka, Ph.D. Czech University of Life Sciences Prague Faculty of Economics and Management Department of Economics

  2. Brief introduction about the Czech Republic and Europe

  3. European Union

  4. EU in brief Founded in 1957 – 6 member states 27 member countries 22 official languages Organization “sue generis” a hybrid intergovernmental and supranational organization first supranational law system organization lower trade barriers adopt a common currency move toward convergence of living standards. More than 4.3 mil. sq km (4,324,782 sq km) Population - 499,673,300  Population growth rate – 0.16 %

  5. EU – basic characteristics • Area: 4,324,782 sq km • Population: 491,582,852 (July 2009 est.) • Population growth rate: 0.108% (2009 est.) • Net migration rate: 1.46 migrant(s)/1,000 population (2009 est.) • Life expectancy at birth: 78.67 years • GDP (purchasing power parity): $14.91 trillion (2008) • GDP (official exchange rate): $18.14 trillion (2008 est.) • GDP - real growth rate: 0.8% (2008 est.) • GDP - per capita (PPP): $33,700 (2008 est.) • Unemployment rate: 7.4% (2008 est.) • Inflation rate (consumer prices): 3.5% (2008 est.)

  6. The Czech Republic

  7. Czech Republic • The Czech Republic was born on January 1, 1993, when the Czechoslovak Federal Republic split into two independent states, the Czech Republic and Slovakia. Since May, 2004, the Czech Republic has been a member of the European Union. However, the country has not adopted the euro yet and still uses its national currency, the Czech koruna.

  8. Geography and location

  9. The Czech Republic

  10. Peaceful, Friendly, Tolerant, Patient, Foxy, Selfish, Calm and confident

  11. Others countries’ opinions – for example Bulgarian opinion

  12. Basic information

  13. Administrative structure 7 regions + Capital 6249 sub-regions

  14. Geography • Area: • total: 78,866 sq km land: 77,276 sq km water: 1,590 sq km • Land use: • arable land: 38.82% permanent crops: 3% other: 58.18% (2005)

  15. Population: 10,220,911 (July 2008 est.) Age structure: 0-14 years: 13.8% (male 723,521/female 684,786) 15-64 years: 71.2% (male 3,653,679/female 3,619,872) 65 years and over: 15.1% (male 604,419/female 934,634) (2008 est.) Population growth rate: -0.082% (2008 est.)

  16. Government

  17. Government • Capital: Prague - Chief of state: President Vaclav KLAUS (since 7 March 2003) - Head of government: Prime Minister Jan Fischer; • Government consists of 18 members • Parliament consists of the Senate (81 seats; members are elected by popular vote to serve six-year terms; one-third elected every two years) and the Chamber of Deputies (200 seats; members are elected by popular vote to serve four-year terms)

  18. The Czech Republic is a member of the following organizations and institutions. • ACCT (observer), Australia Group, BIS, BSEC (observer), CE, CEI, CERN, EAPC, EBRD, EIB, ESA (cooperating state), EU, FAO, IAEA, IBRD, ICAO, ICC, ICCt (signatory), ICRM, IDA, IEA, IFC, IFRCS, ILO, IMF, IMO, IMSO, Interpol, IOC, IOM, IPU, ISO, ITSO, ITU, ITUC, MIGA, NAM (guest), NATO, NEA, NSG, OAS (observer), OECD, OIF (observer), OPCW, OSCE, PCA, Schengen Convention, UN, UNCTAD, UNESCO, UNIDO, UNMEE, UNMIL, UNOMIG, UNWTO, UPU, WCL, WCO, WEU (associate), WFTU, WHO, WIPO, WMO, WTO, ZC

  19. National Economy - GDP • GDP (official exchange rate): $175.3 billion (2007) $217.1 billion (2008 est.) • GDP (purchasing power parity): $251 billion (2007) $265.2 billion (2008 est.) • GDP - real growth rate: 6.6% (2007 est.)3% (2008 est.) • GDP - per capita (PPP): $24,500 (2007) $25,900 (2008 est.) • Inflation rate (consumer prices): 2.9% (2007 est.) 6.3% (2008) • GDP - composition by sector: • agriculture: 2.7% agriculture: 2.3% • industry: 38.7% industry: 37.6% services: 58.6% (2007 est.) services: 60.1% (2008 est.)

  20. National Economy – Labour Forces • 5.36 million (2007 est.) • Unemployment rate:6.6% (2007 est.) • 5.4% (2008) • 8% (2009) • Labour force - by occupation: • agriculture: 3.6% • industry: 40.2% • services: 56.2% (2007)

  21. National Economy • Budget: revenues: $72.1 billion expenditures: $74.98 billion (2007) revenues: $93.42 billion expenditures: $96.09 billion (2008 est.) • Public debt: 26% of GDP (2007) 26.8% of GDP (2008 est.) Current account balance:-$4.534 billion (2007) -$6.642 billion (2008 est.) Debt - external:$74.7 billion (31 December 2007) $80.43 billion (31 December 2008)

  22. Foreign trade • Exports:$122.3 billion f.o.b. (2007) $145.7 billion (2008 est.) - machinery and transport equipment 52%, - raw materials and fuel 9%, - chemicals 5% Germany 30.6%, Slovakia 9.2%, Poland 6.5%, France 5.3%, UK 4.8%, Italy 4.6%, Austria 4.7% (2008) • Imports:$116.6 billion f.o.b. (2007) $139.4 billion (2008 est.) - machinery and transport equipment 46%, - raw materials and fuels 15%, - chemicals 10% Germany 30.3%, Netherlands 5.6%, Slovakia 6.6%, Poland 6.4%, China 4.9%, Austria 5.2%, Russia 6.2%, Italy 4.1%, France 4.1% (2008)

  23. Residential real estate property – family houses and apartments • Czech Republic • Europe

  24. Inter annual growth of family houses prices

  25. Development of Residential Real Estate Property in Selected Developed Countries (in real prices)

  26. The characteristic of main cycles in residential real estates property prices in selected developed countries in period

  27. Basic trends in European real estate market in 2008/2009 • The year 2007 – the enormous growth of real estate property prices • The year 2008 – the fall of real estate property prices • Financial crisis – the economic slowdown in EUROPE is accompanied by the slowdown of real estate property prices • The growth of loan rates, • Banks are more strict, • It is much more difficult to get credit or loan, • The crisis affected the whole European property market • The impact of crisis on individual European countries was different, • The most affected countries were UK, Ireland and Spain (countries with really significant price bubble) • All European countries were affected by the crisis – because of links among individual countries

  28. Ireland • Prices of buildings started to fall in 2007 • In July 2008 prices felt by more than 12% and they reached the level of the year 2005 – the price fall was possible to see especially in case of Dublin • The average time period for trade transaction increased significantly • The end of 2008 – prices decreased in all sectors of real estate property market (slowdown 15 – 50%). • The number of transaction decreased significantly – by about 50-90% • In Dublin prices of real estates decreased by more than 40% during the year 2008 (in comparison with the period 2006-2007) • The market with apartments for rent was slowly growing, but the value of rent decreased by about 10%

  29. UK • In 2007 – first problems on real estate market • Bank changed their loan policy • Real estate property prices started to decrease and investors started to lose their trust in real estate market as a store of value • Just in 2008 real estate market lost about 16% of its value from the year 2007 (reasons: credit conditions, price slowdown and anticipation) • Investors from US left British market. The result of it was decrease of provided mortgages and fall of property market (mainly apartments) • Developers had to decrease their prices of new constructions, because of property market slowdown

  30. Spain • The year 2007 is possible to describe as a „terrible year of Spanish real estate market“, • Spanish market is not transparent at all, therefore it is very difficult to estimate exactly the impact of crisis on Spanish real estate market, • According to CG-COAPI – the biggest real estate organization on Spanish market – the inter annual slowdown of market was about 40% in case of buildings and 30% in case of apartments, • The number of mortgages decreased by more than 60% • The incomes of private owners and real estate agencies decreased by about 60% 2008-2009  • The current situation increased interest of people to rent flats and the average value of rent for flat increased by about 4%.

  31. Denmark • Denmark was affected by the crisis later than other European countries.  • During the period 2008/2009 prices of real estate property decreased by 6%, • Danish government pointed out current property crisis as a potentional threat, and probably the most dangerous one, for Danish economy, • On the other hand rental market is constantly growing and just in 2008 – the average value of rental fee increased by about 3%.

  32. Francie • The year 2008 – the decrease of purchasing power of households, extreme impact of US crisis on French bank system, the slowdown of bank system liquidity, the slowdown of number of mortgages provided, • Prices of buildings and houses decreased by about 5%, prices of apartments decreased by 1,2%, real estate market was affected just only a little bit, • Rental market increased by 3%, but it is possible to expect the slowdown of rents for flats especially in big cities.

  33. The Netherlands • Dutch real estate property market had to face to impact of financial crisis at the end of 2008 – it means later than it was in case the majority of EU members, • The number of transaction decreased by more than 80%, • The changes in prices were only minimum, but people stopped to sell and buy and both buyers and sellers waited for another development (during the last quarter of 2008 the number of houses sold decreased by 27%), • The crisis influenced mainly transactions in value between 350 ths. – 900 ths. EURO),  • There are existing huge differences between individual Dutch regions, especially property market in Amsterdam is very stable, • Rental market was not affected at all, and the average value of rent for flat increased during the year 2008 by 1,6%.

  34. Italy • In 2008, the real estate market was affected by minimum way, • Real estate property market changed its prices by only 5-10%, • Rental market was affected by the crisis especially in case of rural areas, in urban areas rental fee decreased by only 5-7%, • Demand for rental housing is constantly increasing, but demand for new apartments stagnates, • The value of average rental fee is slowly increasing.

  35. Scandinavian countries • Except for Denmark, the impact of financial crisis on Scandinavian countries was very limited, • Individual countries had to face to real estate market crisis sometimes at the end of 2008, • Real estate property prices started to decrease during the last three months of 2008. In Finland and Sweden the slowdown of real estate property market was about 3-4%.

  36. Germany • German real estate market is very specific (rent regulation, lower share of apartments in private ownership in comparison with the rest of EU), • In past years the growth of German market was not so progressive like it was in case of before mentioned countries, • Financial crisis did not affect German market so much like it was in some other countries, • The main problem of German real estate market is discussion about rent regulation and about the growth of rental fee

  37. Selected Middle and East European Countries • The crisis influenced especially Baltic countries, • Latvia, Estonia (during 2004-2006 prices of apartments increased more than two times, in 2007 the slowdown of real estate property market was recorded, in 2008 market collapsed (50% slowdown). • Lithuania – the impact of crisis is limited, • Poland – mild slowdown of real estate property market, number of new projects decreased, rental market is growing, • Russia – after several years of prosperity, the real estate property market recorded significant slowdown, • Czech Republic – in 2008 real estate property market was not affected by financial crisis, problems started since the beginning of 2009. After several years of permanent growth of prices, the Czech Republic has to face market prices slowdown by about 10%, • Hungary – in 2008 stable development trend, in 2009 real estate property prices decreased , • Austria – in 2008 real estate property and rental markets changed only a little bit.

  38. Czech real estate property market – apartments and family houses

  39. Types of taxes applied in CR Individual Income Taxflat : 15% Corporate Income Tax 21% VAT9% food and services and 19% other goods Property tax Building tax less than 0,1% Ground tax less than 0,1% Tax from Sale of Real Estate: 3%

  40. Transaction Costs

  41. How difficult is the property purchase process in Czech Republic? • The following can buy real estate without any restriction: - Czech citizens -Legal entities headquartered in the Czech Republic -Foreigners with a permanent residence permit for the CR - People granted asylum in the CR

  42. Square Metre Prices - Czech Republic Compared to Continent • Monaco€35,658 UK€14,421 Russia€11,851 France€9,961 Switzerland€7,138 Finland€6,468 Greece€6,048 Italy€5,541 Ireland€5,483 Luxembourg€5,376 Montenegro€4,759 Denmark€4,607 Andorra€4,140 Czech Rep.€4,015 Spain€3,932 Slovak Rep.€3,597 Netherlands€3,579 Lithuania€3,539 Romania€3,484 Poland€3,348 Austria€3,000 Slovenia€2,926 Germany€2,882 Latvia€2,860 Estonia€2,841 Ukraine€2,807 Malta€2,646 Cyprus€2,513 Croatia€2,474 Belgium€2,465 Portugal€2,225 Bulgaria€2,214 Hungary€1,683 Turkey€1,390 Moldova€1,013 Macedonia€1,003

  43. Gross Rental Yields - Czech Republic Compared to Continent Moldova14.17% Macedonia10.11% Ukraine9.09% Hungary8.11% Netherlands6.63% Poland5.83% Belgium5.78% Romania5.50% Slovenia5.49% Turkey5.48% Germany5.12% Croatia5.07% Italy5.04% Switzerland4.80% Bulgaria4.62% Latvia4.40% Austria4.40% Denmark4.36% Estonia4.36% Slovak Rep.4.28% Czech Rep.3.89% France3.85% Spain3.81% Lithuania3.70% Finland3.69% Luxembourg3.63% UK3.48% Russia3.45% Cyprus3.45% Malta2.94% Greece2.71% Andorra2.19% Monaco1.48%

  44. The development of houses and apartments number in ths. The structure of apartments in the Czech Republic according to age

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