Jason Hovet and Michael Kahn

PRAGUE (Reuters). Meera Sankar realized that it was time to abandon her dream of purchasing a Prague home when she saw a small apartment for just one person, but with a high price.

Her experience in Prague, as well as other European cities, is not uncommon. High prices and shortages have made it difficult for first-time homebuyers to afford homes. This problem is only getting worse, as central banks in the region are increasing borrowing rates.

“I chose to continue renting after I found an apartment that was advertised at 60 square metres (646 sq. However, the actual apartment was 20 m in size and the remainder was a small garden,” Sankar (special effects producer) said. The property was priced at 4,000,000 crowns ($189.081).

There was not enough room for one person or a couple of pieces of furniture. It took me two years to find the right thing, and it’s still too costly.

Eye-wateringly expensive house prices in Western European cities like London, Paris and Hamburg have been the subject of much attention. It is however in central and east Europe that the gap between local salaries and prices – on average, they are much lower than those in western Europe – is the most severe.

According to Deloitte’s Housing Affordability Survey, 2021, Czech Republic is the lowest-priced European housing market. An average annual salary of 12.2 would be required to afford a 70-square metre apartment.

This is compared to 6 average salaries in Germany to buy a property and 5.1 in Norway. According to Eurostat data, Czech property prices rose by 22% in the third quarter 2021. This is the highest increase in Europe for the second consecutive quarter.

Vit Hradil of Cyrrus Czech Brokerage, said that the people most in trouble now are not only those who have a middle income, but also those with slightly higher incomes.

If you consider essential workers like teachers and firefighters, it is likely that they cannot afford an apartment in Prague.

** For an interactive graphic: https://tmsnrt.rs/3gxNYeU

MORTGAGE FEES JUMP

Similar gains can be seen in other Czech cities as well as central European countries. Since 2010, Hungarian home values have increased more than twice.

The average square metre price in Warsaw’s center is about 4,000 Euros ($4,562.00), compared to 3,770 euro in Brussels, where the average monthly salary is slightly more than twice that in Poland, Numbeo (a site that compares costs of living).

Prague’s long waiting period for construction permits has created a problem. The Czech capital saw a 10 year low in supply, according to Trigema’s Central Group and Skanska Reality. In the average year there were 3,300 available flats, 1 980 less than in 2020.

The region has seen a rapid wage growth rate and an extended period of low interest rates that ended in recent years, which have made loans easier and increased demand for property investment.

Hradil stated that first-time buyers are those who have never been in the real estate marketplace before but are now entering it. They are virtually out of luck unless their family has a substantial amount of money.

Central Europe is ahead of other European countries in raising interest rates. The pandemic has driven mortgage prices to unprecedented levels and raised the expectations of those who want to take their first steps up the ladder of housing.

In January, Hungary’s central banking said it will continue to raise rates in an effort to reduce inflation. Poland, emerging Europe’s largest economy, raised its rates by 50 basis points on Tuesday to 2.75 percent. It also hinted that there would be more tightening.

Czech National Bank has reintroduced mortgage lending restrictions such as loans no higher than 80% or income ceilings. It also raised its main interest rate from 4.50% to a high of 4.50% in the past 20 years.

Experts believe that the mortgage rate could rise to 5% soon, up from the around 2% previously seen by Fincentrum Hypoindex (market monitor) before the Czech Bank began increasing its rate from 0.25% last June.

Robin Petrasek (a Prague-based mortgage broker) stated that around 20% of my clients have stopped searching for work due to rising costs. He estimates that borrowing costs per million crowns borrowed over a 30-year period have increased by more than 25% compared to a year ago.

“It’s obvious that with the higher rates the ability to purchase properties will decrease.”

** For an interactive graphic: https://tmsnrt.rs/3gwt7sv

HELPFUL HELP IN THE WAY

Officials look for solutions to aid first-time homeowners who are faced with rising prices, but with limited property supply.

Hungary has frozen retail mortgage interest rates in Hungary for six months starting January. This was done to protect borrowers with floating loans. It also targeted families by making grants and subsidized banks loans up to 25 million forints ($80707.64).

In Poland, as part of the government’s “Polish Deal” economic programme, the state will guarantee the deposit on a property for up to 20% of its value, up to a maximum of 100,000 zlotys ($25,206.06) in order to help people who can’t save up for a deposit.

Prague Mayor Zdenekhrib said to Reuters that the city is focusing on rebuilding communal flats in order to increase supply, and also keeping a few available for teachers and other essential workers like police officers or social workers.

Hrib explained that Prague’s main concern is housing affordability.

Tomas Klima, his fiancée and their partner were inspired to act by the dizzying price rises. They had put off searching when the pandemic started in hope that prices would drop.

When prices rose, they rushed to get back on the market. However, flats sold almost instantly or were visited by others who attracted many bids that exceeded the asking price.

Klima, 33 said that he believed with COVID everyone would lose jobs, while prices would drop. We looked at the market, and we saw that prices were rising every day. We could not afford to delay.”

($1 = 21.1550 Czech crowns)

($1 = 0.8768 euros)

($1 = 309.7600 forints)

($1 = 3.9673 zlotys)