Developers: Higher mortgage rates will not affect speculative buyers

by   CIJ News iDesk III
2022-01-20   09:16
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A record increase in the average mortgage rate will not affect buyers who buy housing speculatively to cover inflation by rising real estate prices. The Czech National Bank (CNB) cites the rise in rental prices associated with rising apartment prices as one of the reasons for rising inflation.

The average mortgage rate rose to 2.99 percent in December from 2.70 percent in November. The rate increased for the tenth time in a row, according to data from Fincentrum Hypoindex, according to which the increase was the highest since 2003, ie since the indicator operated.

According to Leoš Anderle, CEO of Sekyra Group, the CNB's repeated rise in interest rates is responsible for the very steep growth in mortgages. And another rise in price is expected this year. "The higher price of money is also reflected in the cost of development projects. Thus, a certain cooling of the real estate market can be expected.

Expensive mortgages will have a negative impact mainly on those who need to solve their housing - ie families and young people, said Marcela Fialková, director of strategy at the international developer of UDI Group. "For them, their own housing was already very inaccessible before the rate increase due to the abnormal rise in apartment prices. In recent years, the prices of their own housing have risen the most in the whole of Europe in the Czech Republic," she pointed out. The development of prices is similar in regional cities, where incomes are lower than in Prague. According to her, such high prices are not sustainable in the long run.

Central Group Executive Director Michaela Tomášková said that the new CNB regulations would make it more difficult for many people to travel to their own homes as of April 1. "While now it was enough to save CZK 500,000 from your own resources to buy an apartment worth five million crowns, you will need at least one million from April. In addition, it will be possible to take out a loan up to 8.5 times net annual income," she said.

According to UniCredit Bank's analysis, demand for real estate is fueled by faith in the continuing rise in prices, and it maintains the character of a speculative bubble, according to the UniCredit Bank real estate market tension indicator. According to the bank, the profitability of investments in residential real estate is lower month-on-month in January due to rising mortgage rates. The indicator for this month fell by 63 points month-on-month to -1.79 percent, making real estate investment less attractive from a financial point of view.

"Strong month-on-month growth in mortgage rates further disadvantaged the purchase of an apartment in the eyes of mortgage lenders, while growth in ten-year government bond yields worsened the attractiveness of real estate in the eyes of savings owners relatively less," said UniCredit Bank analyst Jiří Pour.

According to Pour, the opportunity to make money on the difference between relatively expensive rents and low interest rates in the Czech Republic disappeared in May. Gross annual rental yield fell by ten points month-on-month to 3.54 percent. After taking into account the expected fixed rate of wear and tear on real estate, the estimated net annual return was 1.54 percent.

"In the future, we expect continued growth in government bond yields and mortgage rates, which will push the tension indicator deeper below zero and cause a slowdown in real estate prices in the Czech Republic. According to our model, real estate prices could slow this year, relatively sharply, "said Pour.

PSN's director of residential projects Marek Padevět assumes that the interest rate can be around five percent within two months. "Apartment prices cannot fall because construction costs are rising, the price of labor in the market is rising and most city districts are already asking for a large fee in the form of contributions, developers' margins are generally still the same. growth, by about ten percent, "he said.

Source: CTK