The situation on the real estate market will soon turn into an economic collapse, the likes of which we have not experienced in the Czech Republic for thirty years. It follows from the knowledge of companies operating on the market. What leads to such a conclusion? A few years ago, many companies, developers, borrowed billions of crowns at low interest rates. But for two years, the Czech Republic has been struggling with the highest inflation in the entire European Union. The so-called good news that inflation in the Czech Republic fell below ten percent in June after two years, to “only” 9.7 percent, does not change that.
The demand for own housing, for example financed by mortgages, dropped to zero. Also, corporate tenants have either left the Central European market or are considering more the financial aspects of renting commercial real estate.
At the same time, the interest rate for construction financing is now around ten percent. Whether residential or commercial.
But people don’t take out mortgages, they can’t afford them. They do not invest in housing, so the market is forced to gradually shift to rental housing. Some call it a new trend, and many investors are now trying to splash as much money as they can on tenants. In reality, however, it is a virtue out of necessity.
The key problem is that there is no one to pay for the construction of anything. Hundreds of billions of crowns are invested in it from bank loans, but there are no tenants or tenants. Let alone mortgagers.
After America and Europe. Is the commercial real estate market in for a hellish storm?
Reality
The European office market is shaking to its foundations. Demand is falling, which is also reflected in prices. Prices fell most sharply in Great Britain, on the contrary, they are still holding up in the Czech Republic.
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Made for a crisis
So what will happen? Investors have been sitting on their mattresses for a year trying to weather the demand crisis. However, the time when they can still do it financially is coming to an end. Many developers have been trying to sell their divided projects for many months. They offer them to bigger players in the hope that they will buy them out of their debts.
However, the big players don’t want to get into this business because they have enough problems themselves. They are under construction, they have to pay, but nobody wants their production. So here we have a so-called “market move”, house prices are going down after ten years of growth. And since interest rates will remain high for at least another year due to high inflation, this “sell-off” will continue.
But it’s not just a sale. Larger companies will maintain their position. Central Group, the country’s largest private residential developer, has delayed the construction of two of its projects. Other players are also taking a similar approach to the situation on the financial market. However, time passes, interest on loans does not decrease, and it is time to break bread. Many small development plans fail, and that time is coming.
As stated by the largest Czech law firm, Havel & Partners, this year and next year, 140 bond issues worth more than one hundred billion crowns will be due. And roughly a third of that volume financed the real estate sector. Three years ago, it was possible to get an interest rate of around six percent on these bonds. These bonds will now mature.
Renting is now more advantageous than a mortgage. But involuntarily, people have no choice, the survey says
Reality
In the current unfavorable financial situation, living in a rental is more advantageous than paying off a mortgage for your own home. More than half of people living in rented accommodation would like to move into their own home, but in almost two-thirds of cases they cannot afford it. On average, nearly 15 annual salaries are needed to purchase an apartment in the Czech Republic. The unavailability of one’s own housing thus leads to an involuntary increase in interest in rented housing. This follows from a survey carried out by Česká spořitelna, Europe in data and the Institute of Sociology of the Academy of Sciences of the Czech Republic.
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The wave of corporate failures is already rising
At the time, the real estate market was growing by roughly ten percent per year. However, investors can now forget about such growth. However, the debts will have to be repaid. Not everyone will succeed. According to Havel’s offices are facing a stage of corporate collapse in the real estate sector. It has not been written about yet, it will be written soon.
As noted by Havel’s law firm, which is intensively involved in the real estate sector, low demand and expensive financial resources of companies will lead to difficulties especially for medium and smaller real estate projects financed by bonds instead of equity. “We estimate that fifteen to twenty-five percent of issuers will not be able to handle the situation, and we are facing bankruptcies, restructuring and asset sales (mainly real estate) at discounted prices,” the legal office states.
What will be the consequence of the whole event? Giant assets will move into the hands of banks, creditors, law firms. Real estate prices will fall or stagnate for some time, the media will write about a new trend. In the meantime, however, the property will be redistributed. At the end of which there will be new winners of this “real estate crisis”. We will see several new names in the billionaire rankings.
Read more comments of the (in)correct Dalibor Martínek here
Jiří Vančura: Financing in euros was a hit. Now it stops paying
Reality
There is a lot of uncertainty in the real estate market at the moment. And it is also reflected in the financing of large and medium-sized projects. There, in recent months, the efforts of companies to reduce costs through a loan in euros, where the rate was significantly lower than on loans in crowns, played a big role. “Gone are the days when it was significantly more profitable. And it may happen that banks will stop offering it, or that it will no longer be more advantageous for clients than borrowing in crowns,” says Jiří Vančura, head of corporate financing at Trinity Bank.
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2023-07-14 14:20:43
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