According to members of the Bank Board of the Czech National Bank (CNB), the strong rise in housing prices and new mortgages is surprising. According to the council, this applies to the Czechia as well as to most developed countries. At the same time, however, they believe that growth is likely to slow in the coming quarters. This follows from the record of the CNB Board meeting on 27 May on financial stability issues.
The record of the board’s meeting after discussing the issue of financial stability last November was similar.
After the meeting on May 27, the council left the limits for providing mortgages unchanged and did not consider it necessary to tighten them. Simultaneously with effect from July 2022, it increased the so-called countercyclical capital buffer rate for credit market protection for all banks, savings and credit unions and securities dealers to one percent from the current 0.5 percent.
At the same time, it stated that, according to stress tests, the banking sector is highly resilient even after the coronavirus pandemic, also due to its strong capital adequacy. At that time, the Bank also estimated that apartment prices in the Czech Republic are overvalued by an average of 18 percent and in selected localities with a high share of investment apartments by up to a quarter.
According to the record, the Bank Board also agreed that the support of the supply on the residential real estate market could contribute to the stabilization of housing prices to a much greater extent than the CNB’s measures. According to some members of the Bank Board, higher taxation of real estate acquired as investment would also help stabilize prices.
“Foreign experience shows that in addition to an adequate real estate tax setting, the removal of various tax subsidies supporting the purchase of housing on debt, such as the tax deductibility of interest on mortgage loans, also counteracts the deterioration of housing affordability,” the record said. At the meeting, one of the members of the Bank Board emphasized that the slowdown in housing prices should be helped by a reduction in inflation expectations and an increase in real interest rates.
In relation to housing prices, according to the record, economists probably did not sufficiently appreciate the importance of specific circumstances related to the pandemic. These include an increase in demand for larger flats, housing outside larger cities or recreational real estate.
The record also states that the volumes of truly new mortgage loans, ie without refinancing and refixing, reached record highs in the second half of last year and in the first months of this year. “This is mainly due to a significant increase in the average amount of the loan provided, while the numbers of actually new mortgage loans did not deviate from the values usual in previous years,” the record said.
According to the record, the members of the Bank Board also agreed that the financial sector has strengthened its resilience in the last two quarters. “The recession that the economy went through was not a classic cyclical nature. Its effects on the health and performance of the financial sector were significantly lower than expected last year,” the record said.
On Wednesday, the CNB also published the entire Financial Stability Report 2020/2021. However, she has already presented the main conclusions at a press conference on 27 May.
Video: There is a huge shortage of apartments, the price will not go down. Taxing other flats is nonsense, says Korec
Prices of average flats will not go down, demand is still rising. The price of flats in Prague has doubled in the last five years, says developer Evžen Korec. | Video: Daniela Drtinová
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