People have been earning money for a new 70 sqm apartment in Prague for over 17 years, 2.4 years more than last year. This is according to the CG-Index housing affordability index, compiled by the developer Central Group. Across the country, then, it is necessary to spend more than 15 annual salaries to buy a flat, according to the CG Prosperity Index.
The CG-Index, which works with data from the Labour Ministry’s Average Earnings Information System and is based on an analysis by Central Group, Trigema, and Skanska, calculates the average gross monthly wage in the capital at CZK 50,363 and the price of a new apartment at CZK 10.4 million. This implies that 17.3 annual salaries are needed for an apartment, compared to 12.7 five years ago.
According to the founder and head of Central Group, Dušan Kunovský, there is massive uncertainty in the construction market, which is caused by many factors. First, rising inflation and the prices of building materials or energy.
Most importantly, clear rules.
He recalled the uncertainty regarding the Construction Act, which was approved last year by Andrej Babiš (ANO) government. Still, the cabinet of Petr Fiala (ODS) has pushed through a postponement of the main parts and is preparing an amendment. “Above all, we need clear rules,” Kunovský said today.
For example, compared to neighboring Czech states, it takes about nine years for people to get a new apartment in Berlin, Vienna, and Warsaw. According to CG-Index, it takes almost 15 years in Bratislava.
According to the Czech Prosperity Index, it takes an average of 246 days to obtain a building permit in the Czech Republic, the same as in Côte d’Ivoire. In Denmark and Finland, it takes just over two months.
Kunovský said that 134,000 new flats are under construction in Prague, but only around 3,000 are completed each year. “Prague needs to build at least 10,000 to 15,000 new flats a year because of the deficit from previous years,” Kunovský said.
David Navrátil, the chief economist at Česká spořitelna, said building regulations are the biggest problem, with construction delayed by zoning decisions. “Abroad, agreement with municipalities is relatively quick. It is clearer there what the municipality gets out of it. Poorly set tax distribution is a disincentive here,” Navrátil said.
Kunovský has long proposed a solution of adjusting taxes on the 10+5 principle, reducing VAT on new apartments from 15 to 10 percent, and giving five percent to towns and municipalities.
The value of the upcoming apartments is 1.4 trillion
According to Central Group estimates, the value of all apartments in the pipeline in Prague currently stands at CZK 1.4 trillion, and the state would receive over CZK 180 billion in VAT on them.
According to the Czech Statistical Office, construction companies carried out construction work worth CZK 579 billion in 2021, an increase of 8.1 percent yearly.
Most of the construction work was carried out in the territory of the capital city of Prague, followed by the South Moravian Region at a greater distance. New construction, reconstruction, and modernization accounted for three-quarters of the total volume.