Housing Standards 2004/2005
Financing Housing and Refurbishing Housing Estates

1. Monitoring and analysis of the prices of owner-occupied housing

1.3 An Analysis of Price Developments in the Czech Market

In the Czech Republic real estate prices have only been monitored systematically for the past several years, and therefore there is no time series of adequate length that would allow for comparing long-term real estate price developments in this country with developments in other countries. Nevertheless, the index of the Czech Statistical Office shows that the price of an average-sized flat in the Czech Republic increased between 2000 and 2003 by a nominal 71%, the price of an average-sized family home during the same period by 25%; the price of flats in particular in this period grew much more than the increase in real estate prices observed even in the advanced countries that saw record increases in real estate prices where stronger and stronger references are being made to the existence of price bubbles. Graph 3 presents price developments for flats and houses in the Czech Republic in individual quarters of the years between 1998 and 2003 using data from the Czech Statistical Office. The graph clearly shows that the prices of flats have been considerably more dynamic since 2001 than the prices of family homes. Average quarterly growth in the nominal price of flats between 1998 and 2003 was 3.46%, and 2.14% for family homes. This discrepancy was strongest in Prague.

In 2004 an improbable phenomenon from the perspective of long-term price developments occurred, and amidst a situation of economic growth there was not just a real but also a nominal decline in the price of flats in Prague. The price bubble partially burst. This development is vividly evident in Graph 4, which presents the price developments for a standard flat in Prague between January 2004 and January 2005, according to data from IRI in Brno and the index accessible to the public on the iDnes Web site. The IRI methodology defines a standard flat as a flat in cooperative ownership, top grade, 68m2 floor space, and roughly 40% depreciation from ware. Primarily this definition refers to flats in prefabricated construction complexes. While in January 2004 the price of a standard flat in Prague was about 68% higher than in 2000, in January 2005 it was only about 50% higher. In other words, during the monitored period the price of a standard flat exhibited a nominal decrease of 18 percentage points.

Graph 4: Price developments relating to a standard flat between January 2004 and January 2005

Source: Institute for regional information, own computations.

To strengthen investments in the future and improve the security of the mortgage loan market and the sector of market-based home financing generally it is crucial that there exist current and as reliable as possible price statistics for housing, or in short, a reliable housing price index.