Declining demand for apartments is pushing land prices down

Prague - Purchase prices for land for the construction of new apartment buildings have fallen in Prague and its surroundings by up to 15 percent in recent months. The value of the land was reduced by a decline in demand for new apartments and stagnation of their prices, the development company Ekospol reported today in a press release. According to analyst Dušan Šťastník from the consulting company King Sturge, however, prices for land designated for logistics projects have also hit a ceiling.
    "It was clear that land prices would not rise indefinitely," Šťastník told ČTK. "Prices that were considered normal just last year are now completely unrealistic," he added. According to Ekospol, the price of land is one of the most significant cost items in any development project.
    The decline in demand for new apartments, according to Ekospol, ranges from five to ten percent. However, according to some opinions from the real estate market, demand for the lower segment of housing, which makes up the majority of developers' offers, has almost fallen to zero. Developers see the decline in demand primarily as a disparity between the growth of average incomes of residents and the rising prices of apartments, which limits the availability of new housing financed by mortgages.
    According to the analyst, developers can either reduce their margins or rely on stagnation in the prices of construction work and land.
    "Construction work prices continue to rise due to a sufficient number of contracts in the area of transport infrastructure, contracts from non-residential construction, and inflation," Ekospol stated. However, according to Šťastník, the trend is slowly beginning to reverse. "Construction companies are starting to get sensible, and their prices are beginning to stagnate," the analyst told ČTK.
    According to an expert from King Sturge, developers also have limited options to further reduce their margins, which are now said to be at a realistic level.