Sellers: In Prague, there is the greatest interest in apartments ranging from 1.8 to 3.5 million CZK

PRAGUE - Thanks to favorable mortgage loans and the expected increase in value-added tax on residential construction, demand for home ownership remains high. In Prague, people are primarily interested in apartments priced from 1.8 million to 3.5 million crowns. The most common apartment size is 50 to 70 square meters. Demand has shifted from 1+kk apartments to 2+kk apartments, and interest in larger apartments is also increasing. This is evident from the responses of apartment builders and real estate agencies surveyed by ČTK.
"Just two years ago, the highest interest was in small 1+kk apartments, which were lacking in the market. Recently, interest has shifted to 2+kk apartments around 50 square meters and 3+kk apartments measuring around 70 to 80 square meters," said Central Group's CEO Dušan Kunovský.
According to the real estate company Lexxus, the highest interest is in apartments sized 50 to 70 square meters at prices of 40,000 to 50,000 CZK per square meter. "Apartments over 100 square meters are difficult to sell," stated Jakub Sedmihradský from Lexxus.
Skanska, the largest construction company in the market, confirmed the highest demand for 2+kk apartments at up to 30,000 crowns per square meter. "There is significantly increasing demand for larger areas in 3+kk and 4+kk configurations at prices of 32,000 to 40,000 crowns per square meter," noted Ondřej Šuch from Skanska. He added that buyers interested in these larger apartments place much more importance on location and apartment fittings. "The most desired locations are Prague 5, Prague 6, and Prague 10, and possibly even Prague 4," said Maxima Reality broker Otakar Schuma.
Last year, in the third quarter, the number of building permits for apartments in Prague reached 17,600 units. Of this, over 70 percent are in apartment buildings, while the remaining apartments are in family homes. Year-on-year, residential construction increased the most in Prague 3 and Prague 9. In contrast, a decrease in apartment construction was observed in Prague 8 and Prague 15.
"In lower price category apartments, there is a slight improvement in the level of interior standards," stated Sedmihradský. For example, carpets are being replaced with floating laminate floors, and the price of used tiles and coverings has increased. No significant changes have occurred in the mid-price segment, while luxury apartments are increasingly featuring high-tech elements in their interior fittings. For instance, computer-controlled heating or ventilation functions with remote access via the internet and mobile devices are being installed.
Currently, a reduced five percent value-added tax applies to residential construction. From 2008, it is expected to increase to the standard rate, which is currently 19 percent, due to EU requirements. The lower rate will only apply to the construction of social housing.
The state is now trying to adjust the definition of social housing so that the lower tax applies to the majority of residential construction. According to the current proposal approved by the government, apartments up to 90 m2 and family houses up to 150 m2 will qualify as social housing. The lower tax rate should apply to an apartment building where none of the apartments exceed the specified limit.
At this moment, it is just a proposal; parliament is likely to discuss it only this fall. It is not out of the question that a lower VAT rate could also be maintained beyond 2008, as EU countries still want to negotiate this possibility again in 2007.