HN daily reported that margins on residential developments have been falling to 5-15% from 30% five years ago while unsold flats account for 22% after completion compared to just 3% five years ago due to increased competition in the Czech Republic.
Our view:
Both the market and real estate companies are aware of the increasing competition on the residential development market in the Czech Republic and the CEE markets (Czech Republic, Poland and Hungary), in particular in capital cities and therefore developers have been moving their focus to secondary cities and/or new countries in the South East Europe and further east (Ukraine, Slovakia, Baltics). Finally, the number of dwelling in the CEE region is still below the EU level. We see the demand for new housing to continue to be strong given the fact that c30% of flats in the Czech Republic have inefficient regulated rents and large number of flats in the CEE&SEE region are of poor quality dating back to the communist area.