House prices are going down. How to buy correctly?

Remember that time when it was worth buying a property on a mortgage and then renting it out? Although at the moment it seems that such a period is imminent and that the amount of the mortgage payment is moving more and more away from the rent, this is not the case in all cases and in all localities. Last year's rent increase also plays into the cards for investors — if not, we helped many Ukrainian families find temporary or permanent housing in the Czech Republic. Properties for rent on the market have decreased considerably and their price has increased. It was no exception that 30 people were also reported to be interested in one rental ad, and this trend seems to be continuing.

But at the same time, it looks like some properties are really getting cheaper. What kind of real estate is it?

Older apartments with high running costs, with an uneconomical way of heating (older electric or gas boilers, wawky), in uninsulated buildings with worse energy labels -- who would want to pay such high energy advances now, either?

Real Estate Before Renovation — although it is great to be able to renovate the apartment according to your own ideas, the cost of renovation has also increased significantly. General renovation of apartment 2 + 1 will probably cost you at least 600,000 CZK at the lowest standard. If you don't own a construction company, that's different.

‍Properties whose owners need to sell them and they can't afford to offer them in advertising for long.

At the same time, there is a certain price correction in the real estate market, which forces sellers with high expectations to gradually reduce the price to a reasonable level. A long time ago, we are not in a situation where even a waterlogged Prague cellar without windows can be sold for millions, in an advertisement to be found as a luxury studio just outside the center. In addition, if we put it in context with inflation, we will now pay for the purchase with money that is worth less than a year ago. Everything has become more expensive, but some properties have become cheaper. So when else to shop than now?

‍

New buildings keep the price for now

Investing in new buildings is a bit of a separate discipline. If you're thinking of a portfolio that will last you decades without major maintenance, new-builds seem like a good but fairly expensive option. The purchase price of new buildings is still very high. On the contrary, you will be pleased with high-quality insulation, modern technology and overall low energy costs.

Developers generally do not plan to cheapen the area. They too face an increase in the cost of materials and labor.

It was customary for the developer to continuously increase the price of the offered apartments during construction. The closer to the approval, the higher the price, which, among other things, also reflected the degree of risk for the investor. But now, for the first time in a long time, we are seeing prices stagnate, even for new buildings nearing completion.

More and more often, however, are marketing campaigns. Garage for half, allowance for equipment or kitchen included. Although it is usually not an absolute discount, it will definitely affect the resulting amount of your investment. Do you have a dream apartment in a development project and the seller does not offer the event? Don't be afraid to ask, sales are so subdued at the moment that they may be able to accommodate you in some way. When it is no longer a new line or a discount on garage parking, it may need to be individually shifted payment due.

Many developers are now looking at the possibility that buyers will pay them up to 90% of the total price after approval. This is the perfect situation for your cashflow. Due to inflation, money can have a completely different value in two years, and you subscribe to the current “crisis” price by booking a unit. And maybe you will be able to get something extra thanks to the marketing action of the developer.

‍

Investing in land

Real estate experts across all media agree that quality land doesn't come cheap. A practically solved building plot of reasonable shape and buildability, ideally with already implemented connections to all networks, is likely to retain its value. Experts argue that the land is a limited amount. You can still find a discount here and there. It is usually resorted to by owners who need to quickly monetize the land, so they cannot wait too long for buyers.

‍

Where to look for opportunities?

Many owners, even before entrusting the property to an estate agency, decide to try networking on their own, for example in Facebook groups. Sellers usually try to overestimate the price, but every once in a while you come across quite an interesting offer. Real estate agents can be negotiated much more effectively than in the past. If in previous years there were five buyers per property, now there are five or more properties per buyer. The situation has turned around.

Don't be afraid to haggle. You can come across an ad for an apartment, the sale of which the owner is in a hurry, and thus agree on a really interesting price.

‍

Mortgage: yes or no?

A lot of people are reluctant to take out a mortgage in the current situation. It's not as black as it seems. In the past, even higher rates were not uncommon, although properties were in turn more affordable. But if you are thinking about a mortgage and you are discouraged by high interest, try to think about it differently. You fix the interest rate for 1, 3, 5, 7 or 10 years. At the moment, the most worthwhile is a three-year fix. In the meantime, the turbulence in the mortgage market may settle down again and interest rates will fall lower. The legislation allows you to repay the mortgage early without penalty, usually for a fee of several hundred crowns. If the interest rate drops, nothing will prevent you from refinancing the loan with another bank and getting better interest. Or threaten your own bank that you're leaving — and most of the time the interest offered by a rival bank pays you back.

‍

‍

You usually take out a mortgage with a long term horizon and the interest rate will change several more times. But what is constant is the price at which you purchased the property. And it may never be lower than it is now. When you find a sale property and buy it at a 20% discount, it is profitable to pay a few thousand more mortgage payments for several years - in the end you will overpay some tens of thousands before the market calms down.

But a 20% discount off a $5 million apartment makes the $1 million you saved on the purchase price.

‍

What is the real estate market waiting for?

Just as financial experts were already ahead of themselves on Friday in tipping inflation levels for the next months and quarters, so too did real estate experts estimate market developments. One thing is clear: we cannot predict the future. Until a year ago, almost no one admitted that they could cheapen any real estate. Now this is happening and it is possible that the price of some types of real estate will go even lower. But this cannot be relied upon, much like the timing of the stock market. Prices in the real estate market go hand in hand with the economic crisis. If the already sharply spinning wheel of inflation does not start to brake, economic inequality between people will deepen even more and it is possible that the market will experience an even more intense inflow of properties for sale. But it is also possible that the market is already at the bottom.

‍

So what to do?

Property investors agree that this year is a year of opportunity. Investing in real estate can really pay off this year. If you have extra money or, for example, an unspent mortgage negotiated even before interest rises, there is nothing to wait for. Don't feel like buying a property or have more of them and are you worried about their difficult management? Buying property is not the only way to appreciate money this year. For example, it is worth investing in development projects. The advantage is fixed interest and a fairly short investment horizon on the order of lower units of years. Getting and fixing up to 10% interest for a few years ahead was science fiction until recently. That's no longer the case this year. See what investment opportunities we offer in the Investown app.