* Housing frenzy hitting much of central Europe
* Czech central bank wants more powers
* Record low rates leading to ultra cheap mortgages
* Vacation home rentals boosting demand
* Fear people may take on more than they can handle
* For a GRAPHIC: tmsnrt.rs/2e8bhP2
By Jan Lopatka and Jason Hovet
PRAGUE, Oct 11 When Zuzana Benesova advertised
her Prague apartment on Airbnb, the online vacation home rental
marketplace, she had no idea it could become a burgeoning
Four years later, she owns three such rental properties and
runs a company which services another two dozen vacation
apartments. She also advises others who want to make use of
record low mortgages to snap up properties and rent them out to
holidaymakers at hefty returns.
Record low interest rates, as well as an increase in
services like Airbnb, are feeding a housing frenzy in the Czech
Republic, as elsewhere in Europe.
But the Czech National Bank (CNB), which wants to maintain
its ultra loose monetary policy of a weak crown currency and
near-zero rates until at least next year, is worried and wants
more powers to keep lending from getting out of control.
Analysts and brokers, though, see little chance of the
market cooling any time soon.
Newly built apartment prices in Prague rose 19 percent
year-on-year to around 66,000 Czech crowns ($2,740) per square
metre on average in the second quarter, according to a survey by
construction and development firms Trigema, Skanska Reality and
In Prague's sought-after Letna neighbourhood, old apartments
are selling before listing. The central bank estimates Prague
property prices may be 5-10 percent overvalued.
Benesova just helped her uncle get a mortgage to buy a
60-square-metre apartment in Prague's historic centre and
estimates rental income could be as much as twice the loan
"It still pays off," she said.
Mortgage lending grew 29 percent to a record 184 billion
crowns ($7.6 billion) in 2015, according to Development Ministry
statistics, and is expected to surpass that this year. In
August, the average mortgage rate dropped to 1.84 percent, from
2.11 percent the year before, market monitor Hypoindex found.
Business consultant Ondrej Homola lives in a rented flat but
borrowed to buy a small apartment in Prague's up-and-coming
Holesovice district to let through Airbnb. "Airbnb rental makes
business sense," he said.
This is because property owners can make two or three times
more rent through Airbnb than via long-term lettings. The number
of tourists visiting Prague rose 14 percent year-on-year to 1.3
million in the first quarter, according to the city's tourism
Low rates are also helping first-time home buyers.
Magdalena Klimesova said a mortgage covering 80 percent of
the purchase price enticed her to ditch her rented home for a
house on a hillside by Prague's Vltava River. It has an 8-year
fixed rate of 1.59 percent and payments will take up a third of
her family's monthly income.
IT consultant Matej Fryba said he bought a 120-square-metre
apartment, bigger than he expected. "Low rates helped us get a
larger loan than we might normally afford," he said.
The central bank is seeking more legal powers to enable it
to limit mortgage lending if needed, but has issued repeated
recommendations on mortgage limits to banks.
Earlier this year, the central bank asked banks not to offer
loans covering 100 percent of property values, and on Oct. 1,
tightened this to 95 percent. From April this will shrink to
mortgages at 90 percent of property value. For buy-to-let the
ceiling is 60 percent.
Jan Frait, head of the CNB's financial stability department,
said the main fear is that people will take on more than they
can afford and struggle with payments, forcing many to curb
spending when the economy slows.
"Some households take a loan that consumes more than one
third of their monthly income, which is quite striking in the
situation of historical low interest rates," he said.
The housing market has soared in much of central Europe, and
the National Bank of Slovakia has put in place similar measures
to curb mortgages. Regulators in Hungary had already imposed
such limits when foreign-currency loans soared as national
currencies dropped during the global financial crisis.
Czech banks emerged relatively unscathed from the global
crunch, backed by low loan-to-deposit ratios. Deep interest rate
cuts have helped the Czech economy to grow 4.6 percent in 2015
when a record flow of EU subsidies also boosted growth. Growth
is expected to slow to over 2 percent growth this year before
accelerating next year again.
Eva Zamrazilova, the Czech Banking Association's chief
economist and former central banker, said only higher rates
could tame the housing market. "The longer (CNB) rates remain at
technical zero, the longer the boom will continue," she said.
Milan Zak, head of real estate firm Re/Max's Czech office,
also saw scope for yet more growth. His firm had a 20 percent
rise in deals last year. "We are not at the top of the peak," he
($1 = 24.0990 Czech crowns)
(Addtional reporting by Jiri Skacel in Prague, Tatiana
Jancarikova in Bratislava, Krisztina Than in Budapest, Marcin
Goclowski and Wojciech Strupczewski in Warsaw; Writing by Jason
Hovet; Editing by Raissa Kasolowsky)