Hi, this is Peter Laca in Prague. Welcome to our weekly newsletter on what’s shaping economics and investments from the Baltic Sea to the Balkans. You can subscribe here.

Priced Out

Home prices in the Czech Republic are rising at breakneck speed. While that might be great for real estate owners, it’s a problem for a central bank wary of inflation and the swathe of the population struggling to get on the property ladder.

Buying an apartment or house has become an unreachable dream for an increasing number of Czechs. The country has some of the worst housing affordability relative to incomes in the European Union. The hot market is also now a key reason why policymakers halted a roughly 18 month-long campaign of cutting interest rates.

One of the bank’s two deputy governors, Eva Zamrazilova, cautioned this week about the perception that property was effectively a risk-free investment. She said it was the government’s job to reduce the appeal of real estate, possibly through changes to the tax system or rules on foreign ownership. In an interview with Bloomberg, Zamrazilova also called on financial institutions to offer alternative investment products that would lure people away “from putting money into bricks.”

There are several reasons behind the sharp growth, including cumbersome approval procedures that delay construction of new apartments and fuel pent up demand. The list prices of new and older homes jumped 17% year-on-year in the second quarter, according to Czech Banking Association data. They’ve almost doubled since just before the coronavirus pandemic.

The penchant for preserving money is another factor. Czechs are some of the biggest savers in the EU. While the number of mortgages is rising again toward peaks, about half of home purchases are financed without any loan. With so much cash, it may indeed take some intervention to cool the property market.

Real estate prices have been skyrocketing. Photographer: Andrey Rudakov/Bloomberg

Around the Region

Ukraine: Parliament approved a bill to restore the independence of key anti-corruption agencies. A top prosecutor earlier said he was optimistic the legislation would pass, meeting the demands of protesters to reverse a controversial move backed by President Volodymyr Zelenskiy.

Poland: Insurer PZU envisages playing a key role in attracting financing for the country’s big-ticket energy and infrastructure projects after it completes a merger with Bank Pekao, Chief Executive Officer Andrzej Klesyk said.

Lithuania: Prime Minister Gintautas Paluckas resigned after mounting allegations over his business ties sparked political turmoil and endangered his governing coalition. 

Slovakia: The government’s dispute with the UK escalated after Prime Minister Robert Fico accused London of interfering in the country’s 2023 parliamentary election.

Ukraine: A pair of former billionaires lost a fraud case in London involving the funneling of $1.9 billion from state-owned lender Privatbank PJSC through “sham” loans and trade documents to secretly owned companies.

Chart of the Week

Bucharest is catching up with the advance in equities thanks to the government’s plan to sell more stakes in state companies. The BET index trailed its regional peers for much of this year because of Romania’s political turmoil, but it’s rallied more than 20% since a centrist candidate defeated the far right in May’s presidential election. 

By the Numbers

• US President Donald Trump said on July 29 he would give Russia 10 days to reach a truce with Ukraine. Russia responded by attacking Kyiv with a barrage of drones and missiles, killing at least six people.
• Polish inflation returned to the central bank’s target for the first time in over a year, fueling discussion about further interest rate reductions. The consumer price index rose 3.1% in July from a year ago. 
• The EU plans to reduce a major package of financial support to Ukraine by €1.5 billion ($1.7 billion) after Kyiv said it had been unable to meet all required reform milestones.

Things to Watch

• Romania’s government is expected to unveil plans to sell more stakes in energy and transport companies on the Bucharest Stock Exchange.
• Croatia, whose economy relies on foreign visitors more than anywhere else in the region, will report tourist arrival figures for June.
• The Czech, Romanian and Serbian central banks are due to decide on interest rates again next week. 

Final Thought

Prime Minister Viktor Orban said in his annual speech to ethnic Hungarians in Romania last year that the economy was the “foundation” of his country’s sovereignty. When he returned to the scenic Transylvanian woodlands last week, he hardly mentioned the economy, though. Fresh data showed Hungary managed to avert a recession, but the outlook was bleak. The government cut its 2025 growth forecast to just 1% from 3.4% initially. The “flying start” Orban had promised looks more like a false start — and it’s now less than a year before an election with his Fidesz party well behind in the polls and voters bemoaning the cost of living.

Orban’s stewardship of the economy is coming under pressure. Photographer: Atdhe Mulla/Bloomberg

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