Prague, importantly, is just a two-hour flight from our capital. Add to this a pleasant mild climate and a low language barrier. Moreover, it is widely acknowledged that Prague residents are naturally non-confrontational and friendly; it is no coincidence that the Czech Republic is the homeland of the cheerful, good-natured soldier Švejk from Hašek's works. One must also mention what has long become the country's calling card. Of course, it's about beer. Here in Prague, there are countless "pivnice" (beer halls) serving the most delicious beers of various types, so beloved by our compatriots...
Be that as it may, Prague has become a true Mecca for tourists, including those from former Soviet countries, which brings to mind the interconnection between the tourism market and the real estate market. Prague is no exception: in recent years, there has been steady growth in foreign real estate buyers. Properties are purchased both for living and as profitable capital investments. High construction quality is ensured by the standards of the European Union, of which the Czech Republic is a member, while real estate prices compared to other EU countries are still not too high.
Golden Prague – a city with over a thousand years of history, very green (each district has parks or green zones), divided almost into two equal halves by the Vltava River and abundant with bridges, was divided into 10 districts in 1920. Later, the number grew to 22, but new districts became part of the old ones.
For example, Prague 1 is the historic city center, which includes the Old Town and such well-known places as Old Town Square and Charles Bridge. Real estate prices here are high and comparable to those in other European capitals. Prague 6 is perhaps the most prestigious part of the city with buildings of old (even ancient) construction; it houses the vast majority of embassies, consulates, and various foreign and international missions. Prague 9, on the other hand, is a vast remote area of standardized development.
When both prices and appetites grow
The residential real estate market in Prague (as well as throughout the Czech Republic) can be roughly divided into several groups.
1. Private houses or villas (houses are only in private ownership). A feature of Prague is that even in the city center you can buy a detached house or cottage.
2. Apartments in brick buildings (usually old construction) in the historic city center, or new ones built to European standards in prestigious areas.
3. Monolithic brick buildings constructed in recent years or currently under construction. These are new-generation buildings that meet international standards in every respect. As a rule, such buildings are located in prestigious areas of the city. Purchasing such property is perhaps the most successful investment.
4. Apartments in ordinary standard high-rise buildings built during the socialist era. In appearance and layout, they differ little from similar buildings in our country, but there is a pleasant plus: in the Czech Republic, it is customary to make utility rooms in the basement floors of apartment buildings. The vast majority of apartments in this group are cooperative.
When purchasing real estate in the Czech Republic, you must remember: it can have private or cooperative ownership. This means that when buying a cooperative apartment, you do not receive a specific property, but only a share in the cooperative. There are some restrictions on the use of such property. For example, the cooperative's charter may prohibit renting out apartments. Cooperative housing is somewhat cheaper than privately owned housing. In some cases, it is possible to convert a cooperative apartment into private ownership if this does not contradict the cooperative's charter.
In the Czech Republic, and therefore in Prague and its surroundings, several types of houses can be found. Rodinný dům (RD), or cottage – a small one- or two-story house designed for one family, with a garage and adjoining land. Cottages are distinguished by a high level of comfort, as in the Czech Republic, even at the construction stage, objects are connected to all utilities (water supply, sewerage, electricity, etc.).
Řadový rodinný dům – this is what is now commonly called a "townhouse". Vila – a residential building characterized by a maximum level of comfort. For suburban development, Chata is typical, as you might guess – a dacha, as well as Chalupa – a rural house suitable for year-round living. If you come across Zámek in a real estate ad, do not think it is a real castle. No, that is how former residences of the Czech nobility are called. These are large, historic buildings with large land holdings.
There is also the possibility of purchasing a historic property, but a mandatory condition of purchase is its reconstruction and preservation of the original style and interior details. Purchasing such a property is attractive primarily for its architectural and historical value, while the downside may be the complexity of renovation work and its high cost.
Another interesting direction is Brownfields – organizing residential spaces in buildings of former plants and factories. In Prague, there are a number of unused industrial areas suitable for conversion into housing. One of the largest projects of this type is Cornlofts Šaldova in Prague's Karlín district, offering apartments ranging from 100 to 150 sq m at a price of 65 thousand crowns per square meter (about €2,300).
According to research, over the past decade, two noticeable jumps in real estate prices have been recorded in the Czech Republic. The first was recorded in 2001 and was caused by the anticipation of the country's entry into the European Union. The second began in 2005–2006, when prices for apartments and building plots rose significantly. At the same time, cottages did not increase in price as quickly between 2003 and 2006.
In Prague, prices have risen particularly noticeably: for some categories of apartments by 24.5% (information as of the end of December 2006 compared to December 2005). In 2006, prices on average rose by about 9%, and in the first quarter of 2007 – by 4%. In the central districts of the Czech capital, real estate prices have doubled in just the last few years.
The main reason for the price increase, according to experts, is a surge in housing demand fueled by affordable mortgage lending, rising incomes, and a favorable demographic situation. Another factor significantly affecting the rise in real estate prices is the substantial difference between housing costs in this country and in other EU states.
Currently, the average price per square meter in Prague is approximately €1,300. For example, a one-room apartment in the Prague-10 district (Vršovice) with a total area of 32 m² will cost €60,000. The apartment is in cooperative ownership but with the possibility of conversion to private ownership; the price includes a basement. The building recently underwent renovation.
The price increase is also driven by growing interest from foreigners, who are purchasing more and more residential real estate in the capital. Foreign buyers have the most active influence on the price of exclusive real estate. According to experts, the share of luxury apartments on the Prague real estate market today is about 4% of the total housing supply, but it is projected to increase to about 10% in the coming years. For example, a private two-room apartment with a total area of 90 m² in a quiet and peaceful part of the historical center of the Czech capital in the Prague-1 district can be purchased for €340,000. The apartment has been renovated, plumbing replaced, parquet flooring, a spacious terrace (26 m²), and a basement.
The city is actively being built up – in the past year, 5,186 apartments were constructed in the Czech capital. The cost of a new apartment is approximately €1,200–1,600 per m², including first-class finishes, VAT, and insurance. For quite a long time, prices for new housing have been steadily rising by 10-20% annually. New complexes are emerging. For instance, in the Zličín district (Prague-5), the modern residential complex Metropolia will have 1,400 apartments. The selling price is €1,270-2,028 per square meter; the cheapest one-room apartment with an area of 25.6 m², including a storage room and a terrace, will cost about €53,000.
The prices of individual properties are largely determined by their location. A small house in a prestigious area can cost several times more than a similar one somewhere in the suburbs. The price of a house also depends on its technical condition and the size of the adjacent plot. Original architecture, a landscaped plot, and modern energy-saving technologies that reduce utility costs will increase the price. At the same time, a house in need of repair or encumbered by any legal restrictions on ownership rights will cost less. For example: a new medium-sized cottage in Prague will cost approximately €120,000-220,000, including the land plot, first-class finishes, VAT, and insurance. A small house in Prague or its surroundings can be purchased for €80,000-100,000 and up, a good villa from €250,000, a zámeček from €300,000, a chalupa from €12,000-19,000, a chata from €4,000.
In the Czech Republic, interest in owning housing on environmentally clean outskirts of cities is growing. This is evidenced, in particular, by the success of the new Nový Jenštejn project, which involves the construction of 140 private houses with areas from 103 to 210 m² in the Jenštejn area in the eastern part of Prague. Private investors are also focusing on plots near highways. For example, prices for plots near the D1 and D8 highways rose by 5% in the first three months of this year. Their market value is determined not only by the ability to quickly get to the city but also by the presence of developed infrastructure.
The rental market is also quite broad. Renting a one-room apartment in a residential area, in a panel building, can be had for €180–220 per month. The same size apartment but in a prestigious brick building in the historical center will cost approximately €550 per month. Of course, renting a villa or cottage is significantly more expensive and very individual.
According to the current legislation of the Czech Republic, a foreigner who is not a citizen of a European Union state and does not have permanent residence in the Czech Republic cannot purchase real estate in the country. The simplest way to solve this problem is to open a company in the Czech Republic.
Many are interested in the question: does owning real estate provide a simplified way to obtain a visa? This is especially relevant on the eve of December 31, 2007, when the Czech Republic will join the Schengen Agreement, and all foreigners will be able to move freely throughout almost the entire EU. A long-term multi-visa for a period exceeding 90 days to the Czech Republic (the so-called 'residence permit' or temporary residence) can be obtained based on participation in a legal entity registered in the Czech Republic in accordance with the 'Trade Act'. Subsequently, the foreigner can obtain 'permanent residence' if they have had temporary residence for 5 years. After 5 years of permanent residence, the foreigner can apply for Czech citizenship. Thus, the most reliable and popular way to obtain temporary residence (especially for a family) is to obtain a residence permit based on participation in a legal entity through opening a company.
Mortgage
The past year was a record year for the Czech Republic in terms of the number of mortgage loans issued. In 2006, loans totaling 100 billion crowns (about €3.5 billion) were issued, which is 40% more than in 2005. Czech banks contributed significantly to this. Despite the fact that mortgage interest rates have recently risen, banks, trying to attract new customers, are attempting to make mortgages more affordable by simplifying the loan process and reducing its cost, as well as offering various bonuses and services. The banks' efforts to attract customers are paying off: in the first month of 2007, loans totaling 230 million crowns were issued in the Czech Republic, which is 71% more than the same period last year!
A logical question: can foreigners count on a loan to buy a home? Yes, Czech banks also provide mortgage loans to foreign citizens. According to HVB Bank, in 2006, foreigners received mortgage loans totaling over 700 million Czech crowns. The mortgage interest rate for foreigners in Czech banks is currently about 4-7%, which is much lower than the rates of domestic banks. However, in most cases, the borrower must have their own capital of 20-50% of the property value.
Legal nuances
Buying real estate, especially when the transaction is carried out in another country with its own laws, rules and restrictions, and in a foreign language, is quite a risky business. Therefore, it is worth turning to real estate professionals, especially since many of them not only provide services in a comprehensible language, but also offer various programs that make buying a home more affordable. For example, Central Group has developed a unique installment plan that every client who does not have the full amount at the time of purchase can use without resorting to a bank. The down payment in this case is only 10% of the property price.
To be sure that the buyer will not have any problems after the transaction, each document must be carefully checked for compliance with current legislation. For example, if real estate that is joint property of spouses is sold, the second spouse must also confirm his or her consent to the transaction in writing. When purchasing real estate through a company, it should be remembered that only the director of the company or a person authorized by him to conduct transactions specifically with this property can both buy and sell it. One should also not forget to properly record it on the company's balance sheet.
One of the main documents that will be encountered in purchase and sale transactions is an extract from the real estate cadastre. According to the laws in force in the Czech Republic, any person, after paying a state fee, can obtain an extract for the property of interest. This document is a source of necessary information. It confirms the existence of the property, the identity of the owner, contains information about how it was acquired, and also provides information about the owner's powers and restrictions on transactions with the property. Thus, a potential buyer can protect themselves from fraud or other possible problems when buying.
When selling a property (changing the owner in the register), a real estate transfer tax is levied, which is 3% of the value (the maximum of the appraised value or the value specified in the contract). Unless otherwise agreed, the tax is borne by the seller.
VAT is added to the price of new buildings, which is 5% for residential premises and 19% for non-residential premises. VAT is not applied to secondary market real estate.
Property ownership is subject to a small tax. Its amount depends on the value of the property, the locality in which it is located, and many other parameters. As you move away from Prague, the costs of maintaining real estate decrease significantly. The cost of maintaining an apartment includes utility payments, which are made in advance with subsequent recalculation. This also includes payments to the house repair fund, the amount of which depends on the decision of the cooperative or homeowners' association.
The second expense item is income taxes if the apartment is rented out. The tax on a privately owned apartment in Prague with an area of 100 m² will be about €20 per year. The owner of a private house pays about €150 monthly for utilities and property tax (about €40 per year). The amount of costs depends on the size of the building, building materials, insulation and insulators used in construction, and additional "amenities" like a pool.
Summing up, several compelling reasons for buying real estate in the Czech Republic, and especially in Prague, can be highlighted. The country's favorable geographical location, stable democratic political system, attractiveness as a tourist center with a mild climate and numerous spa resorts, high liquidity of real estate, market accessibility for investors and guarantees of a favorable investment climate from the state, prices (Czech real estate is one of the cheapest in the European Union), continued economic growth and rising prosperity of the population, etc. The convenient location of the Czech Republic (in the very center of Europe) and its accession to the Schengen area in 2008 make the country even more attractive. With the abolition of border checkpoints, foreign citizens who own real estate in the Czech Republic will be able to travel virtually throughout Europe without any problems from the new year.
According to experts, the Czech Republic is among the ten most attractive countries for investors, and in the near future an influx of foreign capital is expected here. Demand for quality housing in promising districts of Prague will only increase, and consequently prices will rise (as already mentioned, after the Czech Republic joined the European Union, prices have already increased, but are still far from their limit and the process will continue at 10-30% per year). In addition, the upcoming changes in the country's legislation provide for the removal of restrictions on the purchase of real estate by foreigners, since the elimination of all existing restrictions for foreign citizens on the acquisition and ownership of real estate was one of the conditions for the accession of the Czech Republic to the European Union.