Buying real property in Prague

There has been an enormous upsurge in investor interest in Prague real property in the last few years. People from all over the world are investing in the city that many consider among the most beautiful in Europe. Compared to the prices of residential and commercial real estate in major European cities, the prices are still reasonable with solid growth potential. Following are a few facts you should be aware of as you approach your purchasing decision.

Can a foreigner buy real property in Prague?

There are two categories of foreigners – EU citizens and non–EU citizens.

EU citizens may purchase and own property in the Czech Republic as individuals if they obtain EU citizen residence permits valid for 5 years. Obtaining the permit is easy. One merely files an application with the Czech foreign police. Recently, this policy was extended to include citizens of the United States of America.

Applications for residence permits may also be filed from abroad at Czech embassies or general consulates, but may take up to three months to process. If coming to Prague is not convenient for you, you may choose to designate a representative to file the application and arrange for the required documents.

A non-EU citizen must form a limited liability company called an s.r.o. The s.r.o. then buys and holds the property. The non-EU citizen can be the 100% shareholder of the s.r.o company. This is safe, and simple with the assistance of a legal representative, who will help to assemble necessary documents and fulfil other requirements. The cost ranges between CZK 50 000 and CZK 70 000. The company must be initially capitalized with at least CZK 200 000, in a Czech bank account.

Our legal department will be glad to arrange all of the above at a reasonable cost.

Which are currently the best districts in which to invest?

The prices of Prague properties in all areas of Prague, especially in central locations, have been increasing continuously since the early 1990‘s. On average you can expect 6-10% annual growth. Selected centrally located properties can reach and exceed 20% annual growth.

In general, properties close to the center have higher growth potential, and a higher rate of occupancy than do those at the outer areas of the city. Apartments tend to appeal most to singles and families without children. Areas in Prague 4, 5 and 6 are especially appealing to expatriate families because most international schools are located in these areas.

Some of our clients opt for land outside Prague with good transportation to the city, usually less than 30 minutes by public transportation.

Is new-build a better prospect than second hand?

The highest demand is for apartments in the buildings where the classic historic facades are preserved, but everything behind the facade is new construction, including underground garages, modern electronics and IT, such as “intelligent home” systems, etc. In this respect, new-build makes for better prospects than second hand. The second hand market can be a good investment, but only if the building is of a good quality and all of the owners are financially able to maintain or invest in the development of a high standard building.

How much should you expect to pay per square meter?

The minimum price in Prague is currently around CZK 35 000/m2 for properties on the outskirts. For renovated, European standard apartments in renovated or new-built buildings, the average price in Prague 1 is about CZK 100 000/m2; Prague 2 and Prague 5 near the riverbank about CZK 90 000/m2, and the most exceptional product has reached around CZK 300 000/m2.

Are mortgages available to foreigners?

Mortgages are available to citizens of the EU as well as to non-EU citizens. To obtain a mortgage, the applicant will need to provide proof of residence in the CR and proof of sufficient personal income to be eligible.

Probably the most convenient, cost effective and stress-free way to arrange a mortgage is through a mortgage broker. There are also several banks that have recently developed products for financing the purchase of residential real estate for foreigners. If you would prefer to do the paperwork and the negotiations yourself, we can provide the contact information for the banks at your request; or we can refer you to some of the best mortgage brokers in Prague.

You can expect to put about 30% down, depending on various factors.

What about taxes?

Real Estate Tax: All properties are subject to a nominal annual real estate tax depending on the position and size of the property. A typical two-bedroom apartment in the center, for example, would be taxed at about CZK 1 000 per year.

Transfer Tax: Whenever a property is sold and title is transferred there is a real estate transfer tax of 3% of either the assessed valuation or the sale price, whichever is higher. The seller normally pays this tax unless the parties agree otherwise.

Income tax: A property owned by a company and generating an income is subject to taxation at the current rate of 21%.

Individual Czech persons, EU citizens and foreigners with residence permits, are subject to a 15% income tax based on the amount of income earned in the Czech Republic.

VAT on sales: The new amendment to the VAT act gives a definition of an apartment, and a family house meeting the criteria for “social housing“ structures. The entire floor area of an apartment must not exceed 120m2 to qualify as a “social housing“ apartment. The total floor area of a family house must not exceed 350m2 to qualify as a “social housing“ family house. Newly built “social housing“ is subject to VAT at 9% of the purchase price. New residential properties over the limit of the “social housing“ are subject to VAT of 19%. Commercial sales are usually subject to VAT at 19% of the purchase price. Ask your Svoboda & Williams agent for specifics concerning your particular circumstances.