Frequently Asked Questions

How to invest in Czech property
This section provides real-world answers to questions commonly asked by individuals and companies looking to invest, buy property and/or relocate in the Czech Republic.
Answers to all your questions regarding the purchase of Czech property by foreigners. Making mistakes can be costly! Be informed by buying our book: ‘CZECH POINT – Keys to Lucrative Property Investment’ on Amazon, Google Play, iTunes or as a direct PDF download for a complete guide to investing in residential property.

Download the table of contents for a full overview

HOW TO INVEST – Why should I invest in the Czech Republic now?
What makes the Czech Republic a lucrative investment opportunity is it’s unbeatable location directly in the center of the European Union.

And the best news of all?

The price of choice properties, businesses, consumables and labor in the Czech Republic are still only a fraction (about 20% on average) of what they cost in nearby Western countries like Austria and Germany, (Prague properties excepted).

If all that wasn’t enough, the Czech Republic also features high standards of living, an educated populace, a vibrant economy, a stunning natural countryside and of course, Europe’s most beautiful and modern capital city, Prague.

Additionally, the capital city of the country’s Eastern region of Moravia, Brno (pronounced “BRR – no”), is one of Europe’s rising stars – a thriving European business hub centrally located between Prague, Vienna, Bratislava, Krakow, Munich and Budapest, served by direct flights from London and Prague.

With proper research – and the assistance of a trustworthy local company such as our own and our affiliated real estate professional – the Czech Republic now offers you a unique opportunity to maximize both the value and return of your investment capital.

HOW TO INVEST – Since fraud is a common problem, should I be afraid to invest?
The prevalence of fraud against foreign investors in the Czech Republic cannot be overstated. However, neither should it keep you from investing.

The prudent investor will prepare for their participation in the Czech market the same as they would any other investment opportunity:

First: Take the time to learn about the specific markets where you have an interest, and research a little about Czech culture and the way the Czechs do business.

Second: Avoid the biggest mistake that new foreign investors make, which is to assume that your real estate agent, lawyer, developer or investment firm will protect you or your investment capital. They do not and they will not.

Don’t think it’s THAT bad? Read some non-client experiences I’ve received.

These companies make money emphatically on providing you with an opportunity to spend your money – not by researching whether or not these opportunities are safe, which is assumed to be your responsibility as the investor.

Take it from the pros: the experienced investor hires trustworthy and experienced local contacts, such as our team, to perform due diligence on every investment plan, to complete their legal work, and to represent your best interests in every deal.

For more information see the article: Are Czech Republic real estate agents accredited? or feel free to write us an email: info@czechpoint101.com.

HOW TO INVEST – Where is the best place to invest at this time?
The situation can change from year to year. We are able to assist you with a vast wealth of knowledge, facts and professional (and personal) experience, to assist you in your investment research and planning.

As you know, all phone calls to us are made free of charge, with no obligation.

As a tip, according to studies on public transportation use, Czech Republic leads the EU with over one-third of the population saying that public transportation is their main means of travel.

The Prague metro system, for example, is reported to be the seventh busiest metro system in Europe, moving over 1.5 million passengers on a typical day. This reportedly makes it the most used public transport system in the world on a per capita basis.

These statistics mean that access to public transport is a critical factor when choosing rental properties, especially when purchasing smaller properties because the tenants are less likely to own a vehicle.

Of course, any prudent investment depends to a large degree upon your individual needs and long-term goals. Feel free to call us at anytime and discuss these things with us for a productive discussion, free of charge.

For more information on choosing the best location and a discussion of specific cities like Prague, Brno, Ostrava and Pardubice/Hradec Kralove see chapters 10 to 14 of our book “CZECH POINT: Keys to Lucrative Property Investment” or feel free to write us an email: info@czechpoint101.com.

HOW TO INVEST – How can I find out what property prices are doing?
In Czech Republic it is very difficult to get accurate and up-to-date numbers on what is actually happening with the sale prices of property. Here are some of the sources we use.

The Czech Statistical Office reports numbers but usually only data from 9 to 12 months in the past.

Czech property prices, flats and houses, Q4 2015

HBIndex – one source of sale prices

Hypoteční banka, the single largest provider of residential mortgages in Czech Republic, combines the data from their mortgage applications to compile the HBIndex. It is the most accurate source we have but still is only a fraction of the total residential real estate market. These figures are released quarterly and we usually release an English recap on our blog.

We can look at the offering prices of real estate on servers such as RealityMorava but the offering price can offer differ as much as 5% to the actual sale prices. A large new development all of a sudden going on the market can skew prices.

There is also the ‘Transaction Price Map‘ through which you can get general information for residential pricing in a particular neighborhood or district.

Other sources are ‘on the ground’ experience of real estate agencies. This gives you the ‘pulse’ of the market but a person can really get differing feedback based on the experience and focus of the agents.

What does all this mean?

We can get a good idea of what is happening in the market but it is often only solidly confirmed six months after.

HOW TO BUY PROPERTY – Can I buy to let? That is, purchase property and rent it out?
To explain, the concept of ‘buying to let’ is as follows:

The investor puts 15% of the purchase price down on the property in cash and finances the rest (85%) through a mortgage. The investor then rents the property to a tenant through a property management company. The tenant pays rent every month, which the investor uses to pay the mortgage on the property. Thus, the cost of maintenance is very low, while in the meantime the value of the property is always rising.

This, of course, is an effective and profitable plan in the USA, Canada, the UK, etc.

Can it also be a successful investment plan in the Czech Republic? Yes, if done properly with great care, patience, and the help of a trustworthy agency.

However, due to the popularity of this investment option in Europe and the hype that often surrounds it, all too often an investor is rushed into what may not be a prudent buy-to-let investment in the Czech Republic itself, because the business environment here is not the same as it is in Western Europe or the USA, etc.

Critical to remember, is that just because the option of buy-to-let works in other countries where you have had previous experience, or because you have heard good things about a certain development offer within the Czech Republic, this does not automatically mean that the Czech system is setup for such an arrangement and this must be taken into account when making your investment plans.

Can Buying to Let Be Successful?

Again, yes, if the investor makes a serious commitment to doing their due diligence, carefully researching the offer, all parties involved, etc., and contracts the help of a trustworthy local agency – not a foreign agency working through an unknown local provider as is very often the case with British investors and investment firms!

Let’s discuss the buy-to-let situation in this country in greater detail:

Most of these deals are offered by foreign ‘investment firms,’ and work like this:

You buy a property through them off-plan, (‘off-plan’ means that you pay first, and they promise to build the property at a later date, offering you a “discount price” as opposed to the “actual” price in exchange for buying early), then they agree to manage the property for you: collecting rents, doing maintenance, even advertising for tenants, all for a small fee.

In theory, they do the work, you collect the interest and watch your property increase in value.

In the real world, however, the majority of these companies, if not all of them, are brokers. They are not established entities in the Czech Republic, and they have little, if any experience conducting business deals in the Czech Republic.

That means they don’t really do anything but collect their fees and arrange the deals, usually through a local representative, and then try to oversee the work performed from a foreign office located in another country.

The bottom line is that IF the broker is honest AND efficient AND experienced AND puts the time and care into hiring the construction companies, management companies, real estate agents, etc., that share the same values and commitment to you, the investor – then and only then can the deal be assured a reasonable success.

You are betting YOUR MONEY on their care, honesty, expertise, etc. in either case!

Realistically however, our combined experience in the Czech Republic has shown – and any local Czech person (not involved in your deal, of course) will clearly substantiate – that the actual scenario is commonly otherwise. That is, that the broker is experienced in other countries and has the best of intentions, BUT – has little if any experience in the Czech Republic itself, and how deals actually proceed here, which always follow a very simple formula, being…

… agents and brokers in the Czech Republic care about their fees, period – they do not care about their clients’ financial safety or success rates.

Nor does your broker, in the end, really care either as it is not their job to do so.

Obviously, the burden of the investment’s safety and ROI falls on the investor, not the broker. They tell you the story you want to hear, and if you believe it, that’s your problem, not theirs. After all, that’s what they were told by their agents.

Thus, putting your money down on the often mistaken belief that an agent or broker or management company has your own best interests in mind, in the Czech Republic, is about as safe as trusting a stranger with your wallet and credit card!

In point of fact, that’s exactly what you are doing.

The Bottom Line

There is no ‘easy money’ to be made in the Czech Republic. Take it from all of us at Czech Point 101: we all live here, we have all invested here, and we are all making a decent return on our investments.

Like anywhere, investing in the Czech Republic – including and especially buying off-plan or buying to let – requires planning, due diligence, and careful weighing of all factors involved. It also requires the assistance of a trustworthy local company like our own to perform all legal work and look out for your best interests in all deals.

Based upon our over 10 years of experience here, we estimate that 50% of the people who follow these buy-to-let plans will be ripped off in some way; be it a total loss of their investment capital in rare but unfortunate cases, or more commonly, the realization after the deal is completed that their expectations, which are based upon their broker’s brochures and verbal commitments, are not going to be met.

One experienced client recently told us: ‘Absolutely none of the promises about our development were actually kept, but as the construction itself started 6 months late, at this point we’re simply happy that the properties were built.’

Buying to let or buying off-plan are certainly not investment options which are ‘doomed to fail’ by any means. But in this country, it is emphatic that the investor does their homework and is very selective about the opportunities they get involved with, and the firms they choose to represent them here. There is far too much risk in this country to do so otherwise.

For more information see the articles: Are Czech Republic real estate agents accredited? and Avoid These Costly Czech Republic Property Investment Mistakes or feel free to write us an email: info@czechpoint101.com.

HOW TO BUY PROPERTY – What does the total price of a property purchase come out to be?
The total cost really depends on where in Czech Republic you are buying a property because real estate commissions are handled differently. As well, private sales are huge making up 50% or more of residential transactions. So it is possible that you will find a property for sale without an agent.

With real estate commissions, in Prague typically it’s is included in the listed price that you see. In Brno it is extra so you can count on 3 to 5% + VAT added onto the price that you see.

As of November 1st, 2016 the real estate transfer tax (4% of the purchase price or valuation price – whichever is higher) is also the responsibility of the buyer.

It is highly recommended that you use an escrow for the purchase money. If you use a public notary for this (safest option) you can expect an additional fee of 0.5% to 1% of the purchase price for this service.

Finally there are legal fees, translation fees and additional costs related to the transfer tax valuation. As an example our services for these can be seen under our Closing Services section.

Once purchased, yearly land and property taxes must be paid, but are extremely minimal. Maintenance fees also apply, and will be briefly discussed in the next question.

For more information see the article: Avoid These Costly Czech Republic Property Investment Mistakes or feel free to write us an email: info@czechpoint101.com.

HOW TO BUY PROPERTY – What is a typical purchase process and timeline?
One of the most common questions we get asked by prospective buyers is how long the property purchase process will take. The answer often surprises non-Czechs because it can be much longer than they are used to.

We have assisted buyers with hundreds of purchases over the years so the following guidelines present the most common processes and timings.

Reservation

It is common for a reservation to be asked for in order for the agent to stop offering the property to other buyers. Although this first step had been an area where real caution was needed in the past it has since greatly improved.

It is often possible to skip this first step and start work directly on the future purchase or pre-purchase contract. Once a lawyer is involved the seller will most often put the sale on hold giving time to work through the agreement.

Be very cautious if paying a reservation to the real estate agent that you have the contract checked. There is not a regulatory board for real estate agents and your only recourse against a fraudulent agent can be to take them to court – a lengthy process in Czech Republic.

After your reservation your purchase process can take two different routes depending on whether you are purchasing in cash or with a mortgage.

Purchasing with cash

Upon signing of the purchase agreements the purchase price is deposited (this is the recommended route) to an escrow or third party account. Normally the escrow agreement allows 15 days from signing for this amount to be transferred to the notary account. If it is ready and just needs to be wired from abroad, it normally takes 3 to 5 days.

During this time period, the purchase contracts with verified signatures are held by the escrow agent. When the purchase amount arrives on the account, the purchase contracts are released to the Land Registry for registration.

Purchasing with a mortgage

Upon signing of the pre-purchase (also called future purchase) agreement, often an amount of the purchase price is deposited to the escrow account. This is often the amount that the buyer is using from their own cash. In the case of 100% financing, this does not have to be the case.

Upon signing of the pre-purchase (also called future purchase) agreement, often an amount of the purchase price is deposited to the escrow account. This is often the amount that the buyer is using from their own cash. In the case of 100% financing, this does not have to be the case.

Now the mortgage application process begins in earnest. The collection of required documents, time for the bank to approve and drawdown is about a six week process. Depending on the complexity and bank, it can be more or less.

Once the mortgage has been approved it is usually drawn down and deposited to the escrow account or to the bank of the seller in case they already have a lien registered on the property. Normally this all takes place before the purchase agreement is signed. (Note: Some banks may however require signing the purchase agreement before which may be a complication for some sellers and therefore it is a good to check the requirements with your bank or seller before signing the pre-purchase contract.)

Allow at least 5 days to conclude a mutually suitable date for signing the purchase agreements between the buyer and seller.

Property purchase common conclusion

Once the documents are submitted to the Land Registry it is just a matter of time before the change is registered and you as the buyer become the owner.

Right now you can count on the process in the Land Registry taking a minimum of 20 days (the legal requirement), but usually from 4 to 6 weeks.

During this time period of registration, it can be possible to agree on the turnover of the property but most often this only occurs after the change of ownership is registered in the Land Registry and the money is transferred from the escrow to the seller.

Breakdown of a cash property purchase timeline

Description Average Length of Time (days)
Checking of reservation contract, signing and paying the reservation amount 10
Negotiation of Purchase Contract 14
Finding mutually agreeable signing date 5
Transfer of purchase amount to the escrow account 10
Registration of new ownership in Land Registry 30 to 45
Handover of property 10
Total 79 to 94
(3 months)

Breakdown of a mortgage property purchase timeline

Description Average Length of Time (days)
Checking of reservation contract, signing and paying the reservation amount 10
Negotiation of Pre-Purchase (or Future Purchase) Contract 20
Finding mutually agreeable signing date (Pre-Purchase and escrow contracts) 5
Securing mortgage with bank 30 to 45
Drawdown and transfer of purchase amount to the escrow account 10 to 20
Finding mutually agreeable signing date (Purchase contracts) 5
Registration of new ownership in Land Registry 30 to 45
Handover of property 10
Total 120 to 160
(4 to 5.5 months)

Want professional help on a property purchase? Drop me an email – nathan@czechpoint101.com.

HOW TO BUY PROPERTY – Can I get a mortgage for my property purchase?
In short, yes.

Mortgages are granted to foreign residents by local banks via an established SRO, (Czech limited liability company) or as an individual with the most options being available if you have a Czech residency.

For individuals, 85% mortgages are possible for those with good, provable income.

As well, banks can use potential income from a property toward proving necessary funds to cover a mortgage, however, each bank calculates this differently and there is often an interest rate penalty for doing this.

A mortgage is normally granted under the following five (5) conditions:

  1. The amount lent will not exceed 85% of the maximum value of the property, as valued by the bank’s own property evaluation firm.
  2. The borrower must invest their own funds at a minimum level of 15% of the maximum value of the property, et. al.
  3. The maximum lending period cannot exceed 25 years.
  4. The interest rate is fixed for a maximum of 5 years, after which it is recalculated by the lender.
  5. Interest rates currently range from 3-6% per annum.

In the following interview Pavel Parizek, a licensed mortgage broker, explains the basics of the current options for a foreigner purchasing Czech property.

For more information visit the latest posts on our blog regarding Czech mortgage and refinance questions or feel free to write us an email: info@czechpoint101.com.

HOW TO BUY PROPERTY – Are Czech real estate agents supervised or accredited?
This is an extremely important question, because the answer is a 100% ‘NO.’

For any individual to sell real estate in the Czech Republic – that is, in order to represent the buyer, seller or both parties – and/or to represent any investment, development or property firm to a foreign or domestic investor:

No accreditation is necessary. No functioning oversight committee exists. No schooling is required or offered. No degree or certificate is required. No official standardization committee exists. Incorporation is not required.

What is required under Czech law is simply a 1000 CZK license, which is often neglected because it forces the agent to register for tax purposes.

There is one association of real estate offices called ARK CR however, we have found the effects of this organization on the actual conduct of its members to be minimal.

In addition, it is sometimes the case that real estate ‘agents’ to team up with ‘lawyers’ who are also not licensed attorneys, but paralegals or law students.

Don’t think it’s THAT bad? Here are some non-client testimonials I have received:

Cyril Fitzgerald (Dublin, Ireland): ‘Just to let you know, I read with great interest your article/page regarding property purchase in the Czech Republic. Having no experience whatsoever but knowing what I wanted to purchase, I guessed things would go in a straightforward manner.’

‘Let me simply outline the problems I encountered…#3) The reality or property companies simply wanted me to do the deal at all costs, no matter what. Changing their minds seemed commonplace and they will in fact, sell you anything at all. They will simply talk their way out of problems that are perfectly real to you, the buyer. They simply want the deal, and that’s that. #4) Hidden costs, for example, charging the buyer fees for the purchase when in fact the seller pays the costs… #6) Finally the bureaucracy was the most daunting element. The less efficient the structures, the more time wasting and draining the whole procedure seemed…’

‘The experience may have cost me approx 3,000 euros or so all told, but look what i could have lost. EVERYTHING.’

‘My thanks to Czech Point 101 for setting the record straight with their experience and knowledge. Wish I had read their reports first, but knowing me, I had to find out for myself.’

Karl Jeffery (London, UK):

First email :: ‘So far we had a meeting with the estate agent and the solicitor and the seller – it turned out the estate agent hadn’t done any work at all, hadn’t got any of the right documents, and the CZK 55,000 ‘deposit’ they were asking for was actually a finder’s fee which they expected to be paid by the buyer (us) whether or not the flat was eventually sold. ‘

Second email :: ‘We gave up in the end and decided to put the money into a new house in London – I think we tried about 5 places but after spending money on solicitors etc none of them were actually buyable. With the last place we looked at, the vendor was unable to come up with the right documents. My conclusion was that nobody actually manages to buy a property in Brno, but lots of money is being made from deposits paid by gullible German dentists.’

Dan Gendron (USA) with Czech wife:

‘I appreciate the follow up. Just to let you know I’ve referred a few other people to your web site that are considering buying in Czech. We are going to buy a 3 plus 1 flat in Frydlant. It’s a co-op and we will just pay cash for it. We were going to buy a house but we will wait until the next visit for what seems to be a more complicated purchase. The process was overwhelming for my wife and I wish I had used your company…If we do end up looking for land or a house I will be sure to do it right next time and call your company first and save myself and my wife a lot of aggravation.’

For more information see the articles: Cesky Krumlov Property Purchase Horror Story and Avoid These Costly Czech Republic Property Investment Mistakes or feel free to write us an email: info@czechpoint101.com.

 

HOW TO BUY PROPERTY – Can a foreign citizen buy property in the Czech Republic?
Yes, as of May 1st 2009, it is possible for a foreign citizen of any country to purchase property in Czech Republic without restriction except in the case of agricultural or forest land. Since May 2011 these final restrictions on land purchase by foreign citizens were lifted.

Now it is possible for a citizen of any country to purchase any sort of property in Czech Republic.

For more information see the article: Restrictions on Foreigners Purchasing Property in Czech Republic – Lifted May 1st, 2009 or feel free to write us an email: info@czechpoint101.com.

HOW TO BUY PROPERTY – What are the implications of the two main types of Czech ownership (‘osobní vlastnictví’ and ‘družstevní vlastnictví')?
Are you thinking about investing in Czech real estate? Chapter 18 of our book is: ‘Interpreting the different types of property ownership’.
HOW TO BUY PROPERTY – What are the pros/cons of buying as an individual vs through an SRO?
There are no longer restrictions on the purchase of real estate in Czech Republic so purchase via an SRO is not a requirement. However, some would still prefer this option. Here is a discussion of the benefits and drawbacks of purchasing via an SRO versus as a physical person.

The two options for a foreign citizen for purchasing property are through an SRO (Czech limited liability company) or as an individual with or without a Czech residency permit.

Taxation

The main consideration of whether to go the route of one or the other remains taxation.

If you buy as an individual and hold the property for more than 5 years, this property not being your primary residence, you will not pay capital gains on the property in Czech Republic.

This being said, some clients from EU countries have informed me that even if the capital gains is not paid here because of this exemption, their home countries would require payment of taxes on this gain. This would be a good question to pose to your home country accountant. In some cases there can be a tax advantage in your home country to receive the capital gains as dividend payment through a foreign company rather than capital gains.

If you buy as an individual and sell before the 5 years, you will be required to pay capital gains tax as an individual. Since there is no capital gains tax as such in Czech Republic, tax is calculated on it as if it were normal income.

As of 2016, personal income tax is a flat 15%.

Let’s work through a scenario then where an individual sells a property before the 5 years with a capital gains of a hypothetical 1 000 000 CZK with no other income. Based on the flat personal income tax of 15% you would pay a total of 150 000 CZK in taxes.

For an SRO, on the other hand, capital gains are always taxed at the corporate tax rate for net profit. As of 2013 this is 19%. This would make the tax on 1 000 000 CZK of capital gains at 190 000 CZK. This leaves you already with more tax on the amount than you would have as an individual.

Another consideration of taxation is that it is generally easier to expense property related costs through an SRO compared to an individual, because it is a stand-alone enterprise.

Costs

Regarding the costs of each, an SRO is definitely more expensive to maintain and requires some added costs because of the higher standard of accounting required.

Also, there can be slightly higher rates for electrical and gas if the owner of a property is a company rather than an individual (don’t understand this one…).

Liability

Another consideration is liability.

Czech law stipulates that a company is only liable for the amount of assets it possesses. The individual shareholders are not personally responsible unless there is unpaid initial capital outstanding (200 000 CZK total). If this is paid in full (in 100% of the SROs that Czech Point 101 has setup, this is done at the outset) then there is no additional liabilities. This being said, there is personal liability on the part of the director of the company, should there be found gross negligence.

Although the Czech Republic has not typically been a litigation oriented society, it is increasing moving in this direction, following the trends in Western countries.

Mortgages

Currently at the outset of investment in Czech Republic, it is easier for a person purchasing as an individual to get a better loan to value ratio and slightly better interest rates than purchasing through an SRO.

Conclusion

Well, hopefully this adds some factors and helps you to make the right decision when it comes to which route you will take when investing in Czech Republic.

At Czech Point 101 we are prepared to assist you with either route in meeting the requirements and, ultimately, help you to achieving a successful investment.

For more information see the article: Avoid These Costly Czech Republic Property Investment Mistakes or feel free to write us an email: info@czechpoint101.com.

 

HOW TO MANAGE PROPERTY – How do you protect your clients from bad tenants?
It is very true in property management that 95% of the work is getting the right tenant from the start. Our policy is to risk a period of vacancy rather than place a bad tenant who damages a property or becomes non-paying.

Of course, it is impossible for us to guarantee every time that we will source the best tenants, however, we use time proven methods which help us to make a decision.

First of all, our experience has proven that the gut feelings we have about a person often prove right in the long term. Do they seem agreeable? Or are they immediately demanding changes or special treatment? Do they arrive on time or are they late (hey, it happens to all of us) without an explanation or apology?

Secondly but even more important is to check references.

We feel potential tenants should be able to provide you with references to their boss at work and their last landlord at the drop of the hat. A good potential tenant who has good relationships will have no hesitation offering you contact for their boss and previous landlord. Any hesitation is a bad sign and stroke against the applicant. Of course, a potential renter truly may not have the contact information on them but in 95% of the cases, they would.

Once we have the references, we check them! If anything seems out of place we err on the side of caution.

Primarily, our team at Czech Point 101 views your property as if it was their own. This is the greatest factor in a property management company sourcing good tenants.

For more information see the latest articles on our blog regarding Czech property management questions or on our website about what makes our company’s property management services special or feel free to write us an email: info@czechpoint101.com.

HOW TO MANAGE PROPERTY – How would you get our property out to the most potential renters?
We strongly believe in the need to get your property out to as many venues as possible. The more interested parties, the more chance of selecting a good tenant. Of course, nowadays the internet is one of the most effective methods of advertisements and that also goes for the Czech Republic. A large rental market in Czech Republic is the foreigners. We know where the foreigners look to find rental properties and are always looking for new venues. There are many websites which have forums in different languages which often have a posting section of properties for rent. We have identified a large number of them and regularly post our properties for rent. However, we don’t overlook the local rental market! We know where locals look to find places to rent and we advertise. In some markets where students are a large target rental market we have placed print advertisements in university faculties and dormitories.

For more information see the latest articles on our blog regarding Czech property management questions or on our website about what makes our company’s property management services special or feel free to write us an email: info@czechpoint101.com.