No matter
what part of the globe you call home, making the decision to invest
in property can be a challenging, albeit exciting process. Prague is all
the more enticing when a slice of history begins at only 50,000 GBP for
a romantic apartment in the centre of town.
But for
foreigners interested in purchasing real estate outside of their own
country, the road to home or business ownership can be a bit more difficult
to travel. In the Czech Republic, and Prague specifically, a number of
factors have combined to lure non-natives to the Golden City.
The introduction
of the market economy is one such factor, creating substantial spikes
in incomes and higher demands for housing.
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Likewise,
numerous foreign businesses have been drawn to Prague (often referred
to as “the jewel of Europe”) due to its central location in eastern
Europe and cheap labour costs. These elements, coupled with its breathtaking
scenery, have also peaked the film industry's interests while making it
a prime location for urban expatriates who appreciate Prague's modernity,
liberal atmosphere, and low cost of living.
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With such an influx
of foreigners arriving in Prague, the real estate market is booming and
the need for new or renovated housing is at an all time high. Many Czechs
are purchasing single-family homes in the suburbs or new condominiums in
the city while foreigners have become interested in villas and apartments
in affluent central and inner-city areas.
The current
supply of newly built apartments does not meet the demand for them,
as potential buyers seek larger and better equipped dwellings. This makes
Prague and the Czech Republic very appealing options to the foreign investor.
Prague is
UNESCO listed and has been celebrated for centuries as the cultural
hub of Central Europe, dazzling great artists and statesmen alike for centuries
with its freethinking and liberal lifestyle and stunning architecture.
After the Soviet
invasion of 1968 and the subsequent Communist crackdown, the country was
closed off to the world.
However
since the Velvet Revolution and the fall of Communism in Central Europe,
the Czech Republic has regained its place as the center of Europe, conveniently
near Berlin, Budapest and Vienna.
On 1 May 2004,
it joined the European Union and it is now the choice destination for tourists,
filmmakers, celebrities and expatriates from around the world.
Property
in Prague’s beautiful, historic centre, comprising mostly suburban single-family
housing, condominiums and newly renovated villas and apartments, has
become increasingly restricted to higher income clientele; namely entrepreneurs,
managers, successful professionals and higher income families. The renovated
apartments are well equipped and stylish, set among Prague’s urban buzz,
but also near Prague’s numerous and idyllic public parks, perfect for jogging,
strolling or rollerblading.
Hopping
during the summer with lively beer gardens, the parks are essential
components of Prague’s summer atmosphere. With the influx of western foreigners
and wealthy Czechs, lower income city residents migrate to cheaper areas
outside the center.
The prices
for property in Prague can be divided into three principal sectors.
The more affordable CZK 22,000/ m2 – CZK 41,000/m2 attracts the most investors
and is well suited to the buy-to-let investment model.
The second
sector, CZK 41,000/m2 - CZK 85,000/m2 is characterized by high quality
amenities and construction and the demand for this category of property
is still significantly higher than the supply.
The third sector
is comprised of property between CZK 85,000m2 – CZK 200,000/m2, and competes
with other European cities for luxurious dwellings.
But while
property in Prague is in high demand among foreign businesses and individuals,
only certain Czech banks will provide mortgages for foreigners and even
in successful cases, the process is time-consuming and bureaucratic.
In light of
anticipated vacancies, costs and taxes, banks also tend to be conservative
about evaluating future rental income levels.
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Additionally,
banks lend against their own property valuations rather than against property
market prices, and bank valuations therefore tend to be lower than the
actual price of the property. It will be necessary to demonstrate additional
income to obtain a bigger mortgage and as such it is a good idea to speak
to an independent mortgage broker who can act as intermediary between the
client and the bank.
The rules
for buying and selling property are very complicated, especially for non-EU
citizens. European Union (EU) citizens get an upper hand because
they are not required to have a visa allowing them to stay in the Czech
Republic longer than 90 days. To buy property, EU citizens need only an
EU card, which they will receive after explaining why they must remain
in the Czech Republic. Appropriate reasons for staying in the country include
employment, studies, management of a company or a sole trade license, which
is taxed annually and requires only proof of residency. Non-EU citizens,
on the other hand, must have a visa, remain in the Czech Republic for seven
years or marry a Czech citizen to obtain the green card allowing them to
buy property. Both non-EU and EU citizens may buy property through a limited
liability company (known as an s.r.o.), but only the EU citizen can control
the company without Czech participation. The non-EU citizen must recruit
a Czech person, EU citizen or person holding a long-term visa to be the
company’s executive director.
To buy a
shelf-company to facilitate buying, holding, renting or selling real estate,
it is necessary to provide all necessary documentation, a process which
usually takes about 24 hours. The flat fee cost required should include
registration of all necessary institutions and changes, bureaucratic
measures and any other cost related to the purchase. The fee should include
a registered address for the company free of charge for 6 months from the
purchasing date. As with the trade license, in this particular situation,
it is not required to have a Czech address. During the first six months,
the address of the company can be transferred to the property bought with
the SVP. The price for a shelf-company should not exceed CZK 60,000 – CZK
100,000 and the entire process should ideally take about 1 to 2 working
days.
The purchase
of a shelf-company carries with it certain key responsibilities, such as
filing for income tax once a year. The cost of accounting for
a standard real estate s.r.o. should not exceed CZK 10,000 per year. If
there has been no income, however, there will be no need to pay income
tax. Additionally, there is no need to pay monthly social security
payments or health insurance, if there are no employees in the company.
These steps
may overwhelm the foreigner unversed in Czech real estate, however there
are companies which have been established by various foreign owned entities
to assist investors in their purchasing process. These companies provide
all of the services required for non-resident investors and are more than
happy to help you navigate the path to your new property.
