| Czech Republic - Overview
Ask the average man in the street to name a city in Eastern Europe and, chances are, he or she will probably answer ‘Prague’. The ‘City of a Thousand Spires’ has always benefited from being one of Eastern Europe’s great tourist Meccas, with millions of visitors pouring in each year, taking advantage of its location (the most westerly of all the Eastern European capitals) and, most importantly, its beautiful, unspoiled Medieval architecture.
Following the peaceful ‘Velvet Revolution’, and its separation from Slovakia three years later, the Czech Republic achieved excellent growth and, along with Hungary, quickly overtook most of the other Eastern European markets in terms of growth and the levels of foreign investment attracted to the country.
Because of its fast-growing economy, Prague’s fame and the fact that it is a wonderful city to visit, there was a lot of speculation in the run up to the Czech Republic’s entry into the EU in 2004 with the result that, by the time the country’s accession into the EU was complete, prices were looking a little over-priced and the meteoric growth of the previous couple of years slowed considerably. Part of the reason for this is that the conditions for foreigners’ buying property were not that great compared to some other markets. Foreigners could not buy property directly – they had to form a Czech company in order to do so, and the options for mortgages were poor compared to some of the other territories such as the Baltic States.
The result was that the other territories quickly outpaced the Czech Republic in the two years following EU accession with the result that prices started looking competitive again. This together with relaxation of the laws on foreign ownership by individuals and significantly better mortgage products means that, in the second half of 2006, prices in Prague started to increase in price rapidly. Averaged out over the whole of 2006, the growth figure is 15%, but much of this increase came in the latter half of the year, with some developments increasing by as much as 30% in six months.
Knight Frank put growth for 2007 at 7.5% which, while not bad, is a little lacklustre compared with other territories in the region.
Other analysts, however, are predicting much faster growth for 2007, and we would agree with them – for two good reasons.
The first is that, currently the VAT on property is 5%. On 1 January 2008, the government will increase this to 18%. As a result, there is a great incentive for anyone thinking about buying property in the Czech Republic to buy during 2007 as it will cost them a great deal less in real terms.
What does this mean for an investor interested in buying in the Czech Republic? It means that there is the possibility of making some quick cash through buying now and selling before the end of the year. Although this could be very profitable if you get your timing right, it’s dangerous because chances are that the property market will quieten down considerably early in 2008 as there will initially be a lot less buyers in the market. The quiet period should not last long, however. Slovakia increased its VAT rate a short while ago and it had less of an effect than some analysts thought that it would.
The second reason why the Czech Republic should see better than expected growth during 2007 is that there has been a major improvement in the range of mortgage products available to home buyers in the Czech Republic - both to local and foreign buyers. It is now possible to obtain mortgages up to 100% LTV and interest rates are highly competitive at 5%.
Ignoring the possible rapid rise in 2007 followed by a possible plateau in prices in 2008, Prague is about as sound an investment as it is possible to make in any of the emerging markets. It has the highest standard of living of all of the territories we cover on Propertastic! with the exception of Slovenia. Due to its location right at the heart of Europe together with Prague’s undying appeal as a major tourist destination, Prague is always going to justify high property prices, so medium and long-term growth is inevitable.
But if it's quick capital appreciation that you are looking for, you are going to have to look outside the capital. Prague's second city, Brno, has seen faster capital appreciation than Prague over the past few years. Now it is the Czech Republic's third-tier cities such as Ostrava that are seeing very rapid growth indeed - with Ostrava likely to see an increase of 50% over the course of 2007 by the time the year is over with.
So if you are serious about property investment in the Czech Republic, take a little time to see some more of the country, visiting other towns and cities such as Plzen, Ceske Budejovice and Liberec, etc. The Czech Republic is a country that is getting wealthier by the year, yet the majority of the population still lives in crumbling concrete tower blocks (panelaks). With such competitive mortgage products now available, you can be sure that Czechs all over the country are goin to be interested in trading up to better quality housing as and when it becomes available.
Additional Background Information
The above contains our thoughts on the current state of the market. But, like any type of investment, there are no guarantees as prices are always influenced by a huge number of different variables.
You can keep abreast of developments in the market by checking out the articles in our News section where we’ve trawled the Internet for every story connected with property in the Czech Republic so you don’t have to. By checking the news reports regularly and thinking through the consequences of each piece of news, you should be able to get a good idea as to how quickly or slowly property prices in the market are going to rise in the near future.
The information in this section only tells half the story, however as only a small proportion of Czech property news is translated in English, which means that the locals are getting a lot more useful information than foreigners are.
Investing in the wrong markets could make the difference between making tens of thousands and losing tens of thousands over the next few years. If you’re seriously considering investing in the Czech Republic, then you should think of subscribing to our Premium Service so that you can get all the breaking news from the market at the same time the Czechs are hearing it.
Click here now to get better informed.