During the year to Q3 2015:
- The average price of new dwellings sold increased 4.3% (3.2% in real terms), according to the Czech National Bank (CNB). This is now up by 3.2% from its level seen in Q3 2008, which implies that the primary housing market has fully recovered from the crisis.
- The average price of existing dwellings sold rose by 3.6% (2.5% in real terms), but still down by 3% from the market’s all time high in Q3 2008.
Demand is rising sharply, mainly to improving economic conditions and low mortgage rates. The number of apartments sold in 2015 has exceeded the demand before the global financial crisis in 2008, according to local real estate experts.
“Since late in 2012, sales have been picking up significantly,” says Peter Visnovsky of Lexxus, a Czech-based real estate firm.
The undervalued koruna is also stimulating foreign property demand. “This stimulates the demand from foreign buyers as well as Czech expats working and living in the E.U.,” says Lukas Cichon of real estate company Svoboda & Williams. Though Czech citizens account for the majority of property sales in the capital, there is an increasing demand from foreign investors from Western Europe, particularly from Britain, Germany, and Italy. Other foreign buyers come from Russia, Ukraine and other former Soviet republics.
The Czech Republic’s real estate market, which is perceived as one of the most established in the Central and Eastern European (CEE) region, continues to attract foreign homebuyers.
Overall, residential property prices are expected to continue rising in 2016, albeit at a slightly slower pace since a lot of pent-up demand was already satisfied last year, according to Czech Point 101. However, the high-end market is expected to sustain its strong growth, with the prices of luxury apartments in Prague projected to rise by around 12% to 15% per year until 2018, according to a study conducted by Nexxus Norton agency.
In 2015, the economy recorded strong growth of 4.5%, the highest level in eight years, thanks to increased private consumption and robust growth in the real estate market. The economy is expected to grow by an average of 2.6% in both 2016 and 2017, according to the International Monetary Fund (IMF).
Analysis of Czech Republic Residential Property Market »
- a 120 square metre (sq. m.) apartment in Prague will cost you around 460,000 euros
- a 70 sq. m. apartment in Prague will cost you around 260,000 euros
The purchase price of apartments in Prague’s prime residential districts is now around 3,500 euros to 4,000 euros per sq. m..
How much will you earn? Prague’s rental yields are weak:
- a 120 square metre (sq. m.) apartment in Prague can rent for around 1,500 euros per month, earning a yield of around 3.7% a month
- a 70 sq. m. apartment in Prague can rent for around 780 euros, earning a yields of around 3.6% a month
Currency risk. Over the past two years, the Czech Koruna has flat-lined against the euro.
Conclusion: You’re not going to buy in Prague for yields, at the moment!
Round trip transaction costs are moderate to high in the Czech Republic. See our Czech Republic transactions cost analysis and our Czech transaction costs compared to other countries.
Capital Gains: Capital gains are included in the aggregate taxable income and taxed at the normal income tax rate.
Inheritance: Inheritance received by a qualifying spouse or a close family member is not taxed.
Residents: Residents are taxed on their worldwide income at a flat rate of 15%.
Rents: Rents can be freely agreed between landlords and new renters of houses with vacant possession, and the parties may freely negotiate any contract length.
Tenant Security: At the expiry of the contract, the tenant must vacate; no notice need be given, and he is not entitled to substitute housing. There is no maximum deposit.
“There is a lot of equity on the market and with cheap debt being available we have seen record activity on the Czech real estate market,” said Karel Klecka MRICS. “In comparison to other asset classes, real estate still offers higher returns, attracting new investors previously active in other segments.”
The economy is expected to grow by an average of 2.6% in both 2016 and 2017, according to the International Monetary Fund (IMF).
GDP fell by 4.8% in 2009 due to the global economic crisis. Fortunately, it bounced back immediately in 2010, registering a modest real GDP growth rate of 2.3%, followed by another growth of 2% in 2011. However, the economy became depressed again in 2012-13 due to weak domestic demand as well as foreign demand for fixed capital. The Czech Republic enjoyed an average growth rate of 6% from 2004 to 2007.
Due to the spending package launched in the wake of the global crisis, the Czech Republic’s budget deficit rose to 5.5% in 2009, but was cut to 4.4% in 2010, and to 2.9% in 2011, but then rose again to 4% in 2012. Because of this, the government implemented budget cuts and other measures to bring down the country’s budget deficit. The government spending cuts also put pressure on the housing market.
Having a low budget is one of the criteria that a country should satisfy in order to be accepted in the Eurozone. In 2013, Czech Republic posted a budget deficit of just 1.3% of GDP, well below the European Union’s limit of 3%. The budget deficit was estimated at 1.6% of GDP in 2015, down from 1.9% in 2014, according to the European Commission.
Prime Minister Bohuslav Sobotka announced that Czech Republic might decide to leave the EU bloc in the coming years, amidst fears that the union is danger of total collapse.
"If Britain leaves the EU, we can expect debates about leaving the EU in a few years too," said Sobotka.
Unemployment stood at 4.5% in December 2015, down from 5.8% from the same period last year and the lowest level in the European Union, according to the European Commission. The country’s unemployment rate is projected at 4.9% this year, from an average of 6.6% from 2009 to 2015, according to the IMF.
There were just about 236,000 unemployed persons in the country in December 2015, down by 23.4% from a year earlier.
Inflation remains very low. In 2015, the Czech Republic’s overall inflation rate stood at just 0.37%, from 0.35% in 2014, 1.4% in 2013, 3.3% in 2012, 1.9% in 2011, and 1.5% in 2o1o, according to the IMF.