Czech Republic: Overview

RENTAL YIELDS

Last Updated: May 21, 2009

Czech Republic yields, low

Gross rental yields in Prague, the capital of the Czech Republic, were at 3.8% in May 2009.  These yields are very low, and suggest that in future there will be downward pressure on the price of Czech residential property.

Square metre prices are at an average of €4,358, which is arguably rather high for a country at the income level of the Czech Republic (last year €3,860).

We do not believe that this situation is sustainable

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TAXES AND COSTS

Last Updated: Jan 15, 2009

Rental income tax can be high

Rental Income: Rental income is taxed at a flat rate of 15%. General deductions for income-generating expenses are deductible from the gross income.

Capital Gains: Capital gains are included in the aggregate taxable income and taxed at the normal income tax rate.

Inheritance: No inheritance tax is payable by direct relatives or spouses.

Residents: Residents are taxed on their worldwide income.

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BUYING GUIDE

Last Updated: Apr 02, 2008

Total transaction costs are moderate in the Czech Republic

Roundtrip costs in the Czech Republic are moderate. VAT is only applicable to newly build properties: 5% is payable on sale of properties if they are sold within 3 years of acquisition (or 5 years for secondary properties). Real estate transfer tax is 3% (payable by the seller). Total round-trip costs are around 7%-11% for properties transferred after three years of acquisition.

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LANDLORD AND TENANT

Last Updated: Aug 22, 2006

Czech law is pro-landlord

Czech law is kind to landlords (although 90% of the population still lives in the old, controlled rental sector).

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.

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ECONOMIC GROWTH

Last Updated: Feb 12, 2009

Economic recession likely to hit in 2009

The Czech Republic was born on January 1, 1993, when the Czechoslovak Federal Republic split into two independent states, the Czech Republic and Slovakia. Since May, 2004, the Czech Republic has been a member of the European Union. However, the country has not adopted the euro yet and still uses its national currency, the Czech koruna.

The Czech Republic is small, at only 78,864 sq. km. with a population of 10.2 million. After rising by an average of 6.6% annually from 2005 to 2007, GDP growth in the Czech Republic slowed to 4.4% in 2008. The slowdown was primarily due to falling exports and weaker domestic demand. In Q3 2008, exports were down 10.7% y-o-y.

Almost 85% of the country’s exports go to the EU; around 30% to Germany which is now in recession. Several companies, particularly in the financial, banking and manufacturing sectors have started to lay-off workers.

In January 2009, over 45,000 people lost their jobs. This pushed unemployment to 6.8%, up from 4.3% in Q3 2008, the lowest level in a decade. Unemployment is expected to reach 7.5% in 2009 and 8.5% in 2010.

There is a strong possibility the country will enter recession in 2009. The government is preparing a crisis package worth CZK75 (€2.68) billion, equivalent to 2% of GDP.

Because of past problems in dealing with budget deficit, the government has been reluctant to launch big spending packages similar to those launched by UK, US and other countries under recession. Doubts that such measures will work have been admitted by Prime Minister Mirek Topolanek, but he adds that there are few alternatives.

Setbacks with the budget deficit are one of the main reasons why the Czech Republic has been slow to join the eurozone. The deficit was successfully reduced to 1% of GDP in 2007, down from 6.6% of GDP in 2002. However, it rose again to 2% of GDP in 2008, and is expected to rise further to 2.4% in 2009, above the eurozone limit.

Inflation is another stumbling block; consumer prices rose by 6.74% in 2008, up from 2.5% in 2006 and 2.8% in 2008. With the economy slowing, inflation is expected to fall to 3% in 2009.