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Buying Property

Czech Republic - Buying Property

The Czech Republic has enjoyed years of stability, and followed up its creation in 1993 with full membership of the European Union in 2004. Citizens of any nationality and residency have been able to purchase real estate in the Czech Republic since 2009. The only remaining restrictions were for agricultural and forest lands, but these were abolished in 2011.

Conveniently located near major European economies and offering a lifestyle and urban environment attractive to Westerners, the country is an attractive location for international property purchasers.

Both expats looking for a comfortable home and overseas buyers wanting buy-to-let opportunities regularly invest here. You can legally purchase your property as an individual, or under a Czech registered company, known as an SRO. You should seek professional taxation advice to determine which option is best for your personal circumstances.

There have been a number of identified property scams where overseas purchasers have lost their investments, including one run by two British men who used their financial services backgrounds to sell the scam through legitimate independent financial investigators. There is also a degree of mortgage fraud across the country. Schemes where you buy property off plan in the expectation it will be built are particularly prone to problems, either because they are scams, or because it takes years for the property to be completed.

To make the situation more precarious, anyone in the Czech Republic can become an estate agent. No training, qualifications or experience are required. Once the mandatory license has been obtained, which requires nothing more than a fee, any individual can offer their estate agency services to the public.

As there is no mandatory requirement to join a professional regulatory body, you cannot be sure that your agent has a clean criminal record. An association for estate agents does exist, but it is not a regulatory body that takes action against dubious or criminal activity in the sector.

There are also hazy practices regarding agency fees in the Czech Republic. Some buyers use the services of estate agents without being aware that they will have to pay a fee for the services.

As a result, you must tread carefully. Those already living and working in Prague can use their trusted friends and work colleagues to recommend estate agents, developers, lawyers and surveyors. If you are buying from overseas, make sure you do not use lawyers and surveyors who are recommended by or have a connection to your estate agent or developer, unless you have good reason to do so and have thoroughly researched them yourself. Make sure everyone you do business with, including the estate agent, gives you a written notification of the charges that you are expected to pay for using their services, and what is included within those services, including taxes.

You are also strongly advised to visit the property you are purchasing before any money is invested in it, and to appraise it carefully. Even if you find a property on a real estate agency page, there are no guarantees that the property or the site itself is genuine.

In 2015, Cenovamapa launched an app which showed the selling price for individual properties across the Czech republic. It uses the real estate transactions recorded at the cadastral offices as its source material. The app has allowed people in the Czech Republic to access information about individual property sales and obtain a clear picture of what properties are worth for the first time. As a result, the site has been hugely popular with potential buyers as well as property professionals. If you are considering a purchase in the Czech Republic, you will find it useful to register on the site for free and use it for research.

Once you have found a property you want to buy, you will probably be asked to pay a reservation fee. Never pay the reservation fee in cash at any time, it should be deposited into an escrow or client account. Your notary will draw up a reservation agreement. The agent will no longer market the property to other buyers at this stage. If you are applying for a mortgage to purchase the property, the paperwork must be completed at this stage. This may take about six weeks.

Typically, mortgages will be limited to 85 percent of the property purchase price. The amount and percentage will be calculated on the risk of each individual customer and their circumstances. Mortgages are typically loaned for 25 years. It is common to find a fixed interest rate for the first five years, which gives a period of certainty about what your mortgage outgoings will be.

If the property has been purchased for buy-to-let, some mortgage lenders will include the rental income as part of their calculations. However, that raises the risk that tenants may not be easily sourced, or may default on rent payments. If you cannot easily cover the mortgage for a long period without rental income, you have a higher risk of default on the mortgage. Therefore, there may be a higher interest rate charged in these circumstances.

You can also obtain a mortgage as a Czech registered company, known as an SRO, but again the interest rate will be higher than if you purchase as an individual with personal assets.

Make sure you seek reliable advice from a trusted source, and ask lots of questions, as mortgage documents have complicated clauses and will not be in English.

When the purchase contracts are signed, you will pay the purchase price into an escrow or client account. Alternatively, the mortgage lender will forward the funds to the escrow account.

The notary will then register the contract with the land registry. It will take up to six weeks before the land registry completes their procedures and you become the legal owner of the new property.

The capital city of Prague is the most expensive place to purchase property in the Czech Republic. However, given its easy access to international flights and strong business community, combined with the lifestyle on offer, Prague is the location most expats and investors want to invest in. It offers the world’s seventh busiest metro system and the bus routes are heavily used, making it an attractive location for good transport links. As many tenants are unable to afford a car, potential buy-to-let landlords need to consider the transport links in order to match a rental property with local demand.

For those able to look further afield, such as city of Moravia, the difference in the price of properties for sale will make even modest budgets go much further.

For further information about buying property in the Czech Republic, you may find Nathan Brown’s book helpful. Nathan runs Czechpoint 101 and his team welcomes queries and requests for help from anyone considering a property purchase in the Czech Republic.

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Expat Health Insurance Partners

Bupa Global

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