Go Buy a Flat!

A substantial barrier to foreigners purchasing property in Czech Republic has been lifted. This is the previous requirement of the Czech Land Registry for foreigners either to purchase through a Czech company, called an SRO or after possessing a Czech residency permit.

The timing really couldn´t be better as the Czech property market stares in the face of a rapidly declining GDP, reduced lending by Czech banks and serious financial difficulties in many of the ‘investment´ minded countries.

As of May 1st, the Land Registry will now be registering any buyer without requiring an SRO or Czech residency permit. This decision, although not passed in Czech parliament, recognizes the EU directive (Article 56 of the EU articles of establishment) which stipulates that all EU member countries must have similar laws on the purchase of property. In fact, this EU directive states that there should be no restrictions on the purchase of property.

Czech Republic had a five year exemption from this article but this time has now passed. A further 2 year exemption applies on the purchase of land zoned agricultural and forestry meaning foreigners can purchase these types of land only through establishing a Czech company (SRO) or holding the appropriate licenses as a physical person.

The Czech Republic law which had been recognized by the Land Registry until May 1st has a statement to the effect that international agreements accepted by Czech Republic supersede this law. Thus the Land Registry has decided to recognize the EU directive above current Czech law.

Internal correspondence which we have received from the Czech Land Registry (correspondence#: ČÚZK 1796/2009-15) makes the above declarations to all Land Registry offices in the different districts.

This change applies not only to EU citizens but also citizens of third country nations meaning all foreigners.

What does this mean for the Czech property market?

The effect would have been much greater had the current crisis not caused Czech banks to tighten lending. As of this writing there is only one bank which has changed their own mortgage approval process so as not to require a Czech residency permit or company. However, this same bank reduced lending to only those who have lived in Czech Republic a provable two years.

With lending in the Czech Republic for foreigners going rapidly in the last six months from 100% + LTV to a maximum of 85% LTV with very conservative valuations, the investment market has effectively dried up.

In reality, the fact that this initial barrier to property purchase was in place, prevented massive speculation by foreigners. This will perhaps prove to be a good thing. Why so? This means that the amount of distressed sales or repossessions will be lower than those countries which did not have restrictions. Both of these types of sales are bad for property values staying steady.

Do we feel that there will now be an increase in foreign buyers?

We feel the effect will be a marginal increase in interest from foreigners, especially with the current prevailing conditions. However, should those fundamentals show signs of changing we could see again increased in purchases by non-Czech citizens.