Buying Property in the Czech Republic

At some point, you may decide it is time to purchase some property here. Before you do, it might be useful to go through the following steps to ensure the process is as smooth as possible.

There are a number of websites you can visit to find a plot of land, a house, or a flat: the main servers are Reality.cz and Sreality.cz both of which have an English language version; however, some of the descriptions can be difficult, so it pays off to learn some of the basic Czech terminology.

Otherwise you can search on Google using English search terms or ones in Czech such as ‘reality Česká Republika’, ‘reality Praha/Prague’, ‘nemovitosti’ or ‘pozemky’. ‘Byty’ (apartments) also seems to work, but ‘domy’ (houses/buildings) seems to be too general. The advantage of using Czech search terms is that you net companies for the Czech market. Due to the nature of the market, you will often find the same property listed by different agencies, and quite often with different prices and descriptions, which can be very confusing.

Ben Anderson, from The Czech Property Company, cautions people concerning the prices listed. With 17 years of experience in Czech real estate, Ben (who is originally from the UK) is able to bring an expat’s perspective while at the same time having the accumulated years of knowledge of both the market and the language. He said most advertised prices will be above the actual market value, with the lower advertised prices just above market value. He recommended deducting 15% from the advertised price to arrive at an acceptable market value. This is mainly caused by the vendor not seeking proper advice or substantiated appraisals before starting to market the property. If you are not familiar with the market, secure the services of an advisor who is aware of your concerns and can guide you through the mass of information on the web; it will save you time and money in the long run.

As for which location will give you the best return for your investment, Ben offered this advice. “If you buy a classic Prague property in an area dominated by other classic Prague buildings, you are buying in to the fabric of Prague. This is always an attractive option, and while I would not like to talk about any growth in value, it is safe to say the value will at least hold its own in comparison to other locations.”

Outside of the historical city centers, there are other factors which have an effect on values, financial returns, and ease of exit; these factors include international schools (eg. houses in Nebušice rent easily due to proximity to ISP), clean air and parks (eg. Průhonice), or even plain old snob value for a good address such as Hanspaulka in Prague 6.

On top of the report, you should certainly discuss with the owner the condition of the property, especially if you’re buying an older place. Ask about the heating, temperature and sound insulation, and plumbing, and get details in writing. Ben also says that you should ask for any previous building documentation, plans and approvals for construction, and any changes to the property.

Lastly, choose your inspection times carefully, especially for the cheaper new build apartments. “Most inspections are done during the day when the neighbors are out. But then you come home in the evening and you can quite often hear them having a cup of tea,” Ben said.

Ben says that “all payments should be made in accordance with written agreements and should form part of the purchase price; notaries and most lawyers will have insurance for such deposits, thus you are guaranteed by Czech law. However, very few agencies have such insurance. Monies for the vendor are usually released automatically within a few days of him presenting a fresh copy of the ownership document showing that the transfer of ownership has been registered and that any other agreed preconditions have been fulfilled, but allowing for standard provisions for the payment of the property transfer tax.”

Unlike the UK, payment doesn’t entail a ‘housing chain’ (wherein a seller must wait for a potential buyer to sell his own property before a sale can officially take place). Ben remarked that “a chain sometimes occurs, but as the fluidity that is often present in the UK market is missing here, it is not such a problem. It has never prevented us closing a sale.”

“If a chain occurs, there are ways of securing a property for a period of time; the most common way is to use a contract of future sale. The contract of future sale is a legally binding contract that outlines the conditions that need to be fulfilled before the final contract of sale is concluded. The actual agreed contract of sale should form part of the contract of future sale so that all parties are aware of the conditions, thus the transaction is no longer subject to contract. Do not confuse this with a reservation contract which does not necessarily contain all of the conditions of sale.

“If the contract of future sale is concluded, the purchaser normally pays a deposit which forms part of the purchase price; this is held in one of the above mentioned mechanisms. The deposit can be anything from 10% to 50% of the purchase price, each case is different. The purchaser and vendor agree the terms of the contract of future sale and what conditions need to be fulfilled before the sale contract can be signed. This mechanism is used most often to secure a property when the purchaser is seeking a mortgage, both parties will be legally obliged to conclude the final agreement once the mortgage is agreed, or in the case of a chain, when the purchaser has raised finance by selling another property. There can be other conditions applying, but there will always be a time limit on these conditions being fulfilled. If for some reason the purchaser (or vendor) is unable to fulfill his part of the agreement and can not conclude the final contract of sale, there is usually a penalty applicable that can be as high as the total deposit payment. Thus before entering such an agreement you should be certain that you will be able to fulfill all of the conditions.

“The lack of chains can be for a number of reasons. People are not buying and selling so often. First time home owners are more likely to buy either new houses or move into vacant family properties such as the former homes of grandparents. With less people upping sticks, the market for homes – as opposed to investments – will be slower and represent more discrete sales as opposed to links in a chain. The issue with the land registry equally contributes to making a fluid chain less likely.”

“During the transaction, you might also be asked to contribute towards notary or bank fees, if so a 50/50 split is often the compromise achieved, the property registration charges are low and usually covered by the agency, but check beforehand.

“You will also most likely have to pay for any bank valuations and any surveys that are carried out. Detailed suveys are expensive, if you are considering purchasing an older property, it is best to have a short structural inspection by either a structural engineer, experienced architect or builder who can tell you very quickly if you are going to have major problems (problems=cost), afer that you can proceed to a full survey if you wish to continue.”

Generally, Ben said, “It’s the process is quite straight forward here. The main issue is the language gap and unfamiliarity with a different system, all of the information that you need is easily accessible, however, if you feel that your advisor (real estate, financial or legal) is not aware of the issues that concern you, find a new one.”

What has been your experience with buying property in the Czech Republic?

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