Czech Republic: happiness is a rising house price
Last Updated: March 05, 2015
The average price of apartments in the Czech Republic rose by 2.74% in 2014 (2.26% in real terms), the sixth consecutive quarter of moderate price increases, according to the Czech Statistical Office (CZSO).
During the year to Q3 2014:
- The average price of new dwellings sold increased 2.8% (3% in real terms). This is down by 2.2% from market's all-time high in Q3 2008, according to the Czech National Bank (CNB) (-6.4% in real terms).
- The average price of existing dwellings sold rose by 3% (3.2% in real terms), down by 6.4% from the peak in Q3 2008 (-10.5% in real terms).
Demand is rising sharply. In 2014, property developers sold a record 6,000 new flats in Prague, surpassing pre-crisis levels seen in 2007, according to the daily Hospodarske noviny.
Sales in Q4 were particularly strong, partly due to increased interest from foreign homebuyers, low interest rates and increasing confidence in the Czech economy. 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 Russian and Ukrainian investors.
Centrally situated apartments in Prague, especially those in historic buildings close to the Vltava River, are the most expensive. Their average price stood at CZK150,00o (€5,453) per square metre (sq. m.), but can go as high as CZK250,000 (€9,089) per sq. m., says Ondrej Novotny of Jones Lang LaSalle.
The Czech Republic's GDP growth was 2% in 2014, after contractions of 0.7% both in 2012 and 2013, according to the CZSO.
Moderate yields in Prague
Prague’s yields remain less than attractive – they range from around 3.80% to around 4.40%. Quite disappointing. You’re not going to buy in Prague for yields, at the moment!
However prices of houses and apartments in the Czech Republic have begun to rise again, according to Czech National Bank statistics.
According to Global Property Guide research, apartments in Prague’s prime residential districts now cost around EUR3,400 to EUR3,940 per square metre (sq. m.). Smaller apartments earn slightly higher rental yields.
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.
Rental income tax can be high
Rental Income: Rental income is taxed at a flat rate of 15%. Income-generating expenses are deductible from the gross income, with a maximum of CZK600,000 (€21,429).
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%.
Total transaction costs are moderate in the Czech Republic
Roundtrip costs in the Czech Republic are moderate at around 7.51% to 10.02% of the purchase price of the property. The buyer pays around 2.5% to 5% of the transaction costs. The seller pays the real estate acquisition tax at 4%.
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.
Better economic outlook in 2015The Czech Republic’s economy returned to growth in 2014, with a real GDP growth rate of about 2%, after contracting by 0.7% both in 2012 and 2013, according to the CZSO. This was mainly attributed to a growth in foreign demand, supported by increased in gross capital formation, and by household and government final consumption expenditure.
In the last quarter of 2014, the economy grew by an annualized 1.5%, after growth rates of 2.2% in Q3, 2.1% in Q2 and 2.3% in Q1 2014.
The economy is expected to expand by 2.6% this year and by another 3% in 2016, based on CNB forecasts.
GDP fell by 4.7% in 2009 due to the global economic crisis. Fortunately, it bounced back immediately in 2010, registering a modest real GDP growth rate of 2.1%, 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 needed to 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%. In 2014, the budget deficit was estimated at 1.2% of GDP.
Despite the broadly sceptical attitude of the Czech population towards European initiatives, Prime Minister Petr Nečas has recently pledged to increase efforts to finally join the Eurozone.
“This country will do everything it can to be ready in four years,” said Nečas.
Unemployment stood at 6.2% in 2014, down from 7% in 2012-13, according to the CNB. The country’s unemployment rate is projected to drop to 5.7% this year and to 5.5% in 2016.
Inflation continues to fall. In 2014, The Czech Republic’s overall inflation rate slowed to 0.4%.