Czech Property Market Overview

In the year leading up to Czech membership of the EU many property developers held back stock in anticipation of large property price rises post EU entry.

This reduction in supply in part helped to maintain price growth up to EU entry but the sudden increase in supply after May 2004 resulted in the Czech property market being oversupplied.

So despite the continued strong economic fundamentals the oversupply in the market meant prices in 2004/2005 were pretty much stagnant.

The low growth rates and the hassle of foreigners needing to set up a company to buy property in the Czech Republic kept many foreign investors out of the market during this period.

It wasn’t until towards end of 2006 the price growth started to accelerate again as the market found its feet and the demand created by continued economic prosperity fed into property price growth.

This price growth continued throughout 2007. Over the period of 2006 – 2007 the typical annual property price rise was around 20% whilst in some secondary cities growth of 30-40% was not uncommon.

On top of the healthy growth rates the Czech Republic has one of the more mature rental markets in Central and Eastern Europe.

The Czech Republic now has a relatively straightforward buying process as foreigners (from the EU) can, from the 1st May 2009, buy property in their own name – without the need for an EU card or company. Property transaction costs are also very low (particularly on the buying side) making the market relatively liquid.

There is a good legal framework in place to ensure that contracts protect investors interests.

Mortgage finance in the Czech Republic has also developed considerably in the last few years, but for locals and foreigners. It is probably the easiest country in Central and Eastern Europe in which to obtain a mortgage and the conditions are surprisingly good. 70-90% LTV’s are common (with 100% LTV possible), mortgage rates are around 5-6% and terms of 25-30 years typical. Whilst interest only mortgages are not currently available it is possible to obtain refinance and non-status mortgages. These mortgage terms are in the short term being affected by the financial crisis.

Short term during 2009 there is a slight oversupply compared with demand and many developers are in trouble in part brought on by the financial crisis and economic slowdown. We see this as just being a short term blip and the medium term fundamentals are still strong and growth will return to the market after a period of consolidation.

Overall we see 2009 as an excellent year to pick up well priced property in the Czech Republic.