Scams on Czech real estate market

Even though it is generally safe to do business in the Czech Republic, a certain level of prudence and common sense is needed, as it is anywhere in the world. Below, I mention three typical scams used by some tricksters.

1) Misappropriation of reservation deposit

In the process of buying a property, it is sometimes necessary to make a reservation payment. The reservation deposit demonstrates the buyer's serious interest in a property. Once the reservation payment is made, the real estate agency ceases advertising the property to other bidders. For a small flat in Prague, the reservation payment is normally around CZK 100,000.

An unwary investor may end up paying the deposit to a phony real estate agent. The trick used by fraudsters is a simple one, and it is easy to fall for it if you are not fully aware of all the details involved in the standard procedure. With some variations it may go like this: A phony real estate agent advertises a flat for a low price in order to attract many bidders. After the potential investor inspects the flat and expresses his interest in buying it, he is invited to the agent’s office. Everything seems okay since the agent says that he represents a well known real estate agency but he has his own office where all the negotiations take place. According to information from the land register (cadastre) the property is clean from a legal point of view - with no mortgage or other limitations. The investor is pleased with the smooth process so he promptly signs a standard reservation contract and pays the reservation deposit.

The initial excitement at a good purchase ends several days later when the investor is unable to reach the agent. At this point, the investor starts to investigate the situation. He finds out that the flat he saw is actually not for sale and it was leased to somebody for a short period of time. Moreover, the agent’s office no longer exists and the well-known real-estate agency knows nothing about its alleged employee.

2) A desperate bank representative who tries to set you up with a mortgage

This type of fraud will mainly waste your precious time, but hopefully won't cost you any money. Currently, mortgages in the Czech Republic are at a historical minimum. Banks are competing for clients and they are willing to offer very good deals on mortgages. This situation is beneficial for investors, but it makes it hard for mortgage sales representatives to break even. Unfortunately, unethical sales representatives have no limits when it comes to acquiring new clients. Some of them advertise non-existing properties only to acquire the contact information of potential investors. These bank representatives demand a personal meeting and untruthfully claim to have access to a database of flats that are not on public offer. Obviously, a deal based on lies is not perspective and it will only cost you valuable time.

3) Promised advantage in public tender

During the communist era many assets were owned by the state. After the Velvet revolution, and the transfer to a market economy, a long privatization process began. Due to many chaotic and non-transparent privatizations in the beginning, many people managed to become rich very quickly during the 1990s. Even after 25 years, not all the necessary privatizations have been completed and there are still many properties owned by the municipalities. Fortunately for the Czech Republic, nowadays privatizations have set rules and the chance of corruption is smaller. Normally, privatized properties are offered through a tendering process and the end price reflects the real situation on the market. Still, investors can come across swindlers who pretend that they are able to influence tenders through personal contacts and bribes. There have been cases of unaware investors who gave money to these “influential” people for their help in securing flats in attractive parts of Prague. The result is obvious – they were left with no money, no properties and no opportunity to bring their case to court.

The Czech Republic offers investors various interesting investment opportunities in real estate; hence the country remains one of the most attractive places for investors in Europe. The real estate market is doing well and a further growth is predicted in the Trend Report 2015 published by the Association for Real Estate Market Development. 

The examples mentioned above are rare exceptions to the actual state of affairs. With common sense and reliable partners, many foreign real estate investors are already benefiting from their activities here.

If you fond a scam in Prague or the Czech Republic and you need help, we will be happy to assist you. Contact us.