The four most costly mistakes by foreign investors in the Czech Republic

Czech real estate has once again become a major focus for foreign investors. The relatively stable political circumstances, together with the artificially weakened currency and the rise in property prices, are only some of the reasons.

Nonetheless, there are several mistakes made by foreign investors time and again, which significantly reduce their returns on investments in Czech real estate. Here are the four most prominent:

1. Purchasing Czech real estate through a Czech S.R.O. (limited liability) company rather than privately

The disadvantages of purchasing through an S.R.O. company versus privately are as follows:

• • The high cost of establishing and operating the company

  • The need to constantly keep in touch with the authorities

  • High taxation

  • No exemption for capital gains resulting from rising value of the property

  • Mortgages higher by 1%-2% than private

2. Trusting Czech real estate agents

Have no doubt, it takes only 2 minutes and about 1,000 koruna to become a real estate agent. There are no examinations, no training, and no rules regulating this field. Many Czech real estate agents (not all of them – there are also a few good ones) are only interested in their commission and they will say and do anything necessary to achieve this. They have no real interest in return customers.

So what can investors do to protect themselves? The most important piece of advice is to find a trustworthy Czech real estate company that can produce recommendations and proof of prior success. Second, it is a good idea to have an attorney representing you. And third, deposit all the purchase money in a trust account until the property is registered on your name in the cadastral register.

3. Assuming that the high end property market will produce higher than average returns

For years, investors were tempted by real estate agents who predicted that the Czech high end property market would earn them higher than average returns. This did not happen. Upper class flats continued to produce similar returns, as well as a similar rise in value, as those of the general property market.

4. Disregarding the significance of proximity to public transportation

According to research on use of public transportation, the Czech Republic occupies first place in the European Union, with more than one third of the population utilizing public transportation as their main means of transport. Hence, this should be taken under consideration when choosing your next Czech property.

We would be glad to help you find your next property in the Czech Republic. Read some recommendations from our clients.