Wednesday, 1 October 2014

Purchasing your own home in the Czech Republic

Prague Daily Monitor |
12 June 2014

The long-term stability enjoyed by the Czech Republic makes it an ideal country for both investing and living. Interest from foreigners has increased significantly since the amendment of the Foreign Exchange Act in 2011, which resulted in the full liberalisation of the Czech real estate market. The new law makes it possible for foreigners, and not only Europeans, to buy flats, houses and land in the Czech Republic.

Hence, since 2011 there has been a rise in the number of people from advanced countries who see the Czech Republic as an interesting and above all safe place to invest with high growth potential. Foreigners in the Czech Republic typically invest in flats in the centres of large towns, either for their own living purposes or to rent to others. Prague is the most desirable location, followed by Brno, Plzeň and Hradec Králové. Demand has also been supported by real estate prices and the Czech crown to euro exchange rate, both of which are at their lowest levels since 2008.

Most popular among those looking to buy their own homes are new flats in the 2+kk category (bedroom and living room with attached kitchen) as well as new, reasonably-priced houses, very few of which are offered by Prague developers. This experience is also confirmed by one of the largest real estate developers in the country – FINEP. At present, the company lists houses in two of its projects – in Štěrboholy and in the Britská čtvrť, which is located in the immediate vicinity of the Stodůlky metro station. Both projects combine pleasant modern architecture, exceptional layouts and, above all, European quality at a reasonable price. Prices begin at just CZK 5.6 million (including VAT) for houses that offer many of the advantages of larger flats. But unlike flat dwellers, house owners can enjoy their own garden.

The latest residential project with houses in Prague is the Britská čtvrť in Stodůlky

Britská čtvrť houses, which have just been put on the market, offer comfortable living of European quality, with a special emphasis on detail and the efficiency of layouts. The first phase of development includes 23 homes (4+kk, 5+kk) in semi-detached and terraced houses. Floor plans range in size from 120 to 160 m2, lot sizes from 430 to 730 m2. Prices in this project begin at CZK 7.9 million (including VAT).

For more information on the project, please visit www.finep.cz


Financing

Not everyone has the luxury of being able to finance their real estate purchase in cash. If a potential buyer is a foreigner employed or doing business in the Czech Republic, they typically have the same chance of obtaining a loan from a bank under the same conditions as a Czech citizen. Banks usually only require loan applicants to document their income for the past three months from the date of the loan application. In the case of self-employed individuals, banks require their most recent income tax return.

In terms of financing, it’s no longer true that a mortgage applicant must be a Czech living in the country. The real estate market has been opened to literally anyone in the world, and it makes no difference if the buyer is a Czech living in America or a Brit living in Germany. Banks consider several factors in evaluating a loan application. Briefly put, the higher the value of a particular property (the loan-to-value ratio – LTV) the client wishes to borrow, the stricter the bank is in assessing the application.

Banks also assess:

- The amount of the loan.

- The loan-to-value ratio.

- The income level of the applicant, the length of time they have been earning this amount, what the precise source of income is, and whether the applicant has their salary deposited directly in their account or is paid in cash (the second possibility is always more problematic from the perspective of documenting income).

- Debt registries, which can be linked internationally, include both bank registries and non-bank registries that disclose the applicant’s potential debts.

- The applicant’s country of origin. In general, advanced countries such as the EU, the USA, Canada, the Asian Tigers and Australia belong to the prestigious group that banks assess less strictly. The second group includes the countries of Eastern Europe and ‘second world’ countries, for which banks require confirmation of the applicant’s permanent residency in the Czech Republic.

How much will a bank lend me?

The most common loan amount provided to foreign applicants is at most 85% of the value of the property. Nevertheless, even foreigners can qualify for a mortgage for the full value of an asset. It always depends on the financial standing of the applicant and the ability of the banker or financial advisor to find a loan product suitable for both the client and the lender.

Banks evaluate mortgage applications on an individual basis, with the level of risk associated with the loan being the key factor. In many cases banks are willing to provide the applicant an ‘exception’, thus accepting a client that does not meet certain conditions of the particular bank but which exceeds other requirements. An example could be an applicant who, despite being from a country with a lower rating, has a good job or who wishes to borrow a lower amount of the overall value of a property. A financial advisor should be able to guide the client through the entire mortgage application process to its successful conclusion. FINEP Financial Services is prepared to help potential buyers with the mortgage application process.


Residency in the Czech Republic

Obtaining Czech residency is one of the important steps for a foreigner interested in purchasing real estate in the country. The Czech Foreign Police issues residency permission to EU citizens based on an application for temporary residency pursuant to Section 87 of the Alien Residency Act in the case that the applicant intends to temporarily reside in the Czech Republic for longer than three months.

If you are a foreigner and are considering purchasing real estate in the Czech Republic by means of a mortgage, the bank will require proof of your legal residency in the country. Residency, which can be permanent, temporary or long-term, depends on many factors. The conditions for granting residency are governed by law, and in general anyone working in the Czech Republic and with a place to live can apply for some form of residency. Residency applicants are differentiated by their country of origin; people from EU countries typically have the easiest path to residency.

Applications for residency in the Czech Republic must be accompanied by the following:

- 1 passport photo;

- passport;

- a document confirming the purpose of the applicant’s stay in the Czech Republic (employment, business, study);

- evidence of housing in the Czech Republic (rental agreement or the consent of the owner of the housing);

- proof of health insurance in the Czech Republic.

Detailed conditions for obtaining residency and the application form are available on the website of the Czech Ministry of the Interior: http://www.mvcr.cz/mvcren/