The decline in the Czech Koruna and high rental yields amid a booming economy and property market make investment in Czechoslovakia a worthwhile proposition.
The Czech Republic may have only been a country for just over 20 years, but the region has a long and rich history. Its capital Prague was founded over 1,000 years ago and rose to prominence during the days of the Austro-Hungarian Empire. During this time, the city was one of the richest in Europe, which was celebrated through a love for the arts, especially architecture. Most of these exceptional examples survived the war and still stand today.
Post-war, the area was under communist rule. This had a dire effect on its economy and a gulf in values developed between this area (now Czechoslovakia) and the West. Forty years passed before communism was overthrown and economic growth could start again.
In 2005, the Czech Republic entered the EU and was experiencing some of the highest economic growth in Europe. Investors flocked to get a piece of the action. Companies, funds and individuals all wanted to get involved and many did, primarily in the form of residential real estate. Prices were very affordable and finance was available in abundance as the Czech developers and banks looked to cash in on the property boom.
In the following 5 years, house prices soared by 30% and the Czech Koruna strengthened by 25% against the USD and GBP. Those who had invested in this sector were able to exit with strong profits made.
Czech on a roll
Moving forward to 2015, conditions are somewhat similar to ten years ago. Czech GDP growth is 4.4% – the highest in Europe – and the Czech Koruna is the weakest it has been since 2007. This time, the weakness of the Czech Koruna is artificial – carefully manipulated by the national bank to encourage investments. This policy is due to end in 2016 when we expect at least a 10% jump against the Euro.
House prices are of course higher than they were back in 2005, but are still comparatively excellent value. Small studio flats in Prague start at just 1.400.000CZK, with 70% finance available to the vast majority and up to 90% in specific cases. The property market is going through its most positive phase since 2007, with house prices in Prague up 12% in the last 12 months.
It’s not just about long term gains though, as the Czech Republic still primarily has a rental culture. Investors can expect rental yields of 6% if they buy in the right places. With rising house prices and the end of affordable loans in sight, investors should see rents rising further in the coming years. Short-term rentals are also booming in the centre of the city as tourism continues to grow at a steady 8% per year.
Beyond the basic economics, there are also some great tax advantages of investing in Czech Republic. Local taxes on rental income are negligible or zero in most cases. Capital gains tax is also zero if you keep the property for 5 years. Sales taxes are 4%, but from 2016 they will be the responsibility of the buyer.
If you are looking for an alternative property investment in one of Europe’s most spectacular and beautiful cities then Prague currently offers great value and an excellent rental yield.
Prague is also one of the most popular student cities in Europe with world class universities creating a great atmosphere in the city. This makes Prague very popular with International students from all over the world with many staying to find jobs and work there. This is helped by Prague currently having the lowest unemployment rate in Europe.
James Hartland has been involved in property investment in the UK, Europe, Middle East and the Philippines. He can be contacted at j.hartland@astraasia.com www.astraasia.net