Flats in Prague - Prague Property: Real Estate Prices 2012 - Expert's Tip

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Purchase of Properties in Prague:

Purchase of Properties in Prague: Prognosis for 2012
Miroslav Šibal, Senior Agent for Lexxus Norton

Prognosis for 2012

What can we expect on the Prague Real Estate market in 2012? It seems that, after the wholly optimistic forecasts of the past year, a slightly pessimistic mood is prevailing with the renewal of market growth being postponed to 2014.  On the other hand, we often hear that a good property at “the right price” will also be sold in an uneasy period. What then is the situation really like on the Real Estate market? Mr Miroslav Šibal, an experienced Senior Agent for Lexxus Norton, answered readers’ most frequently asked questions.

The situation on the Prague Real Estate market is still rather cautious –at the present time, prospective buyers are in an excellent negotiating position. However, many of them are still hesitating. One of the reasons is the fear that prices could decrease even more significantly. An expert from Lexxus Norton answered most frequently asked questions:

Citypilot.cz: Mr Šibal, is waiting for lower prices justified?

Miroslav Šibal: Not actually, because quality property at a good address—such as that in the centre of Prague and also in other highly desirable locations—will always retain its high value and will also be attractive as a more important rental. The overall statistics are negatively affected, in particular, by discounting the additional sales of completed flats in new projects. On the contrary, prices will stabilise or rise slightly due to increases in VAT and the greater interest of buyers in new projects rather than in stagnant investments.

But most importantly: Many people purchase property in order to resolve their own housing problems. And in this situation, these current fluctuations do not play an excessive role as the investment in a well-selected property goes beyond one generation. Descendants always appreciate the legacy of property ownership rather than a mere rental contract.
 
Buying property is actually a form of savings—you have secured housing for your retirement (without the considerable rental costs that you would have had to pay) and can leave something of specific and not insignificant value, which is also practically useable, to the next generation.

Citypilot.cz: Some forecasters indicate that the prospects for 2012—in terms of profit from Real Estate—are not very positive, especially compared with other forms of savings. What would you say to them? 

Miroslav Šibal: Most people interested in buying do not seek the maximum immediate profits, but a long-term increase in the value of their investment—just as with regard to the current situation on the financial markets. Of course, we can only speculate how prices will further develop, but quality (not just any) property is a very reasonable alternative at the present time to ensure means on the medium- and long-term horizon.

In the long-term view, I do not doubt the return on an investment in a well-selected property. Today, if we look at the overall economic situation, the purchase of Real Estate is a very attractive possibility for the safe deposit of funds. Interest rates on mortgages are approaching 3% and Real Estate prices have declined since 2008 by an exciting 20 to 30%.
 
Another advantage of investment in property is the fact that, although its value may decrease in the short term, there is never the threat of a dramatic decline to a fractional or zero value—as opposed to buying shares or investing in shares funds.

Citypilot.cz: ”Buy to Let“ – purchase for the purpose of renting the property. Many people still consider this variant risky, mainly due to the excessive protection of tenants in the Czech Republic. Is there any insurance against complications regarding tenants?

Miroslav Šibal: The prospect of buying an apartment for investment and its further rental has its risks. Firstly, the greatest attention must be paid to the selection of a suitable location, the type, size and furnishings of the flat, just as if we wanted to live in it ourselves. This is the precondition to be able to rent among greater competition. But it is also possible to take several important steps to protect one’s property. From my perspective, the most important are:

  • Cautious selection of tenants—estimating a person’s character is certainly not easy, but some hints are in the type of job or a former landlord’s references.
     
  • A Rental Agreement must be drafted by a lawyer—valid for one year and renewable only by mutual agreement under newly defined conditions.
     
  • Establish a reasonable amount of rental and check the monthly payments on a regular basis.
     
  • Alternatively, demand an insurance policy for the inability to pay rent. The level of insurance premium is calculated from the amount of rent. This is worthwhile for owners who have financed their Real Estate with a mortgage, insolvent clients, or those who want to ensure a steady rental income.

Citypilot.cz: Until a few years ago, in order to purchase a property, foreigners in the Czech Republic were establishing limited liability companies (s.r.o.). Is this still worthwhile today?

Miroslav Šibal: Not always. Until May 2008, this was the only way for foreigners to buy Real Estate in this country. Currently, there are no restrictions on the acquisition of property and plots, excluding agricultural and forest land. For the vast majority of buyers, it is more advantageous to purchase Real Estate as a physical person.

The main advantage is exemption from the Income Tax in the case of a subsequent sale, which is payable unless you have permanently inhabited the property in question for at least 2 years, or have owned it for at least 5 years. 

A significant advantage is the fact that the subsequent sale of property owned by a legal entity is much less attractive to the acquirer (the lower transparency of limited liability companies, the risk of hidden liabilities, etc.).

The variant of purchase through a limited liability company can be interesting to investors who buy large quantities of Real Estate, which include intensive management and the accounting of individual units and their formal operation. In the case of new flats, a limited liability company can take advantage of VAT deduction. But always consult a tax expert, as there are exceptions.

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Miroslav Šibal
Lexxus Norton Millenium Plaza
V Celnici 10, Praha 1
Tel.: 221 111 999
E-mail: miroslav.sibal[at]lexxusnorton.cz


www.lexxusnorton.cz

A Brief Profile of LEXXUS NORTON:

Purchase of Properties in Prague: Prognosis for 2012

Lexxus Norton is the brand under which the Prague real estate agency of Lexxus a.s. focuses on above-standard, particularly residential properties for sale and to rent in the best locations of Prague and its environs. Only properties and development projects that meet demanding and challenging qualitative criteria are presented under this brand. The clientele receives the assistance of an estate agent with many years of experience and the ability to provide individual service.

For 20 years already, Lexxus a.s. company has been ranking among the successful leaders of new housing projects and it is also one of the oldest and most successful Prague real estate companies operating in the field of properties. The portfolio of its services includes the sale and rental of properties in all market segments, relocation services, market analyses, expert consultation and the preparation and sale of new development projects. It is primarily the complex service to clients – from project preparation to mortgage financing, signing the purchase contract and handing over of the flat – which is the foundation of the success of this company. Since 2004 Lexxus has also been operating in Slovakia.