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Real estate transactions in the Czech Republic | eBook

February 7, 2025

Even though prices of real estate are generally steadily increasing in most segments of the Czech real estate market (i.e. residential, commercial, industrial), it is still possible to find opportunities for investments and real estate transactions in the Czech Republic with prospect of solid yields in the following years.

The Czech real estate market remains a promising destination for foreign investors, with several sectors demonstrating resilience and steady performance despite global economic challenges.

The Czech real estate market saw approximately €1.09 billion in transaction volume during the first three quarters of 2024. While this aligns with 2023 levels, the market is notably performing above expectations when compared to some neighbouring countries, showcasing its relative stability in central and eastern Europe. The retail sector accounted for 31% of the total volume, followed by industrial assets at 22% and office properties at 20%. Domestic investors remain active, yet the market’s fundamentals make it increasingly attractive for foreign capital seeking stable returns.

Prague’s modern office space has grown to approximately 3.96 million square meters as of Q3 2024. Despite a slight increase in the vacancy rate to 8.1%, the year-on-year rise in gross take-up by 27% underscores sustained demand from both domestic and international tenants. Prime office rents have remained stable at €30 per square meter per month, reflecting the long-term attractiveness of Prague’s office market for businesses and investors alike.

The industrial real estate sector continues its strong expansion, with the total stock surpassing 12.2 million square meters in 2024. New completions in Q3 alone added 163,500 square meters, and further growth is expected by year-end. While the vacancy rate rose slightly to 3.1%, it remains one of the lowest in Europe, signaling robust demand for high-quality logistics and industrial spaces. Prime industrial rents in Prague have held steady at €7.50 per square meter, offering reliable returns for investors in this segment.

Residential real estate in the Czech Republic shows positive momentum, with the Residential Real Estate Price Index increasing by 1.18% year-on-year in Q1 2024. In Prague, the average price per square meter for residential properties reached CZK 124,900 (€5,409), reflecting a 6.93% annual increase. This price growth, coupled with a projected easing of interest rates, positions the residential market as an attractive option for medium- to long-term investments. Experts predict a gradual recovery in the Czech real estate market during the end of 2024 and Q1 2025, fueled by stabilizing inflation and the expected reduction in interest rates. Foreign investors are particularly well-positioned to capitalize on growth opportunities in retail, residential, and logistics sectors, where demand remains robust and yields remain competitive compared to western European markets.

For a better orientation in the real estate market, we provide you with this brief overview with information on legal aspects related to real estate transactions in the Czech Republic.

Download our eBook on real estate transactions in the Czech Republic, or read more below

Limitations over acquisition of real estate

There are currently no general limitations on ownership or occupation of real estate by foreign entities or foreign citizens, and this applies to foreign guarantees and security as well.

However, specific limitations could follow from hypothetical economic sanctions imposed by the EU, United Nations or other international organisations of which the Czech Republic is a member. However, such sanctions are extremely rare and very unlikely considering the stability and characteristics of the Czech political and economic situation.

Real Estate market according to the Czech law

The real estate market in the Czech Republic can be quite confusing for a new investor.

As of 1 January 2014, when the new Civil Code came into force, buildings form part of the land on which they are located. This means that buildings are usually owned by the owner of the land. Buildings also cannot be transferred independently from the land (principle “superficies solo cedit”). This applies to the buildings constructed after 1 January 2014 and to the buildings which had the same owner as the land under the building on 31 December 2013. As always, there are some exceptions to this general rule. But let´s focus on the big picture.

Buildings constructed before 1 January 2014 can be considered as a separate real estate itself. Such a building will remain a separate real estate until it is owned by the same entity as the land under the building.

It has to be pointed out, that for the purpose of a merger of a building with the land under the building, both of the owners have a mutual statutory pre-emptive right, which means the owner of the land has a pre-emptive right to the building and vice-versa.

It is also possible to construct a building on another person’s land (without acquiring the land). This can be arranged by a right to build. Right to build is considered as a separate real estate in a legal sense and as such can be transferred or mortgaged. On the other hand, the building itself is not a separate object and only forms part of the right to build.

All of the information on a real estate can be found in the Cadastre of Real Estate administered by the State Administration of Land Surveying and Cadastre.

Basic information on the Cadastre of Real Estate

Real estate in the Czech Republic (again with certain exceptions such as engineering networks) as well as certain rights to it are registered in the Cadastre of Real Estate.

The Cadastre of Real Estate contains descriptive information on real estate, such as:

Identification of the real estate

Rights related to it

Encumbrances limiting the owner of the real estate

This information is listed for each cadastral area on separate title deed. Such title deed lists all the information on all the real estate owned by the same person in relevant cadastral area.

Furthermore, the Cadastre of Real Estate includes the Collection of Deeds which contains documents relevant for the registrations in the register (such as past acquisition titles to real estate or geometric plans).

The descriptive information as well as excerpts from the individual title deed can be obtained for a fee electronically via the website of the State Administration of Land Surveying and Cadastre (http://katastr.cuzk.cz).

Selected information can also be obtained on a non-reliance basis for free.

Protection of good faith in records in Real Estate

The Civil Code states that if a person acquires a real estate from the person registered in the Cadastre of Real Estate for a consideration and in good faith, then the ownership of the real estate is acquired even if the registered person has not been the legal owner of the real estate.

If the relevant Cadastral Office makes an error during a registration in the Cadastre of Real Estate, only a compensation for related damages can be claimed.

Real Estate transactions in the Czech Republic

Real estate is typically acquired via:

Direct purchase (asset deal)

Acquisition of shares in the company holding the real estate (share deal)

In the past, acquisition of shares was often preferred due to tax reasons, as direct transfers of real estate were subject to the real estate transfer tax of 4%. However, in September 2020 the real estate transfer tax was dropped and currently the asset deal transfer is no longer subject to specific taxation. Still there are a few advantages when it comes to share deal – mainly provision of functioning company with capital to the buyer. This can be a bonus where the buyer/investor is a developer and would need these tools either way.

The disadvantage of share deals is that the investor acquires not only the relevant assets, but all the company’s liabilities as well. This is sometimes mitigated by corporate demerger, where the relevant asset is demerged to a newly established clean company that is subsequently the subject of the share deal.

With an asset deal the registration in the cadastral register is performed based on an application signed by each party to the purchase agreement, accompanied by an original or certified copy of the purchase agreement. The registration is subject to a fee, currently CZK 2,000. The registration proceedings take about one month, provided that the ownership is then transferred retroactively from the date of the filing of the application.

Because of an over 40-year period of communism in the Czech Republic, a kind of settlement of injustices made during these times has been implemented into the Czech law. The so-called restitution of Real Estate property in the Czech Republic is bound to the property unlawfully escheated by the Communist regime in the 1945-1989 period. Restitutions are mainly governed by the so-called restitution acts.

Due to the various restitutions, it is advisable for investors to check thoroughly the legal status of the intended acquisition from the point of being potentially the object of restitution at the Czech State Land Office, even though the risks relating to the restitutions are smaller every passing year.

Real Estate taxation

Asset deals

In the past, real estate transfer tax was payable on the transfer of real estate in an asset deal. The rate of tax was 4 % from the agreed purchase price. This transfer tax is no longer in force since September 2020 and therefore, the transfer is not subject to special taxation.

However, in cases where no exemption (of which there are many, mainly the 2-10 year time test – depending on the time of purchase and personal/investment usage) can be used, the income tax still applies. The rates can be found in the Share Deals section of this material.

Share deals

The cancelled real estate transfer tax never applied to share deals. Instead, the income of the seller from the sale of the shares may be subject to:

  • 21% corporate income tax rate (if the seller is a legal entity)
  • 15% personal income tax rate (if the seller is a natural person)
  • 5% corporate income tax rate (if the seller is a licensed real estate investment fund)

As with asset deals, there are several exemptions to income tax, which are targeted mostly towards natural persons. An advantage is that share deal is not subject to VAT.

VAT in relation to Real estate transactions in the Czech Republic

The following real estates are exempt from VAT:

  • Land that does not form a functional unit with a construction firmly connected to the ground;
  • Land that is not a building site;
  • Other real estate after lapse of 5 year after issuance of:
    1. first occupancy permit, or
    2. occupancy permit after a substantial change in the real estate

Realization of new constructions

The Czech Republic has recently implemented significant legislative changes to streamline and expedite construction permitting processes. The new Building Act (Act No. 283/2021 Coll.), effective from January 1, 2024, introduces several reforms aimed at simplifying the preparation and realization of constructions.

Key Changes Introduced by the New Building Act:

Unified Permitting Procedure:

The previous two-phase process, involving separate land-use and building permits, has been consolidated into a single project permit. This change is designed to reduce administrative burdens and accelerate project approvals.

Categorization of Buildings:

The Act classifies constructions into four categories: small, simple, reserved, and others. This classification determines the level of documentation required, the necessity of official permits, and whether professional builders must be engaged.

Digitalization of Processes:

A comprehensive digital platform, the Builder’s Portal, has been introduced to facilitate electronic submissions, communication with authorities, and access to planning documentation.

However, due to initial challenges faced by authorities in adapting to the digital system, it is currently still possible to submit applications in paper form, as was previously the standard. This transitional allowance aims to ensure smooth processing and avoid delays during the digitalization rollout.

Establishment of the Transport and Energy Construction Authority (DESÚ):

A new specialized authority has been created to oversee permits for designated constructions, such as highways, railways, and energy infrastructure projects. This centralization is intended to ensure expertise and consistency in handling complex projects.

Unified Environmental Statement (JES):

The Act introduces a single environmental assessment document that consolidates multiple evaluations required under previous regulations. This unification simplifies the environmental approval process for new constructions.

Accelerated Proceedings for Simple Structures:

For simple constructions, such as single-family homes, the permitting process has been expedited, with decisions expected within 30 days. This measure addresses previous delays and supports timely project initiation.

Implications for Developers and Investors:

These legislative reforms are expected to enhance the efficiency and predictability of construction permitting in the Czech Republic. The consolidation of procedures, digitalization, and clear categorization of building types aim to reduce administrative hurdles and foster a more investor-friendly environment. Developers should familiarize themselves with the new requirements and utilize the digital tools provided while remaining aware of the continued option for paper submissions during this transitional period.

Summary

  • There are currently no general limitations on ownership or occupation of real estate by foreign entities or foreign citizens and this applies to foreign guarantees and security as well.
  • The Czech real estate market is undergoing a dynamic activity nowadays, which is characterised, in particular, by high demand and low supply in most segments that keeps the prices increasing. Increase in rents especially is expected in near future.
  • Buildings cannot be transferred independently from the land (principle “superficies solo cedit”). This applies to the buildings constructed after 1 January 2014 and to the buildings which had the same owner as the land under the building on 31 December 2013.
  • Real estate is typically acquired via direct purchase (asset deal) or acquisition of shares in the company holding the real estate (share deal).
  • Taxation of real estate transaction might differ based on whether the transaction is an asset deal or share deal.
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