Political changes, the extension of private property rights and greater access to mortgage finance is not only keeping prices up but has led to increases in the luxury market, according to analysts.
Prague has traditionally attracted buyers from the UK, Germany, Russia and other Eastern European countries as well as the US. However, the credit crunch has led to fewer budget buyers and more interest in luxury real estate according to Jaroslav Zizka, director of sales at Svoboda & Williams.
According to Knight Frank property prices in Prague rose 7.5% in the last 12 months but prices of high-end property rose 9%. 'The mortgage market didn't mature until about five years ago. This along with political changes and the luxury market taking off are keeping the market strong,' said Liam Bailey, head of research at Knight Frank.
Mr. Bailey anticipates growth of 5 to 10% a year in the value of real estate in Prague for the next two years, based on studies by Knight Frank. He expects the high-end market to see higher rates of growth due to restrictions in supply.
A foreigner who wants to buy real estate in Prague must either start a company, become a legal resident of the Czech Republic or get a long-term visa. It costs about 20,000 koruna for people from European Union countries to obtain a residency permit in the Czech Republic, more for those from outwith the EU.
Mortgages are available to foreign buyers. Most lenders require a 20% down payment, said Lucie Bauerová, the expatriate-division manager based in the Czech Republic for Simply, an Irish mortgage brokerage. Typical mortgage origination fees are about 1% of the amount borrowed, Ms. Bauerová said.
But Mr Zizka warned that the bank's appraisal may be very different from the asking price for previously owned homes. He said that for older apartments, the appraisal can be as low as 50% of the market price. Some banks will lend up to 100% of the appraised value, but that means buyers will need to come up with the difference between the appraised value and the agreed-upon price.
