Apartments in the Czech Republic are overvalued by up to 20% according to the country’s national bank

People who purchase real estate in the Czech Republic are subject to a 4% tax in this type of transaction. When combining this with the existing high prices, it is easy to see why this market is not as dynamic as it should be.

Additionally, the National Bank of the country has estimated that housing units are overvalued between 15 and 20%, because of this, the same entity predicts that the growth in real estate prices will slow down in the short and medium-term.

According to Deloitte, the average price of a property in the country is of 2.407 euros per square meter. However, in the case of large cities such as Brno or Prague, this value is considerably higher.

In the case of the capital, a square meter was valued at 3.475 euros on average. This means that a hypothetical Prague worker, who receives the average salary of the territory, and who could potentially dedicate the entirety of his monthly payments for a housing unit, would need to save continuously during approximately 20 years for being able to purchase an apartment with three rooms.

For this reason, experts state that this aforementioned 4% tax severely affects the ability to purchase properties for the average Czech citizen. Specifically, according to Lenka Nova, who is an expert in real estate investments at Squire Patton Boggs, a law firm, this tax should not exist, as the State does not act as a facilitator when transferring properties. Only at the municipal level, the government is involved in some form, as these entities are the ones responsible for providing services that ultimately can affect the prices of these goods.

As additional information, it should be said that this tax does not exist in other countries like neighbouring Slovakia.

However, the Czech Ministry of Finance fully supports this tax. This entity states that a potential elimination of this tax is not going to solve the main reason behind the recent and huge increase in real estate prices, which is the lack of enough supply. Additionally, the property ownership tax in the Czech Republic is the lowest among OECD countries. According to Lenka Nova, this fact combined with the aforementioned 4% tax for property purchases is the main reasons why the real estate market in this country doesn’t thrive like in other territories with similar economies.