Transcript of "Czech Republic 2011 Real Estate Review"
COLLIERS INTERNATIONAL2011 CZECH REP. REAL ESTATE REVIEWAlbania Bulgaria Croatia Czech Republic Greece Hungary Poland Romania Russia Serbia Slovakia UkraineAccelerating success.
2011 ColliERs REal EstatE REviEw » CoUNtRYCzech Republic Dear Colleagues and Friends, if we would try to sum up the previous year, then – according to most recognized experts – it definitely lagged behind the expectations and hopes that many of us had vested in it. the optimistic prognoses of economists and experts on property markets about their strong revival haven’t proven true. All the more, the fundamental differences between each market segment broke through. All of them could be easily summed up in a few sentences very similar to a weather forecast. While the office market still struggles with overcast sky, the area of industrial and logistic properties seems to face somewhat cloudy weather. the investment market then goes through kind of a stormy climate where periods of calm and windlessness interchange with huge investment transactions that come up like bolts from the blue. the new character of the market that we first noticed in 2009 reassured us once more last year that it’s not going on just a momentary change of wind but on a brand new trend. As well as in all other branches, the client – especially tenant – plays the leading role on the property market. this trend that originally started more than a year ago has been enriched by Karel Stransky another interesting phenomenon during the past year – almost half of the volume of all the managing director investment transactions has been secured by domestic private and institutional investors. colliers international czech republic After years of domination of German and other foreign real estate and pension funds, theAddress Galerie Myšák tune is for the first time being called from someone else. Vodičkova 710/31 Prague 1, 110 00, Czech Republic Despite the fact i truly love my native Czech language; the international term “challenging environment” fits the best to describe the crucial changes facing the commercial propertyPhone +420 226 537 618 market. Due to the nature of these unforeseen changes, precise analysis, accurateEmail Karel.Stransky@Colliers.com estimations and perfect skills are required to react to these changes on-time and accurately; these are the grass roots from which new challenges emerge. these grass roots, as well as the ability to analyze facts and find mutually beneficial solutions, are more than ever becoming a true merit of our work. the work of real estate consultants. i’m not going to present any predictions and anticipations about future property market development in the upcoming year. it wouldn’t be serious. instead, i and my team here in Colliers Prague office will try our best to deliver the most accurate market information and know-how you can get in the Czech Republic. You can find them outlined in this market report. With a view to provide you with the necessary advantage and information a step- ahead. Remember – we were those who predicted future development of both office and industrial markets with admirable accuracy more than a year ago. today, we are those who the others quote and bear up. our deep know-how and courage to tell things frankly paid off to us last year. if you like, it can pay off to you as well! thanks for your confidence and i look forward to working with you in 2011! Karel StranskyP. 44 | CollieRS inteRnAtionAl Research: Firstname.Lastname@Colliers.com
2011 ColliERs REal EstatE REviEw » CZECH REPUBliC ECONOMIC OVERVIEW KEY ECONOMIC FIGURES SUMMARY PROGNOSIS Metric % Change For the first year since 2000, GDP As we mentioned last year, 2010 was GDP Growth 2.1% declined in the Czech Republic by an the stabilization period for the Czech Industrial Production 8.4% unprecedented 4.1% in 2009. In 2010, Republic. The main macro indicators Unemployment 9.0% we have seen a more positive outcome (GDP growth, unemployment, and Inflation 2.0% with a recorded growth of 2.1%. Other inflation rate) are showing positive Retail Sales 0.3% than Bulgaria, Romania and Hungary, outlooks and are now reaching more Public Deficit 4.8% of GDP most of the Central and Eastern stable rate levels. Consequently, we are Source: Focus Economics, Ministry of Finance European countries have witnessed a not expecting any substantial growth or positive growth of their GDP. drop in the coming years. Following the GDP movements, The local economy, however, remains unemployment in the country reached its too dependent on external factors GDP, UNEMPLOYMENT & INFLATION 12 peak in 2009 with 9.2%. In 2010, we (exports, instability of the Czech Crown 10 started to see some improvements and compared to the Euro or the Dollar) that 8 the latest forecasts from Focus could have a negative impact on the 6 Economics show a positive outlook for economy. Nevertheless, banks have 4 2 the next 5 years with an unemployment started to be more active and are now 0 rate set to reach about 6.0% in 2015. lending more than in 2009. The volume -2 of personal mortgages has increased by Source: Focus Economics -4 After the very strong years of 2007 about 5% in 2010 compared to the -6 and 2008, when the CPI inflation rate previous year, and the decreasing | | | | | | | | | | | | 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F ▬ GDP ▬ Unemployment, % ▬ Inﬂation, % reached 5.5% and 3.6% respectively, average mortgage rate should help this 2009 saw a severe drop to only 1.0%. In trend to continue in 2011. 2010, inflation reached a more “stable” rate at 2.0% compared to the previous year. Based on the latest forecasts, we EXTERNAL DEBT AS % OF GDP 160 believe inflation in the country will Source: Focus Economics remain stable at around 2.0% over the 120 next 5 years. 80 Czech external debt increased to a 40 record 45% of GDP in 2009, although 0 | | | | | | has already started to decrease to 42% Czech Hungary Poland Romania Slovakia EU Republic Members at the end of 2010. In comparison to the ▄ 2010 ▄ 2011 other Central and Eastern European countries or EU members, the Czech Republic is in a healthier situation: the average for EU members is about 77.4% of GDP and 52% of GDP for other Eastern countries.Research: Lenka.OleksiakovaColliers.com CollieRS inteRnAtionAl | P. 45
2011 ColliERs REal EstatE REviEw » CZECH REPUBliC OFFICE MARKET KEY OFFICE FIGURES GENERAL OVERVIEW DEMAND Metric Measure Although the GDP growth turned Overall take-up reached 214,707 Sqm, Total Stock 2,697,850 Sqm back to positive numbers in 2010, the net which represents a 13% decline Take-Up 214,707 Sqm take-up continued to weaken. It declined compared to the previous year (245,000 Vacancy 13.15% by 35% compared to the previous year. Sqm). However, the take-up figures from Prime Headline Rent €20 – 21/Sqm/month As a result the vacancy rate increased to 2009 were influenced by two significant Source: Colliers International, PRF almost 14% in the course of 2011. transactions comprising 45,000 Sqm. Historically the lowest amount of Take-up in 2010 was (again) driven space was delivered to the market in mainly by renegotiations and relocations, 209 as construction practically stopped. accounting for 42% and 23% CHANGE IN STOCK & PIPELINE (SQM, 000) 2,750 respectively. Source: Colliers International, PRF 2,700 On the flip-side, construction of almost 140,000 Sqm of office space The net take-up continued to weaken 2,650 commenced, mainly in the second half of during the year and reached less than 2,600 2010. 60% of this space started on a 75,000 Sqm as a consequence of 2,550 speculative basis. The majority of the delayed reaction to the negative GDP 2,500 | | | | | | | | space that is currently under growth in 2009. The second half of 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2009 2009 2009 2010 2010 2010 2010 construction will be delivered to the saw a slight improvement mainly with submarkets of Prague 4 and 8. the Deutsche Boerse Group expansion in Prague 8. SUPPLY TAKE-UP STRUCTURE Only 41,790 Sqm of offices were been The IT sector was the most active 6% Expansions completed during 2010, representing a during the year generating 22% of the 44% 70% decline compared to the previous transacted volume, followed by Renegociation 23% New leases year. 21% of the supplied space has been Professional Services (18%) and the pre-leased. Manufacturing (16%) sectors. 27% The only significant completion was A-class buildings dominated the Relocation within stock Filadelfia (28,160 Sqm) by Passerinvest overall take-up with 81% of the total – another building of the BB Centrum in volume. Moreover, 60% of new leases Prague 4, being almost 100% vacant. were closed in A-class buildings and the The other completions include Vaclavske majority of relocating tenants movedKEY LEASE TRANSACTIONS namesti 17 (1,265 Sqm), Parizska 26 from B-class to A-class schemes.Tenant Size (Sqm) Project Type B-class buildings attracted mainly (1,200 Sqm) and Havlickova Plaza (2,169Oracle 9,831 The Park Renegotiation smaller tenants enquiring units of up to Sqm) in Prague 1 and CEZ buildingDeutsche Futurama Relocation +Boerse Group 7,524 Business Park expansion (4,000 Sqm) and Budejovicka 1 (5,000 350 Sqm.Computer Renegotiation + Sqm) in Prague 4. 7,201 The ParkAssociates expansionFinanci uradPraha 4 5,000 Budejovicka 1 Relocation The total modern office stockInteroute 3,922 City West Relocation exceeded 2.69 Mln Sqm as of end of 2010. The amount of space offered for sub-lease decreased in the course of the year by 44% to 23,731 Sqm as some of the space was leased up or occupiers stopped offering their space on the market.P. 46 | CollieRS inteRnAtionAl Research: Lenka.Oleksiakova@Colliers.com
2011 ColliERs REal EstatE REviEw » CZECH REPUBliC OFFICE MARKET VACANCY400,000 16% VACANCY / AVAILABILITY PROGNOSIS350,000 14% The vacancy rate rose to 13.2% as of 95,329 Sqm will be delivered to the300,000 12% the end of 2010, which equals more than market in the course of 2011, 46% of250,000 10% 354,000 Sqm of vacant space. This is a which is already pre-leased.200,000 8% y-o-y increase of 1.35 b.p. compared to150,000 6% the previous year. Based on the positive GDP growth100,000 4% 50,000 2% which started in 2010, and the positive 0 | | | | | | | | 0% In the first half of 2010, the vacancy prognosis for 2011, net take-up is Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 rate grew to 13.8% mostly due to the expected to rise again. New leases from ▄ Vacant space (sqm) ▬ Vacancy (%) delivery of BB Centrum Filadelfia and the UniCredit Bank, Komercni Banka or vacation of some buildings by anchor Seznam.cz have already been tenants (Siemens, Ceska Sporitelna). As announced and are expected to be a consequence of improving net take-up closed in the first half of 2011. RENTS €24 and low deliveries in the second half of €23 Source: Colliers, PRF the year, the vacancy rate started to As the Prague office market is now €22 decline. mature, renegotiations and relocations €21 €20 will continue to comprise a significant €19 A significant vacancy rate increase proportion of the overall take-up. €18 occurred in Prague 6 (from 16.4% to €17 €16 25.2%) as a result of the relocation of Taking into consideration the delivery €15 | | | | | | | | anchor tenants to other districts of the first phase of Harfa Office Park Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 (Siemens, Citibank). On the contrary, a – Building Amadeus (19,600 Sqm) ▬ Prime Headline Rent ▬ Prime Net Eﬀective ▬ Average Headline major decrease was recorded in Prague without any pre-leases, the overall 8 (to 15.9%) thanks to recently closed vacancy rate may slightly increase in the transactions (e.g. Deutsche Boerse short-term. Group, Parexel International). A highBUILDINGS UNDER CONSTRUCTION IN PRAGUE vacancy rate remained in Prague 7 We expect the vacancy rate to peak inProject Size Developer Delivery (28.0%) followed by Prague 9 (21.5%). the first half of 2011 and then start toHarfa Office Park 19,600 Lighthouse Group Q1 2011 decline as a consequence ofVN 9 Offices 2,263 MTK Q2 2011 RENTS improvements in net take-up (andMain Point 25,700 PSJ Invest Q3 2011 Prime office headline rents remained absorption of the vacant space).Futurama A3, A4 16,032 Immorent Q4 2011 unchanged in the city centre, where theyLyra Office Building 6,506 Immorent Q4 2011 range between €20.00 to €21.00 Sqm/ The vacancy rate in Prague 4, PragueBudejovicka 3 10,346 Pankrac a.s. Q4 2011 pcm and in the inner city where they 6 and Prague 8 in particular shouldQubix 11,722 S+B Q4 2011 range from €15.00 to €17.50 Sqm/pcm. decline as the recently completed orRivergardens West 19,400 HB Reavis Q1 2012 In outer outer city locations rents vacated space is being/will be leased up.Rohan Business Centre 8,500 Karimpol Q1 2012 increased slightly from €13.00 to €14.50Keystone 5,650 Karlin Group Q1 2012 Sqm/pcm. Vacancy in B-class buildings isCity Green Court 16,876 Skanska Property Q2 2012 expected to grow as tenants continuePalac Krizik II 6,000 Cecopra Q2 2012 As landlords and developers relocating to A-class schemes whereCity West A2 15,236 Finep Q2 2012 continued to provide incentives (rent free they are able to achieve favourable terms periods and fit-out contributions) to both for higher quality. prospective and current tenants, the effective rents stayed on average 10% to Prime headline rents are expected to 15% below the actual headline rent. remain at current levels with effective rents still being up to 15% lower than headline, based on size and terms of the lease contract.Research: Lenka.OleksiakovaColliers.com CollieRS inteRnAtionAl | P. 47
2011 ColliERs REal EstatE REviEw » CZECH REPUBliC INDUSTRIAL MARKET KEY INDUSTRIAL FIGURES OVERVIEW DEMAND Metric Measure The preliminary market data suggest In 2010 leasing activity grew Total Stock 3,691,000 Sqm another record breaking year for the gradually each quarter amounting up to Take-Up 980,000 Sqm industrial property market in the Czech over 980,000 Sqm at the end of the Vacancy 10.4% Republic. year. This represents an increase of Prime Headline Rent €3.60 – 4.00/Sqm/month more than 100% over take-up recorded Source: Colliers International Until now, the market experienced the in 2009. highest level of leasing activity in 2007 when the total take-up reached 904,000 The total take-up figures of 2010 have Sqm. The overall 2010 figures imply that been significantly influenced by the CHANGE IN STOCK OVER TIME (SQM, 000) 3,800 the take-up is likely to exceed 980,000 amount of large transactions. There Source: Colliers International 3,600 Sqm. were 15 transactions exceeding 15,000 Sqm closed in 2010, accounting for 3,400 Demand remains driven by logistic almost 330,000 Sqm of the total take up 3,200 services providers, retailers and the (compared to only 4 such deals signed in 3,000 automotive industry. 2009). Furthermore, over 80% of this 2,800 | | | | | | | | | space was absorbed within the existing Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2009 2009 2009 2009 2010 2010 2010 2010 The overall rate of vacancy keeps vacant premises. falling, however, the reduction of immediately available space is not being 67% of the total take-up was based countervailed by new construction. on new demand only, taking into account TAKE-UP STRUCTURE all new leases, pre-lets or space 4% Relocations from SUPPLY expansions. Renewals formed around B to A Class 56% At least 152,000 Sqm was supplied to 28% of the total activity and the New demand 12% Expansions the industrial property market in the remaining 5% went to companies that course of 2010, with a vast majority of decided to upgrade their space and move the space being pre-let. from older premises to modern A-class 28% Renewals & space. Renegociations The largest completions include the Logistic Terminal in Lovosice developed Most demand traditionally came from by HB Reavis (43,000 Sqm) and a logistic services provides who accounted 28,000 Sqm hall at CTPark Ostrava. for over 40% of the total takeup. TheINDUSTRIAL LEASE TRANSACTIONS logistics sector contributed almost 28%Tenant Size (Sqm) Project Type to total new demand for industrial space Speculative construction was PointParkHOPI s.r.o. 45,800 Prague D1 renewal undertaken but mostly only as a part of and also generated over 70% to all CTPark Bor u formerly pre-let space. Some of the local renewals.CEVA Logistics 26,595 new lease Tachova developers have built warehouse spaceBrembo 25,553 CTPark Ostrava new lease on speculative basis in 2010 but this was€OGATEWarehousing & 23,482 ProLogis Park new lease mostly in regions with low level of ŠtěnoviceDistribution Czech existing industrial stock and low vacancy.TROST AutoService Technik 23,365 Orange Park new lease At least 10,000 Sqm was developedSource: Colliers International speculatively in Eastern Bohemia. At the end of 2010 the total modern industrial stock in the entire Czech Republic stood at 3.69 Mln Sqm. Most of the major developers are willing to offer a build-to-suit solution in new locations, provided that the tenant is a reputable company and ready to sign a lease for at least 5 years (while 7 – 10 year leases are preferred).P. 48 | CollieRS inteRnAtionAl Research: Lenka.Oleksiakova@Colliers.com
2011 ColliERs REal EstatE REviEw » CZECH REPUBliC INDUSTRIAL MARKET VACANCY770,000 22% VACANCY / AVAILABILITY The effective rents remain 10% - 15%700,000 20% Since the beginning of 2010, the lower than the headline rental rates.630,000 18%560,000 16% overall vacancy has declined from 19.5%490,000420,000 14% 12% to the current level of just over 10%. The Rent levels for the mezzanine office350,000 10% decline has been mainly caused by lack space have been in general offered for280,000 8%210,000 6% of new supply combined with high €7.90 - €8.50 per Sqm and month.140,000 4% demand for immediately available However, office space within build-to- 70,000 2% 0 | | | | | | | | | 0% premises. suit solutions and premises build on Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 demand the office rent can go up to ▄ Vacant space (sqm) ▬ Vacancy (%) The current existing available stock €9.50 per Sqm and month. still offer fairly wide choice of solutions for tenants searching for units of up to PROGNOSIS 5,000 Sqm. However, companies New demand for industrial space has RENTS €5.00 wanting to quickly lease a space of 5,000 been growing continuously for the past €4.50 – 9,999 Sqm have only around 15 six quarters, supported by relatively high €4.00 alternatives across the entire country. volume of immediately available modern €3.50 The situation is much worse for space offered at lower rental rates. €3.00 €2.50 Source: Colliers International requirements exceeding 10,000 Sqm as €2.00 | | | | those can currently be accommodated For 2011, it is expected the demand Prague Brno Pilsen Ostrava only in 9 halls. Other than that, users would remain at similar levels. However, may consider B-class properties or wait the lack of immediately available space for a build-to-suit solution. may to some extent limit the real take-up figures. Companies requiring the space TOTAL TAKE-UP (SQM, 000) 1,200 The largest decrease in vacancy has immediately may also look at B-class Source: Colliers International 1,000 been recorded in modern industrial properties instead of waiting for a new 800 projects in western Bohemia where the construction. 600 rate of vacancy declined from 32.1% to 400 200 8.8% in the course of 2010. Another On the other hand larger 0 | | | | | | significant change occurred in Ostrava requirements are likely to initiate new 2005 2006 2007 2008 2009 2010 with the vacancy going down from 26% developments, although these are still to the rate of 13.4%. not likely to be undertaken on speculative basis. RENTS In general, the rents have remained Delivery of at least 250,000 Sqm is stable throughout the year. Slight expected in 2011 with approx. 95,000 increase has been recorded in areas Sqm being already under active where the vacancy has decreased construction. dramatically – such as Pilsen and the D5 highway corridor. As CTP proceeds with the development of their newly acquired Headline rents for requirements land in Cernovicka Terasa a short-term below 5,000 Sqm range between €3.20 increase in vacancy rates is likely to and €4.50, in Prague such space can be occur in Brno at the end of 2011. The leased at around €3.50 - €4.30. construction of new larger facilities at CTPark Brno II., which should Units of over 10,000 Sqm are accommodate the consolidation of CTP’s generally offered at headline rents of existing tenants, will result in the existing around €3.10 - €4.20 depending on space being vacated and offered to new whether the solution is offered within users. existing premises or as a new construction.Research: Lenka.OleksiakovaColliers.com CollieRS inteRnAtionAl | P. 49
2011 ColliERs REal EstatE REviEw » CZECH REPUBliC INVESTMENT MARKET KEY INVESTMENT FIGURES SUMMARY press release, the purchase price is said Metric Measure to reimburse only the debt and interest The investor’s profile has changed Investment Turnover €550 Mln costs currently in place. over the past two years. As we started Prime Office Yield 6.75% - 7.00% to witness in 2009, Czech investors Prime Retail Yield 6.75% started to invest more in actual real PROGNOSIS Prime Industrial Yield 9.50% estate than foreign investment funds. The main reason for the drop in Source: Colliers International Those local investors are focusing on activity over the past two years is the office or retail properties with a strong lack of available prime product in the income profile in established locations Czech Republic. Prior to the credit (i.e. City Empiria). crunch, a lot of investors were focusing on secondary products, which were INVESTMENT VOLUMES (€ MLN) 300 About €550 Mln were invested in trading at more attractive yields and had Source: Colliers International 2010 compared to €400 Mln in 2009. more upside potential. However, as we 225 The number of transactions also previously mentioned, investor’s interest 150 increased from 10 in 2009 to 16 in 2010. has since shifted to prime or sub-prime Another factor that is helping the market products, not necessarily providing high 75 to improve is the fact that some banks returns but providing more secured long 0 | | | | | | | | have started to lend on new acquisitions term income. Also, with prime yields Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2009 2009 2009 2010 2010 2010 2011 again at more reasonable levels (about increasing to 6.75%-7.00%, landlords are 60 to 70% Loan-To-Value). not willing to put their prime assets back on the market, as most of these CPI investments was the most active properties were acquired for lower PRIME YIELDS 12.0% player in the market. During 2010 they yields during the boom times (2006 10.0% closed eight transactions totalling around – 2008). €246 Mln. Their largest transaction was 8.0% the acquisition of the Siemens We do expect investment volumes to 6.0% headquarters in the City West office remain stable in 2011 compared to 2010 4.0% development by Finep. CPI acquired the and the focus of investors to remain on 2.0% | | | | | | | | | | property in December 2010 for a net secured income producing properties, H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 initial yield of about 7.1% and a total lot with a preference for offices in Prague. ▬ Oﬃce ▬ Retail ▬ Industrial size of around €70 Mln. In November Banks will continue to lend on new 2010, the group also acquired the main acquisitions, however, they are now shopping centre in Ceske Budejovice for much more selective in terms of a reported net initial yield of about 7.00% properties and borrowers’ profile.KEY INVESTMENT TRANSACTIONS and a total lot size of around €41 Mln.Deal Value Vendor Purchaser The property also includes about 7,000 Prime yields for well let, centrallyContinental plant inBrandys nad Labem €14 Mln N/A CPI Sqm of office space, which at present located office stock are stable at aroundSiemens - City West, suffers from a high level of vacancy. In 6.75% to 7.00% while yields for €70 Mln Finep CPIPrague office space Prague 2, CPI acquired the Longin secondary stock continue to increaseIGY, retail in CeskeBudejovice €40 Mln GERE CPI Business Centre from Invesco for €29.5 due to a current lack of liquidity andCity Empiria, Prague €72.5 Mln ECM REI Unnamed Mln representing a net initial yield of limited interest in what is considered asoffice space Investor 7.80%. Finally they acquired the riskier product. With the current lack ofMB Retail park, Mlada MB €25.3 Mln CPI Continental warehouse facility in transactions in the retail and logisticBoleslav Property Brandys nad Labem (close to Prague) market, we believe yields for those for €14 Mln and a retail park in Mlada assets to remain stable compared to last Boleslav for €25 Mln. year. The largest transaction that was announced in 2010 was the sale of the Intercontinental hotel to Westmont Hospitality for a reported price of €110 Mln, which equates to about €300,000 per room and a net initial yield of about 4.80% on the EBITDA. According to theP. 50 | CollieRS inteRnAtionAl Research: Lenka.Oleksiakova@Colliers.com
2011 ColliERs REal EstatE REviEw » CZECH REPUBliC CZECH REPUBLIC LEGAL OVERVIEW BASIC FORMS OF TITLE LEASES In the Czech Republic, the most Leases in the Czech Republic are common title to real estate is full freely negotiable but are subject to ownership (“vlastnické právo”), which is certain mandatory provisions of the Civil similar to a “freehold” title and entitles Code and the Act on the Lease and the owner to a full range of perpetual Sublease of Non-Residential Premises. rights to use and enjoy real property. It is These mandatory provisions may not be also possible to use real estate based on varied by contract. The most important (i) an easement (“věcné břemeno”) or (ii) restrictions concern the commencement a lease (“nájemní právo”), which can be of the lease. Recent amendments have either a long-term lease or a lease for an increased contractual freedom in respect indefinite period of time. of leasing non-residential premises. ACqUISITION OF REAL ESTATE BY PRIVATISATION CLAIMS FOREIGNERS There is a comprehensive re- Foreigners who are EU nationals may privatisation law in the Czech Republic acquire commercial real estate directly. and all deadlines for claiming possession The acquisition of residential and have expired. However, certain commercial property by non-EU proceedings may still be pending. These foreigners is only possibly in the case of should be registered in the Cadastral holders of a permanent residency permit Register. or, indirectly, through the establishment of a Czech legal entity such as a limited NOTARIES AND NOTARIAL FEES liability company (“společnost s ručením Legal agreements for the sale of real omezeným”). A foreigner can own 100% estate and the transfer of perpetual of such legal entity. usufruct rights to real estate do not need to be in notarial form in order to be REGISTRATION SYSTEM enforceable in the Czech Republic. It is, In the Czech Republic, there is a however, common practice for a notary, so-called Cadastral Register (“Katastr attorney or local municipalities to verify nemovitostí”). This register shows the the signatures on such agreement/letter. owner of the property in question and also indicates the extent to which the LANGUAGE land is encumbered by mortgages and In order to be enforceable in the other servitudes. Any rights in rem Czech Republic, most legal agreements become effective through registration in to be filed with the Cadastral Register, the Cadastral Register as of the day on Commercial Register or other authority which the application to register a right must be translated into Czech. However, in rem is filed. As a general rule, “good it is common for English or other faith” purchasers of land are entitled to languages to be used as a second rely upon information contained in the language for checking purposes. Cadastral Register, provided that the registration was made after January 1, Information contained in this general outline does not 1993. The Cadastral Register system is constitute a legal opinion and is not meant to be comprehensive. As a result of pending and new legislation, accessible online. laws and regulations change frequently in the Czech Republic and are often subject to varying interpretations. Professional advice should be sought regarding all aspects TRANSFER TAxES of real estate in the Czech Republic. Presently, there is a 3% transfer tax for which the seller is generally liable and for which the purchaser is the guarantor by law. Value Added Tax may also be payable in certain cases upon the transfer of real property. CollieRS inteRnAtionAl | P. 51
2011 ColliERs REal EstatE REviEw » CZECH REPUBliCCZECH REPUBLIC TAX SUMMARY GENERAL TAx DEPRECIATION than six times the equity in the case of As of 1 January 2011, a number of For tax purposes, either straight-line or banks and insurance companies);significant changes to the tax administration reducing balance depreciation can be used. — Financial expenses incurred on creditssystem following the introduction of the new The tax depreciation period for buildings is and loans with interest rates or otherTax Code were made. Further changes are generally 30 years except for administrative returns dependent on the debtor’s profit.anticipated in respect of VAT as of 1 April buildings, shopping centers and hotels where2011. the depreciation period is 50 years. Special Interest on loans and credits received rates apply in the year of acquisition. Land is from unrelated parties, or those secured by a CORPORATE INCOME TAx AND CAPITAL not depreciated for tax purposes. Certain related party, is fully deductible on general GAINS assets attached to a building can be treated principles, except for interest on “back-to- Corporate income tax is levied on profit as separate movable assets for tax purposes back” loans (i.e. where a related partyfrom all activities (including rental incomes) and therefore can be depreciated over a provides a loan, credit or deposit to anand from the management of all types of shorter period. unrelated party, which then provides theproperty, although there are some exceptions funds to the borrower) which is treated asto this rule defined in the tax law. The Special provisions apply for the assets of interest on related party debt.corporate income tax rate is 19% in 2011 solar power plants. These fixed assets must(with the exception of pension and investment be depreciated over 240 months and the Any interest or other expenses relating tofunds where it is 5%). depreciation must be claimed (unlike a non EU or EEA resident lender disallowed depreciation on most other assets). A special under the capitalization rules may be treated Capital gains are generally included in adjustments are made for similar assets as a dividend, i.e. is subject to dividendincome and taxed at the same rate, including acquired under finance leases. withholding tax, as reduced by the provisionsincome from the transfer of shares in Czech of any applicable double taxation agreement.companies or co-operatives. However, if at TAx LOSSESleast 10 per cent of the shares of a company Tax losses can be carried forward for five WITHHOLDING TAxis held by a parent company for 12 months, years. The standard Czech withholding tax rate isincome from sale of the shares is tax exempt 15%. However, the rate can be reduced byif the parent company is a Czech tax resident, Losses may not be carried forward on a double tax treaties.an EU resident company or a resident of substantial change in the ownership of aNorway or Iceland and the subsidiary is tax company unless it can be shown that at least DIVIDENDSresident in an EU Member State or a non EU 80 per cent of the company’s revenues are Withholding tax applies on all dividendsMember State with which the Czech Republic derived from the same activities as those paid by Czech companies.has concluded Double Tax Treaty (subject to carried on in the period when the loss arose.certain conditions). A change of at least 25 per cent in the Under the EU Parent/Subsidiary Directive, ownership of the registered capital or the a dividend paid by a Czech subsidiary to a As of 1 January 2011, the Czech Republic voting rights, or a change resulting in a parent company that is tax resident in an EUhas 77 bilateral double tax treaties. As a rule, person obtaining a controlling influence in the member state may be exempt fromthe right to tax capital gains is conferred on company, is always a substantial change. withholding tax. These provisions also applythe state of residence of the seller. However, to dividends paid between Czech companiesnumber of double tax treaties provides Tax losses are available after a merger or and paid to Switzerland, Norway and Iceland.special regime for the capital gains if the de-merger, although they only can be offset A parent and subsidiary qualify for thisshares being sold derive more than 50% of against profit on the same activity as was exemption if a minimum shareholding of 10%their value directly or indirectly from real carried on in the year when the tax loss is maintained for an uninterrupted period ofestate (e.g. those with Australia, China, arose. 12 months.Cyprus, Egypt, Finland, France, Ireland,Canada, Sweden, USA). In such cases, the THIN CAPITALIZATION INTEREST AND ROYALTIEStaxing right belongs to the state where the The thin capitalization provisions act to Withholding tax applies on interest,real estate is located. In other cases the restrict the deductibility of interest where the royalties and lease payments paid abroad;taxing right belongs to the state of residence borrower has insufficient equity. although the rate is reduced to 5% forof the company whose shares are being sold finance lease payments.(e.g. those with Germany and Israel). The following financial costs are non- deductible: Under the EU Interest and Royalties There are no corporate tax grouping — Financial expenses on loans and credits Directive, qualifying interest and royaltyprovisions in the Czech Republic. received from related parties which are payments between associated enterprises more than four times the equity (or more which are tax resident in the EU memberP. 52 | CollieRS inteRnAtionAl Contact: firstname.lastname@example.org
2011 ColliERs REal EstatE REviEw » CZECH REPUBliCCZECH REPUBLIC TAX SUMMARYstates may be exempt from withholding tax. qualifies as social housing is subject to theThis also applies to recipients in Switzerland, reduced VAT rate. To qualify as socialNorway and Iceland. housing, an apartment should have a floor area of 120 Sqm or less and houses should Residents of other EU and EEA countries not exceed 350 Sqm.have the option to file a tax return in respectof income subject to withholding tax (e.g. The VAT rate on the sale of buildings isinterest payments, royalties, income from generally 20%. The transfer of buildings isfreelance work), and to claim a deduction of exempt from VAT three years after the firstthe related expenses. This may result in a approval for use of the premises or after thereduction in the tax burden as withholding first use of the building.tax is calculated on a gross basis. If the acquisition of a building is subject to REAL ESTATE TAx VAT, this can be recovered if the building will Real estate tax comprises land tax and be used to generate VATable sales. Thebuilding tax. The property must be located in recovery will be limited if it is used to whollythe Czech Republic and recorded in the Land or partly make VAT exempt sales. A changeRegister. The real estate tax is calculated on in the level of exempt sales within 5 years ofthe area multiplied by the tax rate. acquisition may lead to a claw back of previously recovered input VAT. It is expected The rate varies according to the type and that the claw back period will be extended tolocation of the property. The basic rates may 10 years.be increased depending on the number offloors and the location. The transfer of land is VAT exempt except for the transfer of building land which is Starting from 2009, the basic rates of real subject to 20% VAT. The lease of buildingsestate tax doubled for buildings and land, and land is generally VAT exempt but theexcept for arable land, hop fields, vineyards, lessor can opt to charge 20% VAT on a leasegardens, grassland and fishponds for with a tenant which is registered for VAT.intensive fish farming. Municipalities can alsoissue a decree increasing the basic tax rate Groups of related companies can form aor coefficient. VAT group. REAL ESTATE TRANSFER TAx ADMINISTRATION OF TAxES 3% real estate transfer tax is payable on Tax administration is governed mainly bythe transfer of ownership to real estate for the Tax Code with specific proceduresconsideration. Generally the tax is paid by the provided by other acts. The Tax Codetransferor (seller), with the buyer replaced the Administration of Taxes Actguaranteeing the tax. from 2011 and introduces wide range of changes, such as: The tax base is higher of the market value — different rules for deadlines for tax(according to the Valuation Act) or the sales assessments;price. — penalties for late filing of a tax return; — filing additional tax returns with a lower The contribution of real estate to share tax liability or a higher tax loss is onlycapital is exempt from the tax unless the allowed under limited circumstances;contributor sells all shares received within 5 — new rules for tax audits.years. VALUE ADDED TAx The reduced VAT rate is 10% and thestandard rate is 20%. The sale of residential property whichContact: email@example.com CollieRS inteRnAtionAl | P. 53