Buying property abroad is becoming an increasingly popular alternative for domestic investors. In addition to the opportunity to buy a house or apartment in a pleasant holiday destination for your own use, these properties offer a higher rental yield compared to the Czech Republic. In contrast to Prague’s yields of between 3% and 5%, this is between 7% and 11%. However, it can rise to over 20%. However, the complex process of buying a foreign property requires careful consideration of a number of factors affecting both the total investment amount and profitability. It is not only the location or the condition of the property that plays a role, but also legal aspects such as the terms of transfer of ownership, tax obligations, possible restrictions for foreign investors or the amount of subsequent monthly costs. The entire purchase process can therefore be complicated for the individual and the services of professional brokers are therefore invaluable in the case of a real estate investment abroad. Advice on three key areas is provided by the experts at Luxent – Exclusive Properties.
“When acquiring a property abroad, as in the Czech Republic, it is necessary to take into account that the prices offered are quoted without taxes and fees. Therefore, the price is usually not final and it is necessary to find out all the necessary financial expenses. At the same time, owners must take into account the monthly costs for the operation and maintenance of the property,” points out Jesika Schopper, a real estate broker at Luxent – Exclusive Properties, which specializes in real estate in Spain. So what specific aspects should investors take into account in their overall costs?
1. Legalities and costs associated with the transaction
The basic tax on the purchase of a new build varies from country to country, but ranges from around 3% to 11% of the market price. For example, in mainland Spain it is 10%, while for an older property or a subsequent resale, the transfer tax is 7%. In Tenerife, a new build is subject to a 7% tax and a resale to a 6.5% tax. In Croatia, specifically, a 3% tax is paid on the transfer of the property. However, if the client buys from a developer or a company, the tax does not apply, and therefore saves. At the same time, it is necessary to take into account another 3%, which will cover the services of a notary, registration in the land register, collection and assistance of a lawyer. However, if the buyer hires a real estate agency and pays a commission (usually 3 to 5%), he will receive a comprehensive service. The office will take care of these services as well as the whole purchase process, from the search and inspection of the property to the handover of the keys, or even recommendations for services such as property management.
Other country-specific rules cannot be overlooked. When buying a property in Spain, for example, it is also necessary to obtain a so-called NIE (Número de Identificación de Extranjero, or Tax Identification Number) and at the same time open a Spanish bank account. “We can arrange an NIE for our clients for a fee of about 500 Kč (€20) and we will also set up the required bank account. In both cases, we are fully satisfied with the client’s cooperation,” says Jesika Schopper. Veronika Pecková, a real estate agency expert on foreign real estate in Croatia, adds, “The same applies to Croatia, where it is necessary to establish a so-called OIB (Osobni identifikacijski broj), which is like our ID number for natural persons. We provide and fully arrange this service without the need for the client’s personal presence.”
The one-off initial costs also include the amount for furnishing the apartment. “Furnishing the interior is most often dealt with by clients for new builds. The financial amount is usually individual, but the prices are usually similar to ours. For properties on islands, the price is always higher due to transport, for example on Tenerife or Mallorca by up to 20%,” says Jesika Schopper.
“In Croatia, on the other hand, most properties are sold fully furnished, even in the case of new buildings, where developers completely furnish the interior with furniture.”
2. Regular costs
“As in the Czech Republic, there are a number of ongoing costs associated with owning a property. Therefore, it is reasonable to count on around 50% of the net rental income,” calculates Jesika Schopper. Even so, the yield in Spain and Croatia, for example, is between 7% and 11% per annum. “For buyers, this is a good investment with a better return than in the Czech Republic. And if a reputable real estate agency takes care of the whole process, they have everything without too many worries. Of course, they can buy individually, but then it can be much more complicated for them. Especially for buyers who are not very experienced in real estate and are not well equipped with the language,” the broker further explains.
It is definitely necessary to take into account the specific tax burden that is associated with the location. In Croatia, it varies by region, but according to Veronika Pecková, the amounts are similar: “In Dalmatia, for example, it is about 50 CZK per square meter per year. So, for example, a 100 sqm apartment costs about 5,000 CZK/year, which is not a staggering amount.”
In mainland Spain, the annual property tax is calculated on the cadastral value, which is lower than the purchase price. “In Tenerife, the tax is between 0.4% and 1.1%. So for a property sold for 9,840,000 Kč (€400,000), the so-called IBI (Impuesto sobre Bienes Inmuebles, or municipal tax) is around 17,200 Kč (€700),” illustrates Jesika Schopper.
When renting out a property, it is necessary to pay income tax on the rental income at the same time. In Spain as a whole, it is around 19% for EU residents and 24% for others. This is because in mainland Spain it must be paid to some extent even if the owner is not currently renting the property. In the Canary Islands, for example Tenerife, on the other hand, this is not necessary,” points out Jesika Schopper, adding, “Throughout Spain, they also require a wealth tax on more expensive properties and high incomes.”
In Croatia too, landlords as individuals are subject to income tax on the provision of accommodation services in the tourism industry. “They can pay this on a flat-rate basis if their income does not exceed approximately CZK 984,000 (€40,000) per year. However, if they exceed this limit, they are obliged to keep business accounts and pay income tax at the prescribed rates. These are currently 24% and 36%,” comments Veronika Pecková. In each country, it is also necessary to register as a VAT payer if the regulations are met.
Regular costs and community charges cannot be overlooked either. “This includes all monthly costs, such as cleaning, gardening, pool service or sauna maintenance. And if it’s an apartment within a larger complex, for example, expect to pay extra for fitness, garage, reception and so on. The more services, the more the fees logically rise,” says Jesika Schopper.
To illustrate, in Croatia, a luxury villa with a usable area of 300 m2 in Primošten with a purchase price of 36.9 million euros was sold for a price of 1.5 million euros. (€ 1,500,000), the monthly costs amount to around CZK 20,100 (€ 817) per month (see Table 1 at the end). With a realistic estimate of 58% occupancy over the course of the year, a net yield of around CZK 3 270 700 (€ 132 957) can be calculated, i.e. 8.36% (see Table 2).
In the case of a 4-bedroom apartment of 124 m2 on the Costa del Sol in Spain, which is priced at CZK 11,045,000 (€ 449,000), the total cost per month is around CZK 8,730 (€ 355) (see Table 3). The net annual return here could be around CZK 802,500 (€ 32,620), i.e. 6.43% (see Table 4).
Note: Amounts are converted (rounded) at the exchange rate valid as of 6 June 2024: EUR 1 = CZK 24.6.
