In July 2024, the updated construction law came into effect in the Czech Republic. Its primary aim is to reduce bureaucratic hurdles and expedite the process of obtaining building permits. At the same time, stricter requirements for project documentation have been introduced.
Key Changes:
- Developers are now required to prepare a complete set of project documentation before commencing construction. This rule applies not only to large-scale projects but also to private developers.
- The simplified permitting process is expected to shorten preparation times, which the government believes will boost construction activity.
However, stricter documentation requirements increase project preparation costs. Experts estimate these costs could rise by 60–70%, impacting the final price of housing. This creates additional financial pressure on developers and may lead to higher property prices.
Combating Illegal Construction
One of the most pressing issues in the Czech real estate market remains illegal construction. Previously, it was common practice to legalize unauthorized structures retroactively, leading to violations of building standards. The new law has introduced stricter measures to address such cases.
New Measures:
- Fines for illegal construction have been significantly increased, reaching up to 1 million Czech korunas.
- The cost of obtaining permits for legalizing such properties is now four times higher than standard fees.
- If owners fail to address violations or demolish illegal structures voluntarily, forced demolition at their expense may be imposed.
These measures aim to improve compliance with building regulations and enhance the quality of construction. However, they also increase financial burdens for property owners, especially those needing to legalize existing buildings.
Tax Reform in Real Estate
In 2023, the Czech government approved an increase in property tax, which took effect in 2024. This step is intended to boost state budget revenues and offset the costs of tax administration.
Key Changes:
- Property tax has been doubled.
- Additional tax revenue is allocated to the state budget, while municipalities continue to receive their previous share.
Despite the increase, the tax remains relatively low compared to other EU countries. However, owners of commercial properties are likely to pass these additional costs onto tenants, potentially leading to higher rental rates
Outlook and Market Impact
Legislative changes have both positive and potentially negative implications for market participants. On the one hand, simplifying construction processes and improving quality control could lead to increased construction volumes and higher housing standards. On the other hand, additional costs for developers, higher taxes, and stricter legalization requirements may drive up housing prices and slow market growth.
The tax hike, in particular, could affect rental affordability and commercial property costs. Nonetheless, these reforms are an important step toward enhancing the transparency and sustainability of the Czech real estate market.
To adapt successfully to these new conditions, market participants must remain informed about legislative changes and adjust their strategies accordingly.
