The Czech Mortgage Trouble

In Economy on March 29, 2008 by Petr Bokuvka

Imagine you buy an apartment. You sign mortgage papers, you sign all possible contracts and agreements, if you are masochistic you even calculate the amount you will overpay… and then you spend the next ten months living where you live now and you visit the construction site regularly… That is the Czech I-want-my-own-place reality…

If a young Czech single person wants to buy an apartment, he or she has to options: one, to buy an already-existing older apartment and renovate it as necessary and according to his or her idea of a nice place to live, or he or she can look for new residential projects.

He or she considers pros and cons: an older apartment with 3 rooms or a brand new one with just 2 bedrooms? The new one is slightly more expensive, but on the other hand you don’t have to heat up the extra bedroom that he or she is not going to use. The new apartment does not have kitchen furniture and kitchen appliances included in the price. Why? Well, because the people in the target group that buys these apartments usually want to pick and arrange turnkey-made kitchens…

There is also one huge dilemma that Czechs have to face: brick house or a concrete block apartment? If you have ever been to or lived in a former Communist country you must have seen those huge ugly grey apartment buildings. They are still around and many many of them were renovated. But many were not. And the room height is not that satisfactory. And even in a renovated concrete block building you still KNOW it is one. Apartments in these “panelaks” are cheaper. But for what price? You can often hear your neighbor flush a toilet. You can often hear your neighbor use the bathroom… If you are buying an apartment that you will overpay big time, you get terribly picky.

And the issue of mobility: generally speaking Czechs do not like to move very often. It is a tradition that have lasted for generation and if you buy an apartment on your own you probably know that this is the town you want to be burried in.

Big minus: you can’t see the new apartment in real life. With some big exceptions…

The apartments are sold out before the “ground floor” (hallways, garages and extra-fee storage rooms) is finished. The developer needs the money to co-finance the construction. So getting a mortgage for a new apartment means paying for something that does not exist yet.

The advantage of the aforementioned principle is that you can get the apartment for pretty good price. If by any chance any of them remains unsold until the completion stage, the price increases rapidly.

It is good to negotiate on a mortgage in the same bank that lent money to the developer. There is usually a bank that acts as the main financial partner. The bank has the future evaluation of the real estate, it has all necessary paperwork and it controls the progress of the construction (site). So it can save you money.

Of course the expression “save you money” is not very accurate considering the interest the mortgage contract include. So when the bank teller gives you a client-specific calculation, it contains the amount of the installment. What you can do is multiply it by 12 [months] and then by 25 [years]. The result gives you the idea on how much you will actually PAY for your new apartment…



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