Czech house prices are set to rise after the announcement of possible changes to local VAT legislation.

In order to encourage growth and development within the real estate market, on entry into the EU the Czech Republic set its VAT on housing construction at just five per cent until 2008.

The country has enjoyed a boom in construction levels over the past four years as many developers have been keen to finish projects ahead of the introduction of a new VAT rate of 19 per cent. As a result, the market has seen a strong growth in the supply of high-quality and attractive residential and commercial property.

However, it is expected that plans to increase the VAT rate after the initial period will lead to a boom in local prices because of further costs involved in building new homes. Therefore, those buyers who have secured property prior to the new VAT reforms in 2008 are likely to enjoy strong capital returns in the long-term as supply becomes limited.

Overseas property investment in the Czech Republic has been particularly strong, especially in the city of Prague. Many investors are attracted by recent relaxing of regulations for foreign ownership as well as changes that have made the process of buying property in the region straightforward for EU citizens.

In addition, the country's highly educated workforce has also helped to develop the Czech Republic's profile as a leading location for many successful international firms, which has helped to ensure ongoing demand for high quality rental properties from local residents.