In many cases, developers finance new residential construction with their own money, but half of residential projects still have to use investment support from other sources. When financing projects, they usually use a combination of two or more options. Three-quarters of developers raise money from bank loans, although the interest rate is the main obstacle for 59 per cent of firms to finance residential construction, while 60 per cent of firms also use financing from private investors. In fewer cases, developers raise money from bonds, grants and crowdfunding. It results from the Study of property development companies for the second half of this year prepared by the analytical company CEEC Research.
“Residential construction is based on private investors. Let us compare their profit with the state’s income from housing construction. If we add up the costs of developers who had to invent everything, mobilise all the capital, arrange the construction from the preparation of the area to the actual implementation of the construction and the marketing costs of delivering the flats to the citizens, their profit is many times less than the state’s income in the form of taxes and levies,” said Štěpán Křeček, economic advisor to the Prime Minister of the Czech Republic and chief economist at BH Securities.
According to the Czech Banking Association’s Hypomonitor, the interest rate dropped to 5.74 percent in September from 5.78 percent in August, the lowest since July 2022. In addition to the amount of the loan itself, 16 percent of developers are concerned about the difficulty of obtaining it, according to the study. This is because they have to meet many conditions such as an independent bank monitoring report on the project or contracted clients.
“The conditions for project financing have undoubtedly tightened. Banks are cautious both in terms of equity in the project and in terms of pre-sales. Banks are also more concerned about the reliability of the general contractor for the construction. However, banks are still interested in quality projects,” said František Šudřich, managing director of Impera Styl. Two thirds of the surveyed companies think that the banking criteria for developers should be eased, 32 percent are satisfied with the current conditions.
Another problem in obtaining financing for a project is finding a suitable investor or investment group willing to invest the necessary capital. According to the study, investment funds, from which 14 per cent of companies draw, are more likely to be a financial source for larger-scale development projects.
However, despite the complications and higher costs, most development companies manage to finance new projects. According to Michal Vacek, executive director of CEEC Research, this is mainly due to the trust of banks and investors in Czech property developers. “Their projects are attractive, interesting for investors and usually located in an area with a long-term high market potential. These developers usually have well-developed business plans, which allows them to quickly secure the necessary capital,” Vacek added.
CEEC Research is an analytical and research company founded in 2005, focusing on the development of selected economic sectors in Central and Eastern Europe. Its studies are currently used by more than 17,000 companies.
Source: CEEC Research and CTK
