The decline in construction output in July is due to a low number of orders caused by investors’ uncertainty about the profitability of new projects, agreed analysts polled. According to them, high mortgage lending, inflation, labour shortages and rising construction costs are making building more expensive, leading to lower demand. As a result, real estate prices have stopped rising, so many investors have reconsidered or postponed new projects.
According to data released today by the Czech Statistical Office (ČSÚ), construction output fell by 2.1 per cent year-on-year in July, following a revised 0.9 per cent growth in June. Production in both civil and civil engineering construction fell. On a month-on-month basis, construction output was down 3.8 per cent.
“Low orders remain a problem for the construction industry, which we can see as a result of not only the pressure to curtail or redirect investment, but also the high prices of construction materials, which, although on the face of it are no longer rising, remain high compared to the period in which orders were previously scheduled. Indeed, the weaker interest in building is clearly reflected in the results of building materials producers,” said Creditas Bank’s chief economist Petr Dufek.
The main obstacle for further construction is also the long-term high mortgage loans. According to the Czech Banking Association’s Hypomonitor, the average interest rate on new mortgages was 5.8 percent in July, the lowest since last August. According to Martin Gürtler, an analyst and economist at Komerční banka, the reduction in credit will lead to a renewed rise in property prices.
“In addition, many developers have reduced construction due to weak demand. The limited supply of real estate is not expected to improve. Given the length of the permitting process in the Czech Republic, all indications are that prices will start to rise rapidly again once mortgage rates fall and demand for property recovers,” said Gürtler.
According to analysts, the situation cannot be expected to improve by the end of this year. That could come only in 2024, when a new building law comes into force. The new law is supposed to, among other things, shorten building permit processes. For so-called simple buildings, permits will be issued within 30 days from the date of application. For other constructions, the building authority will have to assess them within 60 days from the date of application.
“Consideration will also be given to reducing interest rates. This will allow new construction production to accelerate. The more capital-intensive companies are counting on this development, so in some cases they are embarking on projects earlier, because they have to take into account the time delay between the start and completion of construction,” said BH Securities economist Štěpán Křeček.
With regard to the current reassessment of investments of companies and households, according to Dufek, the main burden of further development in the construction industry lies also on the public sector, which mainly supplies engineering construction with its orders.
Source: ČSÚ and CTK
