Buildings permitted in the Czech Republic in the past six months have the potential to bring more than CZK 823 billion to the economy. While previously engineering constructions had the greatest benefit, housing construction has recently become the driving force of the construction industry. According to the licensing results, this could pour CZK 308 billion into the Czech economy in the first half of this year alone. It thus contributes more than 37% to the total benefit. This is shown by the current Construction Barometer, which is a new analysis by Central Group and KPMG Czech Republic and, unlike other market analyses, provides a unique perspective on future economic development.
The potential economic benefit of new buildings permitted in the Czech Republic from January to June would exceed 823 billion crowns. This follows from the current Construction Barometer, which is processed twice a year by the largest Czech residential builder Central Group and the international consulting company KPMG Czech Republic. The indicator is part of the wider Semi-Annual Analysis of the construction industry and the housing market, which was presented at the Construction Development Summit in Prague in September.
Compared to the previous half-year, which was a record with a potential benefit of 916 billion, the current value of the Construction Barometer fell by roughly 10%. However, this is still the second highest value for the monitored period. The decline is due to engineering constructions, especially traffic, where the value of construction permits decreased by more than half.
According to the data for the first half of 2022, residential buildings could bring the most money to the Czech economy (CZK 308 billion), followed by non-residential buildings (CZK 269 billion) and engineering structures (CZK 246 billion, of which CZK 129 billion are transport structures) . While last year the driving force behind the construction industry was precisely engineering constructions, now it has clearly become residential buildings.
The potential benefit of residential buildings increased by approx. 2% compared to the previous half-year, but by a record 32% year-on-year to a total of CZK 308 billion. This is shown by the current Housing Construction Barometer, which is part of the Construction Barometer and specifically expresses the housing construction segment.
Housing construction is often underestimated. At the same time, it currently accounts for almost 2/5 of the total value of the Construction Barometer, and in the long term roughly one third, and its potential contribution to the economy is the largest of all segments of the construction industry. The largest share of the Housing Construction Barometer is occupied by residential construction permitted in the Central Bohemian Region (18%), followed by Prague (15%) and the South Moravian Region (14%).
Construction is one of the key industries with a large multiplier effect. However, there is still enormous uncertainty in it due to the unprecedented increase in the price of construction materials, the shortage of workers and, more recently, the skyrocketing energy prices. This is further exacerbated by very expensive loans (the CNB’s base interest rate increased from 0.25% to the current 7% within one year), which fundamentally complicate financing for most companies and the use of mortgages. Construction prices are rising significantly and the deadline for their implementation is often being extended. A number of public and private constructions are now suspended or postponed.
On the one hand, housing construction costs are rising, but on the other hand, sales are slowing down and price growth is slowing down. The reason is mainly the postponement of apartment purchases by those interested in mortgages due to roughly three times higher interest rates compared to last year.
Faster permitting can reduce apartment prices by up to 15%:
There is also great uncertainty regarding the future of new building permits. This is because the effect of the already approved new construction law has been postponed, and the proposed amendment raises a number of serious doubts and may mean further complications for approval processes. Another element of uncertainty is the autumn municipal elections, which in many cases will bring about a change of opinion of the political representation on projects already under discussion.
“Thanks to faster permitting and more construction, new apartments could be up to 15% cheaper. By not being able to put the new construction law into practice, the state is postponing it and changing it unsystematically in many directions, shooting itself ‘in the spine’. It slows down the development of the entire country and loses hundreds of billions in taxes. At the same time, not the developers, but the state is the one who earns the most from the construction of new apartments. From each new apartment in Prague, the state has an average of 1.5 million crowns in VAT alone. And another roughly 250,000 CZK is now newly collected by Prague from ‘voluntary’ contributions from investors. And then everyone is surprised that apartments are so expensive,” says founder and head of Central Group Dušan Kunovský.
The situation in the construction industry will therefore continue to be accompanied by great uncertainty, and the entire sector is very likely to experience a significant slowdown. And that in terms of limiting investments in both the public and private sectors. The key to future development not only in the construction industry, but also in other sectors, will be the extent to which it will be possible to solve the problem of the skyrocketing energy prices and the risk of limiting their supply.
The apartments being prepared in Prague can bring the state over 180 billion in VAT:
At the same time, the construction industry brings hundreds of billions of crowns in taxes to the state budget. Accelerating the approval of new buildings and investment in construction are therefore in the enormous economic interest of the state. For each new apartment in Prague alone, the state receives approximately CZK 1.5 million in VAT alone. More than 134,000 new apartments are being prepared in Prague, which could bring more than CZK 180 billion in VAT to the state.
“The current Barometer of the construction industry shows that constructions permitted in the last six months have the potential to bring 823 billion crowns to the Czech economy. And roughly 308 billion of that is housing construction. According to analyses, more than 134,000 new apartments are in various stages of preparation in Prague. However, they are stuck in the permitting process, where it often takes 10 or more years to process a building permit. Unfortunately, this situation is long-term. The postponement of the effectiveness of the new construction law and the uncertainty in the final version do not contribute to a solution. A pro-development policy is a condition for economic growth, which alone can satisfy the needs of the majority of society,” says economist and partner of KPMG Czech Republic Pavel Kliment.
Author: Central Group and KPMG
Celá Pololetní analýza stavebnictví a trhu bydlení je ke stažení zde:
