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Prosperity announcer announces a problem

Released: 1. 7. 2016
Released in: Development news Ekonomika/Stavebnictví JAN FERENC

Prosperity announcer announces a problem

The building industry, which always. used to announce economic prosperity. (as well as crises) in advance was,. at the turn of last year, facing recession.. Builders’ and real estate experts’. concerns that there will be nothing. to build started coming true.. Exhausting administrative and legal procedures, delaying or ceasing building projects for invalid environmental impact analysis (EIA) and delays in project preparation are the main reasons for building production showing a downswing in the middle of the economic boom at the end of last year and the beginning of this year. Development News has previously quoted the concerns of directors of building companies regarding this situation. Respondents of research based on the regular quarterly analysis of the Czech building industry, which maps the assessment of this year first quarter and building companies’ managers’ expectations for the future only confirm these worries.

WANTING IS NOT ENOUGH
Building production reduced, from January to March 2016, by 8.8% on a year-on-year basis whilst building constructions fell by 9.9% and engineering by 5%. The drop was still evident in April and the building industry reduced its production by 13.7% on a year-on-year basis; building constructions fell by 12.8% and engineering by 15.5%. “This year, I expect that the building industry will continue within an area of stagnation or slight drop, which will be caused by reduced drawings from European funds in comparison with 2015 and a lack of prepared investments. Next year might be showing a phase of a slight growth, providing the EIA issue is solved,” Pavel Pilát, Managing Director at Metrostav, assesses about the situation in the quarterly analysis by the CEEC Research association. “The launching of new investments will require both quality work and time. Another influencing factor is that many projects, mainly spoken about in the area of infrastructure, are not prepared from a project and process point of view to such an extent to actually be able to be realised as scheduled,” František Vaculík, Chairman of the Board at building company PSJ, says and adds: “As for new projects, these lack the concept of further infrastructure development and it seems that even qualified people responsible for the executing of such a concept.”

NUMBER OF PROCUREMENTS REDUCED LAST YEAR
An adverse trend was already signalised by the statistics of development of building procurements in the 2nd half of this year. The number of public procurements reduced in the 3rd quarter of 2015 by 5.8% and in the last quarter by 24.9 %, as measured by their value. Procurements in the private sector were losing 14.9%, or 12%. The number of procurements actually did increase in the 1st quarter by 22.7% on a yearonyear basis but their value was 9.2% lower (in total it fell to CZK 32.6 billion, where approximately 1 : 1 were procurements from building constructions and engineering), where the value in building construction dropped by 6.1% and in engineering by 12%. “I don’t think that demand from the private and public sectors will increase much. On the contrary, there is the threat of a slump of large building constructions caused by the government’s inability to solve the problems with the EIA in time, believes Radoslav Dvořák, Head of INOS Zličín. “Building companies will also face more and more problems with a lack of staff in technical and blue-collar posts.” Even though a majority of directors of building companies expect a slight growth within this segment, the director of S. O. K. stavební, Josef Netík, fears a decline. “The year-on-year index of prices for building work was always, without exception, a positive number, often more than 5%, this being until 2009. Since then, however, prices in the building industry in the Czech Republic declined by approximately 3%. There, I would dare to construct a simplified reflection that a hidden deficit in the level of prices for building work is minimally 10%,” Josef Netík says and continues: “With regards to the fact that such a large price disproportion persists, without the tendency to compare I assume that supply still significantly exceeds demand and the continuing growth of our building sector is thus postponed until latter times.” About 66% of the 113 directors of building companies approached within the framework of inquires by CEEC Research expect slight growth in the building industry. This is less than in the previous quarterly analysis, where 77% of respondents hoped for an improvement. Some 34% of building companies expect a fall whilst in January it was 21%. “The outlook for 2017 indicates a very similar development. Companies only predict a minimal increase to a level of 1.5%,” summarises the CEEC Research.

ASSIGNING PROCUREMENTS STAGNATES
The statistics for public procurements offers slight optimism. This year, there were 805 tenders announced in the 1st quarter of this year, which is about one fifth more than in the same period last year. Their value increased by 3.7% on a year-on-year basis. Nevertheless, when speaking of total value, there were 41.8% less of these announced. Still, directors of planning offices look to the future with more confidence than those in building companies. They believe that the market of project procurements will increase this year by 6.6%; 80% of respondents from the study of CEEC Research agree with the increase. At the same time, 83% expects an increase in the number of procurements from the private sector and 79% of directors from the public sector. Procedures not executed in accordance with the EIA European rules remain an objective hindrance to the growth of the building industry, which will primarily show up in engineering, and yet another obstacle is in the complicated procedure concerning the acquisition of a building permit. This mainly applies to private investors and structures within the segment of building constructions. What should, on the other hand help, are the amendments to the building law and the law on assigning public procurements. Nevertheless, legislative changes will not come into force until the end of the building season. That means that the building industry can, all in all, expect a very slight growth (up to 1% a year) flirting with stagnation. At the same time, directors of medium size and smaller companies agree on 1.3% growth and directors from building companies operating within the area of building constructions estimate 1.7% growth. Large building companies do not expect any significant improvement in the assigning of large projects and their estimates for this year’s growth in the building industry are about 0.2%. This slight improvement should take place within the segment of building constructions. Companies that operate within the engineering field expect a decline in production this year.

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