The rising prices of energy, materials, works and mortgage rates sent the domestic construction industry into a slump, construction production fell by almost three percent year-on-year in July. The slowdown is still not over – construction companies, including the smaller ones, report a drop in interest in contracts, and what’s more, according to the companies, interest from end customers also cooled even more in September, and lower sales are also reported by hobby markets, according to market representatives.
The slowdown in construction occurred after more than a year of growth. After more than a year of growth, construction production in the Czech Republic fell by 2.7 percent year-on-year in July this year. According to revised data, it grew by 1.5 percent in June. This follows from the data of the Czech Statistical Office (ČSÚ). Attenuation is influenced by rising construction costs, for example some materials rose in price by more than 100 percent year-on-year. Rising inflation and rising mortgage interest rates are contributing to less buyer interest.
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Real estate prices, stopped projects, a brutal outflow of clients, but also disproportionately long construction procedures. Not only these topics were discussed by moderators Petra Jansová and Dalibor Martínek in the next Realitní Club podcast with the largest domestic developer, founder and owner of Central Group Dušan Kunovský.
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And the downturn continues. “The statistics speak clearly: the construction market has frozen. Fewer building permits are being issued, developers are postponing the start of construction if they don’t have to. They believe that the prices of materials will decrease. People postpone the purchase of a new apartment for a mortgage. Everyone is waiting to see what happens,” said Martin Dozrál, CEO of Solodoor, a manufacturer of interior doors.
Even people who build themselves have lost interest
According to Dozrál, market information shows that retail sales are falling cross-sectionally in almost all sectors. “There are fewer end customers, we feel it at hobby markets, where purchases are significantly reduced. The first weeks in September are even worse than the summer months when people were on vacation,” he pointed out.
According to Dozrál, the prices of some materials will gradually decrease, despite expensive energy. “However, I do not expect that this will have a fundamental effect on the discounting of end products, their price will rather be derived from customer demand itself and its decline. If its decline continues at the same pace, the price increase will first slow down, then stop, and then it will also start to become cheaper,” he says.
Manufacturing inflation is already falling slightly. The construction industry is facing a downturn
The rise in prices in industry continued in August as well, but the pace of price increases slowed down compared to the previous month. Manufacturing inflation appears to have peaked, but prices have remained well above pre-Covid levels.
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„We are currently registering the biggest drop in demand. During November, we will probably manage to reach our standard delivery time again, and then we will see what happens next,” says Michal Ponec, co-owner and manager of marketing and development of the family-owned South Bohemian company Betonpres, which produces concrete roof tiles.
“We are preparing variants of plans for several possible models of economic development, including crisis ones. Large building material chains, which are our main customers, do not want to take goods into warehouses because they are worried about the sales they will have,” says Ponec.
According to him, the main reason is the large reduction in demand for the construction of new family homes, which occurred as a result of high inflation and record mortgage interest rates. “The drop in demand is in the order of tens of percent. However, large developers are still building, as evidenced by the number of building permits issued, for example, for apartment buildings,” said Ponec.
Waiting for a turn
„The situation is unprecedented for us now, but we assume that it will partially stabilize next year. We will not have to raise prices at such a pace as this year, when we had to raise prices by higher percentage units several times in a row. Also loans will have to be made cheaper so that the economy can get going again later. We expect an overall reduction in demand and thus also a reduction in inflation,” he added.
Dušan Kunovský in the Realitní Club: Next year there is the biggest drop in interest in the history of the Czech Republic
In the next episode of the Realitní Club podcast, Petra Jansová and Dalibor Martínek from newstream.cz will welcome the richest domestic developer Dušan Kunovský. Listen to the new podcast already on Monday at newstream.cz and all podcast platforms.
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The government’s measures, which decided to cap energy prices for companies as well, should have a positive effect. “The higher price level of materials, products and services will hardly return to the pre-war level. We welcome the steps leading to limiting the negative impact of the rise in energy prices, they will not only bring more peace to the construction market, stabilize the situation and contribute to stopping or slowing down the still-unending inflationary spiral,” said earlier Peter Markovič, CEO of Xella for the Czech Republic and Slovakia, which is the manufacturer of Ytong.
According to Markovič, energy prices will remain the main obstacle to faster growth not only in the construction industry, but at the same time they will prevent significant discounting. However, the situation could gradually calm downbut the higher price level will remain and will bring with it, among other things, a drop in demand across the Czech economy next year.
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