The situation mainly concerns those companies whose business is linked to the construction of apartments and offices. The price fight for contracts is confirmed by the developers themselves: “Right now we are selling apartments in the Výhledy Barrandov II project, which is a contract worth several hundred million crowns. In the tender that we put out, a number of construction companies were willing to go for prices that they would not have accepted before,” explains the owner of the development company Ekospol Evžen Korec. He adds that the discounts are so significant that they enabled the company to set the price of apartments lower than the price average in Prague.
The example of Ekospol is not unique. This is confirmed by data from the analytical company Ceec Research, which conducts a survey of construction companies several times a year. “Two-thirds of construction companies admit that they sometimes even violate their internal guidelines when getting a contract. It is mainly an effort to win an order where there is higher pressure on prices, sometimes even dumping prices are offered or a method of realization in non-standard delivery dates,” explains the operations director of CEEC Research, Petr Ondrášek.
Construction companies still have plenty of work to do thanks to the contracts they contracted in previous years and which they are now building or completing. They are 92 percent occupied. The Moravian developer Trikaya states that, for example, builders still have enough orders in the smaller Brno market. “Postponed projects do not have an influence on price negotiations with us yet,” says construction director Martin Štěpánek.
By the end of the year, however, the situation can change quickly, economists predict a two percent cooling of the Czech construction industry. For example, the head of construction companies Siko Tomáš Vala, whose business also includes the supply of bathrooms for developers, is preparing for this. “Now projects are still being completed, but it is true that the new ones are largely on hold. However, this has not yet been reflected in our deliveries,” Vala explains, adding that he expects a turning point in the second half of the year.
Although Siko has seen a drop in the volume of orders by twenty to thirty percent on the market, this has not yet translated into sales. Expensive gas, which accounts for a third of the value of tiles and paving stones, currently even up to half, drove the price up. According to Vala, over the past two years it has even grown the most of all building materials. While by June Siko had higher sales than in previous years, by the end of the year Vala expects that sales in the Czech Republic and Slovakia will drop by a few percent, but overall they will be driven up by exports.
Metrostav expects pressure on lower prices
Even the largest construction group Metrostav is preparing for a significant cooling. “There is an obvious decline in the private market, especially in residential and administrative construction, and this is subsequently reflected in the entire construction industry. At present, the construction market is showing prolonged inertia. The pressure on the price is constant, but nowadays it is significantly stronger,” says Metrostav spokesperson Radim Mana.
A significant part of developers started suspending their projects already at the end of last year. The reason is primarily the rise in interest rates, which makes project financing more expensive, but also mortgages, due to which the demand for new apartments has cooled significantly. The trend is illustrated by figures from the Czech Statistical Office (ČSÚ) from April. Construction production in building construction, i.e. the construction of apartments, offices and other non-residential premises, in this sector decreased by 5.3 percent year-on-year as of the mentioned month.
However, many developers suspended projects precisely because of the construction companies, which tried to protect their business with inflation clauses at a time of rapidly rising prices. “Construction companies ask for ten percent to twenty percent inflation clauses for the implementation of buildings in a one- to two-year horizon, which is often unacceptable for developers,” J&T Bank economist Petr Sklenář described for E15 some time ago.
The pressure on builders is increasing
In recent months, developers have been letting construction companies know that their bid prices can help start some suspended projects. According to the owner of the development company Central Group, Dušan Kunovský, renewed growth could occur at a time when the price of construction supplies would drop by a tenth compared to last year.
The pressure on builders to come down with prices is increasing. “And we expect even more pressure on the offer price, which often borders on dumping,” admits the CEO of Swietelsky stavební Radim Čáp.
Of course, this will be reflected in the sales of builders, given the ongoing inflation and rising costs, the profits they will make from the projects currently under construction will not be high enough. This could also mean a big problem in the future. “Over time, this will have a negative impact on the economic condition of some construction companies, which will lack funds for technology renewal and personnel development,” warns Čáp.
Multi-cost bet
However, construction companies often have no other choice but to apply for the contract, even knowing that it does not promise a high profit. “Construction companies have considerable fixed costs and they need to spread them out even at the cost of the contract at a lower price. It also often happens that, although they offer a lower price, they make up for it over time with additional costs. Last but not least, the bank financing of construction companies has an effect – an operating loan from banks means that they have to document construction activity so that the funds are not used, for example, to cover liquidity problems,” explains DRFG investment group economist Martin Slaný. He adds that the position of developers is now stronger in relation to construction companies than before.
Builders do not care about the speed at which housing projects are approved by the authorities. In the first four months, building authorities issued eleven percent fewer permits than last year. In addition, last year, a number of construction companies held up contracts for the state. But even he is starting to save significantly.
“The state is still starting investments in infrastructure at the central level, but the volume of regional investments in new buildings and repairs is decreasing. And while until recently the main cause was the effect of inflation on regional budgets, now planned government savings have also added to the decline,” explains Skansky spokesperson Ondřej Šuch.
with the contribution of Adéla Karolyová
2023-06-29 22:22:15
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