Rising prices for energy, materials, jobs and mortgage rates sent the domestic construction sector into crisis, construction production fell by nearly three percent year-on-year in July. The slowdown is not over yet: construction companies, including smaller ones, report a decline in interest in tenders, and, according to the companies, interest from end customers has also cooled further in September, and even lower sales from hobby markets, according to market reps.
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 2.7% year on year in July this year. According to revised data, it grew by 1.5% in June. This is apparent from data from the Czech Statistical Office (ČSÚ). The mitigation is affected, for example, by the increase in construction costs some materials have increased in price by more than 100% year on year. Rising inflation and rising mortgage interest rates are helping to reduce buyer interest.
Kunovský in the Realitní Club podcast: Investors today no longer even want to rent apartments
Property prices, blocked projects, a brutal outflow of customers, but also disproportionately long construction procedures. Not only have these topics been discussed by moderators Petra Jansová and Dalibor Martínek in the next Realitní Club podcast with the largest national developer, founder and owner of the core group Dušan Kunovský.
And the decline continues. “The statistics speak for themselves: the construction market has frozen. Fewer building permits are issued, developers are postponing the start of construction if it is not necessary. They believe that the prices of materials will go down. People put off buying a new apartment for a mortgage. Everyone is waiting to see what happens“said Martin Dozrál, CEO of Solodoor, a manufacturer of interior doors.
People who build themselves have also lost interest
According to Dozrál, market intelligence shows that retail sales are falling across the board in almost all sectors. “There are fewer end customers, we feel that in the hobby markets, where purchases are significantly reduced. The first weeks of 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 decline, despite costly energy. “However, I don’t expect this to have a fundamental effect on the discounting of final 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 slow down first. , then it will stop and then it will also start to get cheaper, “he says.
Manufacturing inflation is already slightly down. The construction sector is facing a downturn
Industry prices continued to rise in August as well, but the pace of price increases slowed compared to the previous month. Manufacturing inflation appears to have peaked, but prices have remained well above pre-Covid levels.
“We are currently experiencing the biggest drop in demand. In November, we will probably be able to reach our standard delivery times again, and then we will see what happens next, “says Michal Ponec, co-owner and head of marketing and development of the South Bohemian family business Betonpres, which produces concrete roof tiles.
“We are preparing variants of plans for different possible models of economic development, including crisis ones. The large building materials chains, which are our main customers, do not want to bring the goods into warehouses because they are worried about the sales they will have.” , says Ponec.
According to him, the main reason is the sharp reduction in demand for the construction of new single-family homes, which occurred due to high inflation and record mortgage interest rates. “The drop in demand is of the order of tens of percent. However, the big builders are still building, as evidenced by the number of building permits issued, for example, for apartment buildings, “Ponec said.
Waiting for a turn
“The situation is unprecedented for us now, but we assume it will partially stabilize next year. We will not have to raise prices at a pace like this year, when we had to raise the prices of higher percentage units several times in a row. Also the loans will have to be reduced so that the economy can restart later. We expect a general reduction in demand and therefore also a reduction in inflation, “he added.
Dušan Kunovský in 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 of newstream.cz will welcome the richest home developer Dušan Kunovský. He listens to the new podcast already on Monday on newstream.cz and on all podcast platforms.
Government measures, which have decided to limit energy prices for businesses as well, are expected to have a positive effect. “The higher price level of materials, products and services is unlikely to return to the pre-war level. We welcome the steps that lead to limiting the negative impact of rising energy prices, will not only bring more peace to the construction market, stabilize the situation and help stop or slow the still unending inflationary spiral,”Previously said Peter Markovič, CEO of Xella for the Czech Republic and Slovakia, which is the producer of Ytong.
According to Markovič, energy prices will remain the main obstacle to faster growth not only in the construction sector, but at the same time avoid significant discounts. However, the situation may gradually calm downbut the higher price level will remain and bring with it, among other things, a drop in demand in the Czech economy next year.
All about inflation
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