The construction industry is looking at better times. There is expected to be high interest in new apartments and investment in transportation projects.

According to data from the Czech Statistical Office, domestic construction has been declining for the last two years. Last year, this was mainly due to a slump in housing construction. Nevertheless, there are several reasons for optimism: the main one is the fact that the construction production has been relatively successful in the last several months. In December, its growth accelerated to 10.8 and in January to 8.2 percent. In the previous months, the mentioned sector showed either very mild strengthening or even drops of 6.5 to 7.5 percentage points, which ultimately led to an overall annual average decrease in production by 1.4 percent.

"The construction industry has a chance for slight growth this year, at least because its production has been decreasing for the last two years,"

confirmed the aforementioned prediction, ČTK economy of Creditas bank Petr Dufek. According to an analyst from Komerční banka, it could result in a strengthening of the sector by almost two percent.

Prodej luxusního mezonetu 4 + 1, Praha, Praha 5

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Digitalization of construction management

However, several questions remain. The first one is the unsuccessful digitization of construction procedures, with whose consequences the construction authorities are still struggling. For illustration: In the second half of last year, the authorities issued only about 35 thousand building permits, which is the lowest semi-annual result for the last 25 years.

By the beginning of April, however, all 652 construction authorities should have the possibility to connect new digital systems with the older ones. The introduction of this bypass, started in mid-January, originally encountered problems due to various system settings, especially the filing service, which prevents widespread connection. Therefore, the supplier of the original systems remotely adjusted the databases and corrected the connection to the filing service.

Nevertheless, there is still uncertainty about how the interconnection of both systems will work in practice, which the owner and head of one of the biggest development companies described succinctly:

"It causes massive chaos,"

said Dušan Kunovský from the company Central Group at the recent Summit of Building Development conference.

However, the hunger for new housing and new projects may also run into other obstacles, especially the lack of staff in building authorities.

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Price increase

The study by Central Group and consulting firm KPMG states that current prices of residential construction have increased by 126 percent compared to 2015. The costs of acquiring land have even increased by 150 percent. All of this is of course reflected in the final prices of apartments.

Just last year, the prices of new apartments in Prague, which represents the largest residential market in the Czech Republic, climbed to historic highs. Selling prices here increased by a tenth to just under 157 thousand crowns per square meter, according to Central Group, Skanska and Trigema. According to them, the final prices will increase by another 5 to 10 percent this year.

"The increase in prices last year was influenced by the inclusion of new, more expensive projects and the increase in prices for some of the projects in the existing offer. The reduction in marketing bonuses and increasing costs for construction and design work also contributed to the price increase. The main reason for the price increase of new apartments in Prague, however, remains the long-term dysfunctional process of approving new construction, which leads to insufficient replenishment of the offer. Combined with high demand, we can expect further growth this year,"

Skanska Residential Chairman Petr Michálek confirmed the trend reported by LP-Life. Kunovský also described problems on the supply side in a press release.

"The supply of new apartments is completely insufficient due to a dysfunctional permit process. As a result, their prices are at least 15 percent more expensive. The state is losing tens of billions of crowns in taxes and fees, this complicates our business and housing is becoming less and less affordable for people. It is completely incomprehensible that the state has been unable to do anything about this for so long."

Luxusní penthouse na Praze 1 - 226m, Praha 1

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Transport construction up to 160 billion

Construction, which is expected to return to growth, however, will not save the residential market. The accelerator is expected to be particularly record construction of transport structures. Investment in them will reach a record 160 billion crowns. The state plans to modernize 47 kilometers of railway lines, open more than 50 kilometers of motorways and start key constructions, such as the Brno - Přerov high-speed line or the line from Prague to Kladno via Václav Havel Airport.

The office space market will then face a deepening shortage due to several years of very low new construction. Conversely, for example, a million square metres of industrial space should be created. Investment activity should also increase. The majority of investments will be made by Czech entrepreneurs, and more foreign capital may also start to return, experts predict.

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Sources: own inquiries, ČTK, Central Group, Summit of Construction Development