Building Industry at the Crossroads

The building industry sector comprises business firms involved in construction and having their headquarters in a territory with predominant construction activity (branch classification of economic activity 45). Construction covers building work, reconstruction, enlargement, renewal, repair and maintenance of permanent and temporary buildings and structures. It also covers the assembly of structures and the built-in materials and constructions.

In 2020, after three strong growth years, Czech building production dropped by 7.7 %, the biggest decrease for the past decade. The key role in this process was played by building construction, whose slowdown (by one-tenth) was the highest since the year 2000. On the other hand, the performance of civil engineering last year declined by a mere 1 %, despite the higher benchmark. This reflects the continuing increase in public investment in transport infrastructure, where investment transfers into the State Fund of Transport Infrastructure (SFDI) rose by 41 %. The flow of money from EU structural funds also showed an increase (+21 %, to CZK 75.8 billion). Also growing is the number of projects under construction, which will call for massive construction of transport infrastructure in 2021. In anticipation of this requirement, a record CZK 127.5 billion has been allocated to transport infrastructure by the SFDI budget.

PUBLIC PROCUREMENT

To mitigate the economic consequences of the pandemic, it is important to prevent any slowing down of preparations for future public procurement. Currently there are 259.7 km of motorways and 1st-class roads under construction, including 127.7 km of motorways on green field sites (D11 Hradec Králové – Jaroměř, D 35 Opatovice – Ostrov, D55 Otrokovice ring road, enlargement of D7 Panenský Týnec ring road), 71 kilometres modernisation of D1 and 61 km of 1st-class

WE ARE PROJECTING THE FUTURE

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roads. Next year, construction will continue at the same rate. In railworks, there is progress on dozens of kilometres of tracks, 60 railway buildings are under reconstruction and 50 km more of tracks are being prepared for reconstruction. Another 170 safer railway crossings will be built in 2021. The long-awaited Olbramovice ring road will be completed in two years, and thousands of vehicles will be shifted to a 3.4 km-long new track. The government has also given its approval to starting preparations for a large project to canalise the Odra River up to Ostrava. The structure is part of the gigantic project to build a Danube-Odra-Labe canal. The section of the Odra River up to Ostrava could be made navigable by the year 2031. The plan provides for large-scale construction of motorways and ring roads, the completion of the D1 motorway, modernisation and construction and reconstruction of railway junctions and corridors, and the further repair of dozens of neglected railway buildings. The plan for 2021 comprises the construction of a number of important projects. The intent is to realise up to 40 new road and motorway structures.

SLOWING DOWN OF NEW CONSTRUCTION

As mentioned before, new construction last year was supported by repairs and modernisation, prompted by the issue of a large number of building permits for making changes on completed structures. On the other hand, a slowdown could be observed in new construction, especially as regards non-residential building. In comparison with 2019, a decline by -8.9 % took place in the construction of new apartments and a drop by -5.4 % in the completion of apartments. Newly started apartment construction was lagging behind, mainly in the second half of last year, while the construction of apartments to be completed at the end of the year accelerated. Although demand is pushing apartment prices up, their construction is slowing down. This, however, is rather an institutional, or bureaucratic problem, which does not allow for more flexible construction in times of booming demand. The number of workers in construction declined by 2.0 % year on year, more than in the 4th quarter (-1.7 %) and the whole of last year (-1.4 %). Large firms (more often engaged in civil engineering) were better off. At the end of the year, they even slightly increased the number of their employees. In December, the average gross wage of an employee in construction was 5.2 % higher, which was 3.5 % more for the whole of last year and nearly 50 % less than in 2019, but nearly twice as much as in industry as a whole. Besides wages, the growth also slowed down in the cost of construction work. In December, these prices were 3.0 % higher year on year, the least for the past two and a half years. Besides labour, cost increases were also noticeable in material inputs, which were strongly subdued last year.

Prospects for 2021 This year´s year-on-year decline in the Czech building industry (by nearly 8 %) is also expected to continue next year, according to most analysts. The uncertainty caused by the pandemic leads businessmen in construction, building firms and developers to suspending and cancelling some of their projects, so that the performance of the sector is expected to decline distinctly also in 2021. Besides firms, investment expenditures are also being cut by local governments, who, fearing the risk of lower tax revenue, will be more cautious in investing and will prefer postponing some of their projects.

FOREIGN CONTRACTS

Foreign contracts were influenced in different ways last year. According to the latest CEEC Research Survey, building companies had to cope with worse working conditions on the part of their workers concerning, for example, their commuting, work on the building sites, etc. (70 %). Three-fifths of the respondents mentioned a slowing down of the process of construction (61 %). Two-fifths of companies were obliged to postpone their delivery terms in the case of foreign contracts, or the contract was cancelled by the investor (39 % each). 26 % of respondents report lesser willingness of foreign investors to invite tenders, and 13 % received fewer foreign orders since the beginning of the Coronavirus crisis. Building companies also report that they had to postpone the delivery terms in 36 % of their total foreign contracts, with 7 % of them being completely cancelled. Nine out of ten building companies also state that the frequently changing and unclear measures complicate the commuting of cross-border workers, which has an impact on the realisation of contracts and filling the production capacity of building companies (91 %). Building production in the EU dropped by 5.3 % year on year between January and November 2020. In most states, the production of building construction decreased more than that of civil engineering. The decline in construction in the Czech Republic (-7.2 %) was slightly higher than in the eurozone countries (-6.1 %), but less than, for example, in Hungary (-9.9 %). In Germany, construction continued to grow (+2.6 %), just as in Denmark, Italy, and the Netherlands, whose building production in November reached the pre-epidemic level (from the beginning of 2020).

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