Construction is thriving also due to the increase in demand for residential building

Prague - Construction production in February recorded a record year-on-year increase according to analysts and construction companies, not only due to the mild winter but also thanks to the growing demand for residential construction and investments in transportation infrastructure. Construction production in February increased by 32.5 percent year-on-year after a growth of 29.2 percent in January.
    The spokesperson for the largest domestic construction company, Skanska CZ, Ondřej Šuch, told ČTK today that Skanska CZ was able to continue construction on the D47 highway in February thanks to the extremely warm weather, where construction work had reportedly been ongoing continuously throughout the winter. According to him, the market is driven by investments in infrastructure, as well as by the growing demand for residential construction.
    There are several reasons for the increase in construction production, according to the spokesperson of Sekyra Group, Radek Polák. "The main reason was undoubtedly the favorable weather. Furthermore, the desire of investors not to unnecessarily prolong the realization of their projects, especially in connection with the uncertainty surrounding discussions about the change in the VAT rate for new housing," Polák stated. According to him, it can be expected that the volume of construction work in the upcoming period will strengthen further, partly because the attractiveness of the Czech Republic, particularly larger domestic cities, is increasing for real estate investors.
    According to Vladimír Pikora, an analyst at Next Finance, the rapid growth of construction is also supported by long-term low and increasingly accessible mortgages, the rise in real average wages, expectations of further property price increases, and the now unreasonable fear of many families regarding higher VAT on construction work related to housing.
    However, according to Pikora, the growth will not be eternal, and the first signs of a slowdown can already be observed. "The number of employees in construction has been declining in the long term. The number of apartments authorized by building authorities is also decreasing. After the January increase in the average floor area of new apartments, we saw a return to lower values in February. While in January the construction of apartments with an average floor area of 139.2 m² was authorized, in February it was 117.3 m²," Pikora stated. Despite the expected rise in mortgage rates, construction production for residential purposes is expected to peak in 2007, according to him.
    In addition to the weather, a lower base from February of last year also influenced the good results of construction growth in February, according to ČSOB analyst Petr Dufek. He also pointed out that the construction sector has been benefiting in recent years from an influx of money into public and private projects. "The construction of transportation infrastructure is probably the most visible, but the construction of apartments is not lagging behind either, which is likely to break its previous record from 2005 this year, when the most apartments were completed since 1993," added Dufek.
    According to Dufek, construction will continue to grow strongly in the coming months. However, the growth of construction production also depends on the Czech Republic's ability to obtain funding from EU infrastructure funds, which is still proving challenging. Very low interest rates are also helping construction by reducing the financing costs for both residential and commercial projects.
    According to analyst Petr Sklenář from Atlantik FT, the very high growth in construction can largely be traced back to the very warm winter, with temperatures four degrees above normal, allowing builders to carry out all construction work, including outdoor tasks, almost without interruption. Moreover, last winter was very cold and snowy, which negatively impacted the results of construction production, so the comparison of these two extreme winters reflects very high year-on-year growth in construction statistics.
    The housing construction boom from the past three years is gradually waning, at least in terms of the number of building permits and commenced constructions, according to Sklenář. He also does not expect a speed-up in the construction of highways, roads, and railways due to tensions in public finances.
    According to Eva Zamrazilová from Komerční banka, the impact of climatic conditions is also confirmed by the fact that land construction grew at an above-average rate, where growth again reached nearly 40 percent. According to Zamrazilová, climatic conditions also supported the growth of construction production in neighboring countries. According to Eurostat, construction production in Poland increased by 60 percent in January, by 20 percent in Slovakia, and by 36 percent in Germany.