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Arrested development

Program funding renovation of prefab houses runs out of cash

By Victor Velek
Staff Writer, The Prague Post
October 31st, 2007 issue

Jan Přerovský/THE PRAGUE POST
Roman Doms of the construction firm Revita says that, without much-needed structural repairs, paneláks can pose safety hazards.
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Jan Přerovský/THE PRAGUE POST
Revita's Jinonice project was one of the last to receive state funding.
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A government program dedicated to refurbishing what may be the country’s most visible legacy of communism — the ubiquitous prefab panel houses, called paneláks – has run out of money.
More than one-third of the population lives in 80,000 paneláks pockmarked throughout the country, typically ringing urban centers. This housing, often shoddily built between the late 1950s and mid-1990s, is deteriorating at a rapid speed, much to the alarm of an increasing number of owners.
To hold the line against their deteriorating buildings, homeowners and developers have been tapping into money from the State Fund for Housing Development (SFRB), an agency dedicated to supporting housing infrastructure. But, due to an unexpected surge in demand, the SFRB has stopped accepting applications for its two programs dedicated to panelák reconstruction.
“We’ve had to temporarily stop the programs because we’ve run out of money,” said SFRB head Jan Wagner. This year, there was 1.5 billion Kč ($794 million) earmarked for the programs — all of which was spent months before year’s end.
The withered budget has slowed down the pace of modernization and hit firms active in the industry, such as Revita, a construction company specialized in modernizing paneláks. Half of Revita’s pre-arranged contracts were canceled, said the company’s manager, Jan Kouřimský.
Among the last applicants to receive state aid before the SFRB stopped accepting applications were the owners of a building in Prague’s Jinonice district. The house was built in the 1970s and was in dire need of a facelift, currently being conducted by Revita.
“After complete reconstruction, a panelák can stand some 80 or 90 years before needing another major rejuvenation,” said Revita’s Roman Doms, who is overseeing the Jinonice project.
The SFRB is currently scrambling to keep projects such as Jinonice going by asking the government for an additional 2.8 billion Kč to quench the high demand.
“The Panel Program has finally started to go well,” Wagner said. “We don’t want it to slow down.”
Banking on interest
Through the SFRB program, housing cooperatives, flat-owner associations and individuals can receive bank loans with low interest rates to fund reconstruction. The state covers up to four percentage points of the loan’s interest, which, for a large prefab reconstruction, can save millions of crowns, Wagner said.
However, during the program’s first years after its launch in 2001, it sent only some 200 million or 300 million Kč to panelák owners. That situation changed in 2006, when the fund allocated 1.6 billion Kč, a drastic increase from the year before.
In the beginning, banks were reluctant to lend money to small housing cooperatives and flat-owner associations, by far the most frequent applicants to the program, Wagner explained. “Also, panelák apartment owners were afraid to take large loans,” he said.
The banks changed their position once they saw that loans granted for prefab reconstruction were paying out, Wagner said. And this coincided with owners becoming more mindful of their properties’ future.
“They realized that without reconstruction they would pay a fortune in electricity bills due to poor insulation,” Wagner said. “They also realized that, if they didn’t act, the value of their real estate would rapidly decrease.”
A renovated panelák can double the value of its flats on the real estate market, according to Petr Illetško, CEO of the real estate agency AAAByty.cz.
Nevertheless, modernized paneláks drop in value after a few years once the luster of renovation is lost, he said. And this coincides with the likely decline of demand for flats in paneláks throughout the country over the next few years, as residents continue to move into modern apartment buildings.
“In most of the Czech Republic, the demand for flats in prefab houses is falling,” Illetško said. “Inevitably, they will drop in price.”
Concrete jungle
Paneláks are susceptible to a number of faults. Apart from their infamously poor insulation, Doms’ team at Revita needs to cope with several other typical shortcomings. “Usually, balconies and roofs are in bad shape and panel joints are often coming apart,” he said.
When running a reconstruction, what matters most is the building’s age, Doms said, with “the oldest buildings from the 1950s suffering from the most problems.”
However, even houses less than 30 years old, such as the Jinonice project, can pose serious troubles. This March, for example, a concrete chunk broke off the balcony of a panelák in Liberec, north Bohemia, falling on and seriously injuring a boy. The house was erected in the 1970s.
While demand for paneláks will continue to decline, a mass swap to higher-quality buildings is improbable, and would require 1.5 trillion Kč, according to a government estimate. That means the Czech Republic should not expect to see a mass liquidation of its communist-era concrete dwellings anytime soon, making renovation unavoidable.
“Our programs have helped to modernize 75,000 flats to date,” Wagner said. “If we are granted the extra money, the figure will be pushed to 120,000.”
That would still only be about one-tenth of the total number of the country’s panelák apartments, meaning it will take decades longer to rejuvenate the country’s teeming mass of panel high-rises.

Victor Velek can be reached at vvelek@praguepost.com


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