Developers protest lending freeze

Representatives from the real estate, construction and development sectors have united to protest tightening loan requirements from banks that have halted funds to the real estate sector. Such increased stringency in lending could lead to a dearth of housing and commercial property and more widespread financial problems over the next three years, the group says.

Thirteen development, real estate and construction firms met in a roundtable discussion May 13 to address the current financing situation for developers' projects and its impact on construction. According to the group, Czech banks have become unreasonably strict in financing construction projects, doubling the required equity for development projects to 40 percent while increasing the interest rate margin from 2 percent to 4 percent. At the same time, banks have doubled the required percentage of pre-sold or pre-leased space in proposed buildings from 20 percent to up to 70 percent. Milorad Miškovič, director of sales and marketing at the Real Estate Karlín Group, who organized the meeting, said that banks' response to the credit crunch was understandable at first, but that it has outlived its usefulness.

"The credit crunch started in August. We believe that enough time has passed for banks to understand that the Prague market for real estate is healthy compared to other Central European countries," he said. "It's not that we have a bad relationship with banks, but they're listening to the bible issued by their mother companies, which aren't differentiating between Central and East European economies."

Getting banks' attention

According to a statement released by the consortium, as many as 7,500 new apartments have annually been built in Prague in the past few years. The latest predictions for 2010 and 2011 show a yearly decrease to about 3,500. According to Kevin Turpin, spokesman for Jones Lang Lasalle, which was also represented at last week's discussion, the supply and demand ratio of the real estate market is heading for a reversal if new projects can't immediately get under way.

"At the moment, vacancies in new offices stand at about 10 percent because of a large amount delivered last year," he said. "But this lack of financing means that, in 2011, we'll be facing an under-supply, and there will be very limited space available unless banks and developers can find common ground."

Kamil Kosman, head of the real estate section of Česká spořitelna, admitted that conditions for developers have become stricter since autumn, when banks began to react to the credit crunch, but said that all banks have the difficult job of catering to their clients while protecting their own liability.

"We are monitoring the situation on the market, and we will adjust our terms and conditions when necessary," he said. "However, we will not be changing them radically at present, although we are working on support solutions for our clients."

Miškovič said he didn't expect any immediate action from Czech banks, but that the purpose of the meeting was to get the attention of banks as well as the state in order to promote a dialogue. He suggested that the state could help developers by taking some of the risk of new building projects in the form of bridge finance, lowered VAT on apartments or by backing commercial loans. Such support would be in the interest of the state, according to the statement released by the group, which says that, at the end of 2008, 488,600 people worked in the Czech construction sector. Due largely to the stringency of banks, construction activity has fallen 11.5 percent year on year, with profits from new projects falling up to 50 percent since 2008. Such falls in activity could lead to widespread unemployment, the group said.

"The situation is unacceptable in the long term, and, if it continues, it will significantly affect other aspects of the economy," said Petr Pujman, director of Metrostav Development.

Kosman said that Česká spořitelna can sympathize with the plight of the developers, but went on to name the conditions that must be met before banks reconsider their caution.

"Until banks are certain that development projects have a sufficient market, they will continue to be cautious," he said. "Essential prerequisites are a restart of the Czech economy, overcoming the recession and more optimistic outlooks for the coming years, so that people and companies are more confident about investing in their future."

Stephan Delbos can be reached at
sdelbos@praguepost.com