Housing market gets boost

The government has approved a bill to guarantee loans for construction companies or individuals to build rental housing throughout the country in a dual effort to boost the frozen construction industry and tackle a nationwide housing shortage.

The bill was passed Nov. 16 and guarantees loans for either up to 70 percent of the cost of construction or 1.5 million Kč ($87,057) per flat for companies building rental apartments. The government has allocated 300 million Kč to be distributed before the end of the year and a further 1 billion Kč to be distributed next year. The money comes directly from the state fund for housing development (SFRB), and the fund loses its money only in the case of default, said Regional Development Minister Rostislav Vondruška.

The loans will be available to any construction company or individual who invests in the construction of rental housing. It may seem unwise to allocate such amounts during a recession year, but the money is only being loaned out, and is expected to be repaid in good time, Vondruška said. The government loans are being offered at a time when construction companies and individual investors are hard pressed to find open credit lines from banking institutions.

"The construction of rental housing will be financed from the resources of legal entities and individuals," Vondruška said. "The budget expenditure of SFRB will be affected only in the case of liability."

Furthermore, the necessity of helping both the dismal state of the construction industry and those struggling to find an affordable flat outweighs the government's need to save money, said Jiří Janeček, city councilor of Prague.

"The aim is to boost investment in the construction of rental apartments," he said. "Its influence also plays into the current economic situation, where people are increasingly unable to obtain housing with their own funds."

The construction sector is struggling to recover from the recession, which caused a 10 percent drop in building permissions awarded by authorities in 2009 and a 5.7 percent drop in the number of new flats, according to the Czech Statistical Office. At the same time, the value of new domestic construction orders is down 26.4 percent compared with the third quarter of 2008. The construction sector is showing the first signs of recovery, but any aid from the government is still appreciated, said Dušan Šťastník, an investment consultant at King Sturge.

"The Czech development market hasn't really changed. There is still a lot of uncertainty, and it is still extremely difficult to secure financing for development projects," he said. "On the other hand, compared with previous months, there are more positive expectations. Some developers and professionals believe they can see the light at the end of the tunnel."

The government loan system comes in response to growing complaints from developers about the difficulty of securing loans to fund new projects. As the recession tightened around the economy earlier this year, there was a virtual freeze on the lending market. Banks refused to lend to developers, who were forced to shelve new projects. The situation requires a paradigm shift in the construction sector, which the loan program - though marginally effective - simply doesn't address, Šťastník said.

"It is still way too early to talk about improvement in the market itself, as a change in market fundamentals rather than the atmosphere is what is necessary," he said. "I don't think this program can really influence the market in general, but, in certain market segments, it can have a positive effect."

The recession has exacerbated a decline in housing construction throughout the country, which has in turn driven up rental prices to record levels, especially in Prague. The average monthly rent for a 200-square-meter apartment in Prague is 68,000 Kč per month, more than double the average salary, according to a recent report from the Global Property Guide, which stated the situation on the Czech housing market is "not sustainable."

According to Miloslav Mašek, director general of the Association of Building Entrepreneurs in the Czech Republic, the country needs to build about 50,000 flats to meet current housing needs. The government's loan program is a good first step, which "could significantly influence the growth of housing," he said, but more needs to be done.

"Economic assistance to improve the construction market is necessary and very welcome," he said. "Most European countries do much more for the construction sector than the Czech Republic does."

- Petr Cibulka Jr. contributed to this report.

Stephan Delbos can be reached at
sdelbos@praguepost.com