Czech construction sector pins hopes on radical changes to building approvals

Photo: Štěpánka Budková

The clock’s ticking down on the current coalition government, so there was something of a celebratory air when one of its milestone pieces of promised legislation got through the lower house of parliament relatively unscathed. The construction law amendment was promised as a fundamental shake-up of a complicated, lengthy, and ultimately costly current process for getting permission to build anything from a new family home to a new motorway or block of flats or offices.

Photo: Štěpánka Budková
Current Czech construction processes are mired in red tape and ample opportunities for offices or third parties to come up with challenges making the paper chase and overall process even longer. International bodies weighing up the local situation and the government itself agreed that things had got so bad that something had to be done.

In fact, the annual ‘Doing Business’ report put together by the World Bank last year had praise for most aspects of the Czech economy. But the plaudits stopped short when construction laws were discussed. This was picked out as the biggest Achilles heel of the Czech economy with positive changes offering the greatest chance of climbing the prestigious and influential international ladder. The Czech Republic had, it was bemoaned, failed to take a page out of the book of neighbouring countries, such as Poland, by simplifying the constructional approval process. As a result, it took more than a third more time than in Poland to go through the building permit process and more than twice as long as in Germany for a fairly simple building such as a warehouse.

The Czech government believes the answer to those criticisms should be found in series of amendments to the existing rules which completed its passage through the lower house of parliament last week. Not surprisingly, many amendments were proposed by it appears that the lawmakers refrained from watering it down or altering it too much. And that was a cause for some jubilation from prime minister Bohuslav Sobotka.

I think we have been able to maintain the basic shape and principles of the new construction law as the government originally proposed.

ʺIt is not possible for such a complicated proposed law to get through parliament easily. I think we have been able to maintain the basic shape and principles of the new construction law as the government originally proposed."

And Minister for Regional Development, Karla Šlechtová, concluded that the final format of the changes was the most that could be hoped for given the many interests and stakeholders involved.

"I believe that for the current coalition government, the proposed construction law which passed its third reading in parliament today, was the maximum that was possible. There are many stakeholders involved in a construction law: developers, government bodies and agencies, regions, and local councils. I think that the consensus on many aspects that was achieved was very positive.ʺ

Minister Šlechtová says the proposed changes should have an impact across the board from the smallest building projects to the major infrastructure developments if national strategic importance.

Karla Šlechtová,  photo: Filip Jandourek
ʺIt’s impossible to say who it will help the most, it will help everybody but in a different way. For small construction projects, for example, instead of seeking a construction permit for a family house it will be possible just to make a so-called declaration. And the lower house of parliament today decided that the time frame for that declaration would be just 15 days, that means that the deadline is cut in half. For big construction companies the overall goal of the amendment is achieved: that is the merger of three existing processes into one. The environment impact assessment, land use approval, and the building approval are now combined in just one process."

Some of the changes mean that it will no longer be necessary to get construction approval for certain house or building extensions or, for example, for new swimming pools or fences as was required in the past. But some of the former problems complicating construction, such as the difficulty of compulsory purchase orders for land, are not ironed out by the latest measure.

And the Czech construction sector as a whole certainly needs a shot in the arm. In contrast to the overwhelming majority of the Czech economy it has hardly rebounded from the recession which started in 2008 in spite of the strong economic growth seen in other sectors. Jiří Vacek is the director of the Prague-based company CEEC Research which provides detailed regular updates of the situation in the Czech, and Slovak, construction sectors as well as forecasts of where the sector is going. He gave this round up of the current situation.

When we look at engineering construction, it’s a fact that the sector is not at all in a good condition.

ʺIf we look at the latest figures for the first two months of the year, we can see that the sector is continuing the downturn of the previous year. At first sight there is no sign of any great change. If we take a more detailed look, which is certainly worthwhile, and divide construction into the two main branches which is engineering construction and building, which means flats, houses, warehouses, and offices, we can see that there is a clear difference in development. For building, we can see that for the last few months things have clearly been getting better. There was a certain stagnation in February but all the previous months showed an improvement. There are more orders for private builders and we can expect that the evolution here will continue to get better. When we look at engineering construction, it’s a fact that the sector is not at all in a good condition. What’s pulling it down is the lack of public tenders and that can be seen in the last two months as well as through the whole of the last year. The slump was marked in 2016 with construction in some areas down by around a quarter. The drop in volume of public tenders was of around 20 percent in 2016.ʺ

Jiří Vacek,  photo: archive of CEEC Research
According to the latest quarterly survey, the outlook for construction across the board is a bit brighter. The whole sector should grow by around 2.7 percent with most of that stemming from the building of flats, houses, offices, and industrial buildings. But the pipeline of public tenders is expected to start flowing more strongly in the second half of the year as well.

CEEC Research’s Vacek says the big drop in preparation of public tenders came in 2015 resulting in the chronic shortfall of tenders last year but there are signs that the preparations restarted again in 2016. One of the factors here is the cyclical nature of European funds with a major rush to spend funds with the closure of one multiannual round of spending in 2014 before its successor got up to speed.

It should also be pointed out that the state, or state agencies, account for around 40 percent of orders in the Czech construction sector, mainly new roads, railways, or other pieces of large infrastructure. If there is a bit drop or freeze in new orders here, then the whole sector will clearly suffer.

Soundings by CEEC Research show that the construction sector’s hopes for the new changes are great. Jiří Vacek again:

The directors of those companies believe that it should be possible to halve those time frames and that is exactly the goal that has been outlined by the minister as well as a result of the new law.

"The whole aim of this law is to make the process more streamlined and simpler. When we asked building sector bosses in our survey what was the average time taken for construction preparations, those in the engineering infrastructure sector said that it was around eight years. For building of flats, houses and offices, it was around four. The directors of those companies believe that it should be possible to halve those time frames and that is exactly the goal that has been outlined by the minister as well as a result of the new law.ʺ

If all goes to plan, the far reaching changes should take effect from January 2018. The construction sector should then see whether it has much firmer foundations to build on.