Petr Malík: The Czech Republic still has some catching up to do in the quality of housing.
The development company Moravská stavební – Invest has focused on the two largest domestic markets – Prague and Brno. “Once we had gained the necessary experience in Prague, especially as regards the needs of the Prague client, we began to move towards central locations. We want to have both central and peripheral locations in our portfolio, so that we cover the whole spectrum of the market. We work with the same philosophy in Brno,” says Chief Financial Officer Petr Malík.
In terms of current projects, is Moravská stavební – Invest more of a Brno or a Prague company?
In terms of the number of projects and apartments, Prague slightly predominates. In Brno we are currently delivering an extensive project of some 250 apartments and 60 family houses, we are completing an apartment building by Lužánky Park with a hundred apartments, and we are preparing further projects to be launched before the end of this year and in 2017. These involve the construction of family houses, an apartment building in the centre of Brno and an extensive office-and-residential complex whose start we plan for the middle of next year.
In Prague we have three apartment-building projects with an office part under way, totalling roughly 350 apartments, and three family-house projects totalling some eighty units. Our intention is to continue to profile ourselves as a development company active in both Prague and Brno.
How many residential projects do you currently have on sale?
One extensive project in Brno and six projects in Prague are under construction. In total that represents around 740 residential units, plus adjoining commercial space (offices and retail) and garage spaces. All the projects mentioned are on sale. Like probably every developer, we launch sales of a project just before construction starts, sell during construction, and sell off the remaining units after final building approval.
Tell us a little about the company’s history. It is no newcomer to the market…
The company has existed since 1998. In that time we have delivered over 3,250 residential units and some 17,400 square metres of retail and office space, and prepared almost 100,000 square metres of land for construction. Our first projects include apartment construction in the Brno – Lesná district and the construction of family houses and apartments in Kuřim near Brno. In 2002 we started our first project in Prague, in Nehvizdy – the construction of family houses and apartments. Since then we have been moving from the peripheral locations towards the centre of Prague. From 2007 to 2011 we were also active in Zlín.
Are you also a construction company?
No, we buy all construction work from external contractors. We operate as a development company: we prepare the project, finance it, supervise construction and sell through our own sales department. We act as investor, manager and general contractor of the projects, hiring external contractors for the individual subcontracts of construction and other work.
What sources do you use to finance development? Do you use bank financing?
Yes. It is common practice in property development. We work with both banks and selected credit unions. In the preparatory phase, up to obtaining the building permit, we finance projects from our own resources. We deliver several projects in cooperation with financial partners from among private investors, particularly projects started in 2015 and 2016. This is due to the rapid growth of our company: after several acquisitions in 2015 we had to reach for alternative sources of financing beyond the group’s own resources. In terms of the volume of work we almost doubled between 2014 and 2015, and in 2016 we expect year-on-year growth of around 20 percent.
Your projects in Bohemia, some of which are already in their second or third phase, used to be concentrated in locations on the edge of Prague. Now you have headed into the centre of the metropolis too – Karlín and Podbaba. Why?
From a strategic point of view, we judged that it would be easier to break in through peripheral locations than to pursue central locations right at the start of our activity in Prague. Once we had built a solid base in Prague as well – that is, become known as a reliable developer and gained the necessary experience, especially with regard to the needs of the Prague client – we began to move towards central locations. We want to have both central and peripheral locations in our portfolio, so that we cover the whole spectrum of the market. We work with the same philosophy in Brno.
What clientele do you target?
In Prague we began with projects for young families – so-called starter homes. We currently offer both cheaper locations and locations aimed at the middle and upper-middle classes. In all segments we place emphasis on the quality of workmanship, and in the more expensive projects we choose a higher standard of fittings. Some clients who bought a starter home from us come back when they need to exchange their first apartment or house for a larger one. We also have a circle of regular clients who buy investment apartments from us – mostly smaller units that they let out. Last but not least, it is worth mentioning that some of our clients are Russian-speaking customers, for whom we set up a dedicated sales department last year.
Do you also sell land?
Yes, in some locations we sell serviced building plots – for example in Prague – Cholupice, Prague – Vinoř, Přezletice and Brno – Bystrc.
Are you interested in locations other than Brno and Prague? What land bank do you have for development projects?
Our focus is exclusively Prague and Brno, including the surrounding areas – that is, locations easily accessible from Prague or Brno.
What shape is the Brno market in at the moment?
Like the Prague market, the Brno market is in good shape from the developer’s – or rather the seller’s – point of view. Sales in Brno in 2015 reached roughly CZK 2.9 billion. Prices rose by around ten percent year on year. At present we have a seller’s market in both Prague and Brno, with demand clearly outstripping supply, which is why prices are rising. Apart from increased interest from buyers, the excess of demand over supply is also caused by a shortage of new apartments. In Brno this is due to uncertainty around the zoning plan, whose update was overturned by a court in spring 2015. The situation in Prague is similar: the proposed new zoning plan was not adopted, leaving us in a position where there is a shortage of land for the construction of new residences. In Prague this is compounded by uncertainty around the building regulations, and in both cases generally by the slowness of the permitting process – obtaining zoning decisions and building permits – in which the Czech Republic ranks among the slower countries in international comparisons. It can therefore be assumed that the situation will not change any time soon, that new apartments will not appear quickly and that prices will continue to rise.
Thanks to your previous positions you personally have property experience in both Western Europe and Russia, where you headed the analytics department of PPF Real Estate Russia. Which of these markets is the Czech Republic closer to?
There is no clear-cut answer. Every country has its specifics. The West is of course ahead when it comes to urban planning. Construction there took place in a more considered way, and the settlements give a more harmonious and orderly impression. As a result they are also more functional.
In the countries of the former Eastern Bloc, by contrast, urban planning did not reach the same level. This was compounded by developments in the 1990s, when these countries seemed to want to catch up on what they had slept through under the previous regime, and rapid, often chaotic construction was unleashed. In some cases it is incomprehensible what was permitted at the time. This was also because the rules were in fact only being finalised during the construction process.
The Czech Republic reflects elements of both the Western world and the East. In terms of the absence of clear rules of the game and uncertainty about future developments we are closer to the Russia I mentioned, but in terms of urban planning and quality of workmanship we are closer to the Western countries.
How do you expect the residential property market to develop in the coming years? Including from a global perspective – the recent financial crisis showed how interconnected economies are…
I assume that the current trend will continue. Compared with nearby developed countries such as Germany, Austria and Switzerland, we have some catching up to do in the quality of housing. By that I mean not only the quality of the apartments and houses themselves, but also the infrastructure associated with them. I had the opportunity, whether for study or work, to spend some time in Germany, Switzerland and the United Kingdom, and compared with the Czech Republic the cities there are arranged more “for people” – I mean public transport, shops and services are more accessible there.
As for the interconnectedness of economies, with reference to the recent financial crisis – it is true that thanks to modern technology, the greater openness of individual countries and people’s increased flexibility, the world is far more interconnected than it was a few decades ago. It is also entirely normal for an economy to go through both periods of growth and periods of decline, which can affect different sectors to different degrees. Nevertheless, I believe that property in a good location will continue to represent a kind of safe haven in uncertain times and will hold its value, or its value will return to the standard level after any decline during a crisis. We witnessed that after the end of the financial crisis I mentioned.
