winter 2014 SMART...SMART • winter 2014 3M oderate, yet noticeable, optimism can finally be seen...
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SMART Moderate, yet noticeable, optimism is finally seen on the Czech market. Construction | Development | Investment winter 2014
Transcript of winter 2014 SMART...SMART • winter 2014 3M oderate, yet noticeable, optimism can finally be seen...
SMART
Moderate yet noticeable optimism is finally seen on the Czech market
Construction | Development | Investment
winter 2014
MonitoringQ3 2014 Outcome Service 4
Analysis Czech Economy Outlook in 2015 Moderate Optimism 6
Current TopicWhy Is the Forthcoming Amendment to the EIA Act So Terrifying helliphelliphellip8
Series Construction Icons The Gherkin 10
StudyTop 50 European Powers of Construction 2013 helliphelliphellip12
FinanceChanges of VAT in the Real Estate Area under Preparation 14
InterviewThe Czech Construction Forum Plans to Return to Its Roots 16
Obsah
3SMART bull winter 2014
Moderate yet noticeable optimism can finally be seen in the Czech development sector on the investment market as well as in
the construction industry Let us not be ashamed of it after a long period of five years we truly deserve it and have a good reason for it Positive thinking is a very pleasant thing let us enjoy it
In order to keep this optimism going for as long as possible we did our best to make the latest issue of the SMART magazine positive and optimistic For instance the analysis of the Czech economic outlook prepared by David Marek Deloittelsquos chief economist proves that this yearlsquos positive tendency should continue in 2015 with the main parameters being improved or stable
As is typical in the Czech Republic the minister of transport has been replaced again after a year As a result there is slight optimism in the area of infrastructure construction projects since positive change is expected in the coming yearSome indicators of the construction and real estate markets have already demonstrated positive features in the first nine months of the current year see the Outcome Service for Q3 2014 Let us hope that this trend will continue In this issue we are also introducing a new series focusing on modern iconic buildings in the world Some of us would be pleased to have such a building in Prague in the future This is a completely utopian idea given the development plans presented by the municipal authorities at major real estate events yet we would like to remind you in each issue of the SMART magazine that not only Romanesque Renaissance and Art Nouveau buildings but also modern constructions are admired elsewhere
The interview with Antoniacuten Parma an organiser of a successful conference entitled the ldquoCzech Construction Forumrdquo also demonstrates optimistic sentiments The 11th annual forum takes place in March 2015 introducing a number of changes which you should not miss The main objective of this event is to establish a dialog among individual players on the construction market ie developers investors planners construction businesses as well politicians
The current optimistic mood would certainly be much stronger if we did not feel the after-effects of the recent economic crisis and were not slightly nervous of the current geopolitical situation Moreover the Czech
Republic needs to cope with several legislative issues the main one being the amendment to the EIA Act The article by Pavel Novaacutek a member of the Association of Building Entrepreneurs of the Czech Republic (ABE) entitled ldquoWhy is the forthcoming amendment to the EIA Act so terrifyingrdquo discusses the issues that may result from the amendment As such tax and tax legislation are not usually positive either The article by Petr Tukašovskyacute focuses on the forthcoming amendments to VAT including their impacts
SMART is a magazine for real estate and construction managers I believe that the information in this issue will be interesting and largely positive for construction businesses developers and investors of funding bodies alike
I wish you a peaceful and Merry Christmas and a successful New Year full of optimism
Miroslav Linhart Real Estate amp Construction Director at Deloitte Advisory
Let Us Not Be Ashamed of Slightly Optimistic Sentiments
Glossary
Survey
We have asked residential developers What market development is expected in the next year Are you optimistic
Dušan Kunovskyacute owner Central Group
I am optimistic regarding the sale of new apartments There has been a moderate economic recovery mortgages are at a historical minimum and people are tired of the word ldquocrisisrdquo and the unending pessimism
Omar KoleilatCEO Crestyl Group
I am a moderate optimist There has been a noticeable recovery of the residential sector in terms of demand and concurrently there is an evident appetite to increase the supply accordingly
Marek LokajTechnical Director YIT Stavo
A moderate market growth is anticipated in the coming year based on the positive signal of the Czech economy generally good sentiments in society and also the growing interest of clients
Outcome Service for Q3 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
GDP expenses fixed purchase prices
The number of issued building permits
Inflation rate expressed through a CPI increase in the same month in the previous year
Unemployment rate
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
GDP
In the 3Q 2014 GDP net of price and
seasonal effects was almost 24
higher than in the same period of
the previous year This favourable
development predominantly arises from
the manufacturing industry especially
with regard to the production of
transportation means chemicals and
chemical products
InflationThere was a moderate increase in inflation to 07 in October The highest rates of inflation were reported for shoes (79) and food Nevertheless these are noticeably lower values in comparison with previous years In the EU (HICP) inflation fluctuated around 05
Macroeconomic data
Development
4
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Zdroj ČSUacute
Approximate value of issuedpermits in CZK million
The volume of mortgage loans
Q1 Q2 Q3 Q4
5SMART bull winter 2014
Monitoring
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Construction production 2009-2014
Average number of people employed in the construction sector
Average gross monthly salary of individuals
Projects of construction businesses at the end of quarter in CZK billion (bc)
Proportion of public and pri-vate contracts of construction businesses at the end of 3Q 2014 to the aggregate value of domestic projects
Proportion of public and private contracts of construction businesses at the end of 3Q 2014 to the aggregate number of domestic projects
New projects of construction businesses in CZK billion (bc)
Construction industry
In Q3 2014 a real increase in
the construction industry amounted
to 1323 year-on-year There
was a year-on-year drop of 3 in
terms of the number of building
permits issued by Building Offices
The approximate value of issued
permits decreased by 8
Construction industry
Granted public contracts in the third quarter of 2014
Individually In association
Rank Company Number Value in CZK thousand
Number Number of participant
Value in CZK thousand
1 Skanska as 69 4 852 659 19 66 736 142
2 EUROVIA CS as 159 2 986 289 87 270 5 895 328
3 Metrostav as 83 3 816 593 68 215 2 826 889
Listed as an aggregate value of contracts in association not as the companylsquos contribution
Source UacuteRS Praha Czech Statistical Office
Authors Zdeněk Kunc kuncursprahacz Ondřej Zabloudil ozabloudildeloittececom
Note business with 50 and more employees
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Q1 Q2 Q3 Q4
Total projects at the end of quarter
public public
New projects in the quarter ndash inland
Civil construction ndash inland Civil construction
Building construction ndash inland
private private
Building construction
64
44 36
56
6
David Marek Chief Economist at Deloitte dmarekdeloittececom
After two recessions occurring shortly one after another most parameters of the Czech economy improved in 2014 GDP grew at an accelerated pace
unemployment saw a decrease and wages started to grow again The weaker exchange rate of the Czech crown averted deflation The sentiments of households and businesses has noticeably improved Household consumption expenditure as well as corporate investments are on the rise and they represent the main source of GDP growth Last but not least favourable economic development was also boosted by fiscal and monetary policies What is 2015 going to be like
External conditionsIn anticipating the likely short-term development of the Czech economy it is necessary to take into account the situation abroad Owing to the characteristics of the Czech economy as well as a high and constantly increasing GDP-to-export ratio the expected foreign development represents the key input for anticipating domestic development Most significantly the Czech economy is influenced by the Eurozone where 62 of the total export from the Czech Republic is directed The correlation between the GDP of the Czech Republic and the Eurozone has reached 90 in the last 10 years
Optimistic views concerning the future development in the Eurozone have subsided to a certain extent however continuing moderate growth in GDP is still expected The results of an examination performed by the Bloomberg agency indicate that an average growth of 12 is antici-pated Again countries that have higher significance for Czech foreign trade should grow at a faster pace On average anticipated growth in Germany amounts to 14 and an even higher percentage in Slovakia at 28 Other central European countries should also experience satisfac-tory dynamic growth 32 in Poland and 25 in Hungary
Minimal acceleration of GDP growthAll of the components that contribute to GDP use should lead to GDP growth in 2015 accordingly there should be a moderate acceleration of the growth rate amounting to 23
The key contribution shall lead to increased household consumption supported by decreasing unemployment and accelerated growth in real wages Following a reluctance to spend during a period of reces-sion the household savings rate has already decreased and its further decline is not expected
Consumer loans shall not stimulate the degree of consumption and their aggregate volume is being continuously and moderately reduced Real household expenditure increased by 23
Corporate investments should be stimulated by the financial situation in the corporate sector and by closing the output gap ie higher use
of existing production capacities Low interest rates and less stringent loan standards of banks are also positive Larger volume of public funds (from the state budget and the EU funds) should be aimed at invest-ments in infrastructure Gross generation of the fixed capital will rise by 32 in the next year
Net export should benefit from the depreciation of the Czech crown The impact of this measure has not yet been fully projected The reason for this fact is that companies often use financial and natural hedg-ing in terms of foreign exchange risks which decelerates the impacts of foreign exchange changes on the real development of exports and the economy as a whole The contribution of net export to the GDP growth should amount to 07 percentage points in 2015
Unemployment decrease and wage growthFrom the viewpoint of the labour market economic growth will be too slow to reduce unemployment in a significant fashion Total unemployment shall rise up to almost 5 million persons and the unem-ployment rate (based on the methodology of the Czech Statistical Office) shall drop to 59 from its original 61 in 2014 The average unemployment-to-population ratio (calculated using the methodology of the Ministry of Labour and Social Affairs) shall decrease to 70 compared to 77 in 2014 Although further positive tendencies are anticipated on the labour market the basic market indicators will not yet achieve the pre-crisis values The unemployment rate in 2008 reached 44 and the unemployment-to-population ratio amounted to 41
Rising production and demand for labour should result in faster wage growth Nevertheless low inflation should mitigate inflation expecta-tions in negotiations on wages In 2015 the average gross monthly wage shall increase by 29 to CZK 26500 Real increase in average wage should amount to 20
Further increase in foreign trade surplus External economic relation will be mainly affected by two factors development of the economic situation abroad and depreciation of the Czech crown Efficient foreign demand (considering the signifi-cance of individual countries in the export from the Czech Republic) should rise by 16 in the coming year The weakening of the Czech crown by the Czech National Bank in November 2013 will also impact foreign trade in 2015 As a consequence of both of the above factors export from the Czech Republic should experience a rise of 10-11 in 2015 The continuing growth of domestic demand should increase the import of goods by 9-10 This results in a higher trade surplus (in the national context) amounting to CZK 235-240 billion in comparison with CZK 180 billion expected in 2014
For the first time since1993 the Czech economy should achieve a sur-plus in the balance of payments accounts in 2014 which is the key indicator of external economic imbalance This surplus should increase to CZK 90 billion in 2015 ie 19 of GDP
Czech Economy Outlook in 2015 Moderate Optimism
7SMART bull winter 2014
Continuing low inflation Inflation will remain low despite continuing economic growth In 2015 the average inflation of consumer prices should amount to 08 How-ever the total development of the consumer price index is going to be affected (in a downward direction) by the introduction of the third reduced VAT rate for books medicine and baby food as well as a fur-ther decrease in electricity prices for households and an expected decline in food prices
Prices in the Eurozone may have a negative impact on inflationary developments rather slow economic growth along with a decrease in prices of energy and agriculture commodities on markets increase the risk of deflation
No monetary changes A simple scenario is expected in the area of monetary policy Most likely none of the significant parameters is going to change
The Czech National Bankrsquos commitment to keep the exchange rate between the Czech crown and Euro steadily above 270 will be in effect over the whole year Firstly the Czech National bank declares that it is likely to discontinue using the exchange rate as a monetary policy instrument by 2016 Secondly the reaction function model developed for the Czech National Bank implies the need for using a weaker exchange rate in order to achieve the requested monetary conditions while maintaining the basic interest rate of the Czech National Bank at almost zero (005)
The situation concerning interest rates is even simpler It is highly unlikely that the Czech National Bank would modify its monetary-political interest rate during the period in which the monetary commitment is effective Logically this indicates that interest rates will remain unchanged in 2015
However in terms of the rates on the money market and interest swap rates as well as bond yields perceptions on the market will play a significant role on whether the Czech National Bank shall disconti-nue its exchange rate commitment in 2016 and start increasing interest rates Market interest rate could be stimulated by the monetary policy as early as the following year
Fiscal releaseThe government submitted a draft of the state budget for 2015 to the Chamber of Deputies including the following parameters income of CZK 11185 billion expenses of CZK 12185 billion and the resul-ting deficit of exactly CZK 100 billion
In a broader sense the total deficit of the government in the next year should increase to 24 of GDP as opposed to 14 of GDP expected in 2014 Forthcoming legislative changes in 2015 will also be negati-vely projected in the development of public budgets Specifically this relates to introducing the 10 VAT rate applicable to medicine books and baby food which shall result in a decrease in collected taxes of approximately CZK 33 billion with respect to aggregate public funds or CZK 24 billion in the state budget as such The budget will also be burdened with additional adopted measures such as increased tax relief for families with two or more children or returning to the original valorisation pension scheme
Owing to the expected economic growth the regularly-adjusted pri-mary budget balance (exclusive of debt services costs) shall decrease by 14 of GDP which is a fiscal impulse that should accelerate economic growth by approximately 05 percentage points
The governmentrsquos deficit of 24 seems to be too high if we look at analysis on long-term fiscal sustainability If the public debt in relation to GDP were stabilised at the current level (44 of GDP) the defi-cit should not exceed 13 of GDP in the coming year Therefore it would be desirable that the public deficit be stabilised at least at the level achieved in 2013 and 2014 (amounting to 13 and 14 of GDP respectively) As a consequence of increasing the deficit to 24 of GDP the debt in relation to GDP is repeatedly growing which partly negates fiscal consolidation in the previous years
Risks and opportunitiesThe key risk for the Czech economy pertains to developments in the Eurozone in which the long-term growth rate of selected countries was significantly decelerated and may continue to decline with the lack of structural reforms In addition the Eurozone is also exposed to the risk of deflation and the corresponding negative effects
Potential escalation of the situation in Ukraine and Russia as well as imposing additional economic sanctions also pose a risk on economic development Sanctions imposed on Russia influence the Eurozone including the Czech Republic in a retrospective manner
Contrarily low prices of energy commodities could have a positive impact on global economic development During 2014 the cost of the Brent oil declined from USD 105barrel at the beginning of January to USD 73barrel at present A decrease in oil prices of USD 10barrel could boost global economic growth by 010-015 percentage points
8
Why Is the Forthcoming Amendment to the EIA Act So Terrifying
JUDr Pavel Novaacutek novakspsczHead of the Legislation and Legal SectionAssociation of Building Entrepreneurs of the Czech Republic
The amendment to Act No 1002001 Coll on Environmental Impact Assessment the so-called ldquoEIA Actrdquo is to be adopted any day now Unfortunately the original deadline (3 December 2014) for negotiating the amendment was postponed as the Chamber of Deputies was preoc-cupied with the negotiations on their own salaries As a result this issue which is of major importance to the construction industry was suspended
The impulse for adopting the amendment includes an infringement procedure before the European Commission that has criticised the Czech Republic for insufficient projection of the Treaty on the Functioning of the European Union and the relevant directives in Czech law Accelerated negotiations result from the threat that if the amendment does not take effect on 1 January 2015 the European Union will suspend the funding from European funds However requirements of the European Commis-sion exceed the scope of Directive 201192EU and are largely based on the judicature of the Court of Justice of the European Union
We do not know the details of negotiations of the representatives of the Czech Republic with the European Commission The fact is that the proposal contains a lot of changes that will have a major negative impact on the planning and realisation of constructions Impacts on transportation infrastructure and the construction industry will be especially extensive The amendment will complicate procedures in two basic areas
The first area involves procedural steps of administration proceedings and judicial review The amendment has a major impact on the Building Act which rules out the opportunity to connect the impact assessment with construction management The EIA processes are present in all phases of the permission procedure This includes not only the phase of spatial planning zoning decisions and building permits but it also newly involves potential modifications of unfinished buildings before their completion Previous procedures are repeatedly verified in each phase of the construc-tion management which makes the entire procedure significantly longerThe opinion of the Ministry of Labour and Social Affairs and Regional Authorities (environmental divisions) on the EIA documentation presented by the contracting authority is a binding opinion for the subsequent pro-cedure under the Building Act For this reason it is impossible to conduct a proceeding managed by the Construction Office which would involve an EIA process These are two mutually conditioned proceedings Without a binding approval of the EIA it is impossible to terminate a proceeding and issue a decision
The coherence stamp principle is in effect which means regressive verifica-tion of potential changes in all planning and implementation phases zoning decision (vs spatial planning) building permit (vs zoning decision) modification of the construction before completion (vs building permit) etc Putting a complete construction into use may also be blocked under exceptional circumstances
All decisions may be re-examined by the court Filing a claim has suspen-sory effect and subsequent decisions may not come into force without a judicial proceeding to be terminated Nevertheless the amendment includes an to acknowledge suspensory effect if the plaintiff proposes to do so in hisher lawsuit which is logically highly unlikely
The second more significant area relates to expanding the opportunities of the public to affect the process of construction approvals including construction modifications In addition to the ldquopublicrdquo that means any individual or legal person (but also a competitive company for instance) the so-called ldquoconcerned public with considerably wider rights is also introduced The concerned public must be an institution that has existed for three years All of the existing concerned public (Duha Zelenyacute kruh Děti země Jihočeskeacute matky Greenpeace etc) comply with this require-ment If they subsequently enter into a procedure they will become its participants with all rights to file an appeal proposal for a judicial review or a lawsuit at administrative courts The condition enabling the public to participate in a procedure does pertain to the territorial (local) jurisdiction ie the requirement that the specific public is directly affected by the rel-evant building project The public may express its interest in participating in the procedure by presenting a signature list containing 200 signatures which do not need to be certified therefore the real interest of the public is inconclusive In fact there is not even a requirement for the public to explain their views in environmental threads If they claim that the envi-ronment is endangered this statement is not challenged They are not obliged to support their statements with any specialised arguments but administrative bodies must nevertheless address them If all resources for administrative procedures are exhausted the concerned public is entitled to file an appeal against every proceeding This includes a proposal for a judicial review at administration courts which can be repeated for the exact same reasons Although there will be a statutory (and very long) deadline to issue a decision the entire process will be prolonged by a num-ber of months Filing a lawsuit also has suspensory effect in this situation ie it is impossible to initiate the implementation of a building project until the final ruling of the court
Some of the most serious obstacles are predominantly related to invest-ment construction that is largely funded from public sources including the implementation of construction in the interest of the public ie in the interest of the concerned public Such construction projects are quite inclusive covering roads flood control systems constructions with a positive impact on the environment the canalisation of waterways ring roads in cities in order to protect their inhabitants from the influence of transportation etc It is possible that certain permission procedures may be revoked returning certain projects to the phase of project negotiations and unfinished constructions may be discontinued
The concerned public will not need to be distressed as it is naturally not responsible for the financial consequences associated with required measures extensions of deadlines increasing administrative burden for governmental bodies as well as contracting authorities which finally result in irrational use of public funds
9SMART bull winter 2014
The proposed amendment is largely attributed to non-governmental organisations that have a more influential position in the European institutions as well as in the Chamber of Deputies than representatives of the state administration
In this respect we would like to draw your attention to the fact that we cast no doubt upon the right of the public to have qualified and completed information regarding the influence of the negotiated project on the environment However we have justifiable con-cerns that this will give various lobbying groups who often have nothing to do with environmental protec-tion room to put up further obstacles and file bullying lawsuits
The government has promised that this situation is only temporary Concurrently it has initiated work on a completely new legal regulation that should simplify and accelerate individual processes The Ministry of the Environment cannot exceed the limits of the nego-tiated amendment which is not even included in the governmentrsquos Legislative work plan for 2015
We are not optimistic that the new act is going to introduce significant modifications of environmental project assessment and unblock further implementation of investment projects There is a risk that various inter-est groups will influence the preparation of the new act in order to formulate requirements that will exceed the scope of the European directive Our concerns arise from the fact that the Czech Republic did not use the opportunity defined in European directives to adjust the relevant requirements in line with the national law If more-stringent criteria were set exceeding the scope of European directives all participants would have been more limited in the construction process
If the key objective is not achieved (ie connecting the environmental impact assessment with the pro-cedural steps regarding construction permits) and the approach of the concerned public is not managed in an appropriate manner the obstacles that have a major negative effect on investment construction will remain
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
MonitoringQ3 2014 Outcome Service 4
Analysis Czech Economy Outlook in 2015 Moderate Optimism 6
Current TopicWhy Is the Forthcoming Amendment to the EIA Act So Terrifying helliphelliphellip8
Series Construction Icons The Gherkin 10
StudyTop 50 European Powers of Construction 2013 helliphelliphellip12
FinanceChanges of VAT in the Real Estate Area under Preparation 14
InterviewThe Czech Construction Forum Plans to Return to Its Roots 16
Obsah
3SMART bull winter 2014
Moderate yet noticeable optimism can finally be seen in the Czech development sector on the investment market as well as in
the construction industry Let us not be ashamed of it after a long period of five years we truly deserve it and have a good reason for it Positive thinking is a very pleasant thing let us enjoy it
In order to keep this optimism going for as long as possible we did our best to make the latest issue of the SMART magazine positive and optimistic For instance the analysis of the Czech economic outlook prepared by David Marek Deloittelsquos chief economist proves that this yearlsquos positive tendency should continue in 2015 with the main parameters being improved or stable
As is typical in the Czech Republic the minister of transport has been replaced again after a year As a result there is slight optimism in the area of infrastructure construction projects since positive change is expected in the coming yearSome indicators of the construction and real estate markets have already demonstrated positive features in the first nine months of the current year see the Outcome Service for Q3 2014 Let us hope that this trend will continue In this issue we are also introducing a new series focusing on modern iconic buildings in the world Some of us would be pleased to have such a building in Prague in the future This is a completely utopian idea given the development plans presented by the municipal authorities at major real estate events yet we would like to remind you in each issue of the SMART magazine that not only Romanesque Renaissance and Art Nouveau buildings but also modern constructions are admired elsewhere
The interview with Antoniacuten Parma an organiser of a successful conference entitled the ldquoCzech Construction Forumrdquo also demonstrates optimistic sentiments The 11th annual forum takes place in March 2015 introducing a number of changes which you should not miss The main objective of this event is to establish a dialog among individual players on the construction market ie developers investors planners construction businesses as well politicians
The current optimistic mood would certainly be much stronger if we did not feel the after-effects of the recent economic crisis and were not slightly nervous of the current geopolitical situation Moreover the Czech
Republic needs to cope with several legislative issues the main one being the amendment to the EIA Act The article by Pavel Novaacutek a member of the Association of Building Entrepreneurs of the Czech Republic (ABE) entitled ldquoWhy is the forthcoming amendment to the EIA Act so terrifyingrdquo discusses the issues that may result from the amendment As such tax and tax legislation are not usually positive either The article by Petr Tukašovskyacute focuses on the forthcoming amendments to VAT including their impacts
SMART is a magazine for real estate and construction managers I believe that the information in this issue will be interesting and largely positive for construction businesses developers and investors of funding bodies alike
I wish you a peaceful and Merry Christmas and a successful New Year full of optimism
Miroslav Linhart Real Estate amp Construction Director at Deloitte Advisory
Let Us Not Be Ashamed of Slightly Optimistic Sentiments
Glossary
Survey
We have asked residential developers What market development is expected in the next year Are you optimistic
Dušan Kunovskyacute owner Central Group
I am optimistic regarding the sale of new apartments There has been a moderate economic recovery mortgages are at a historical minimum and people are tired of the word ldquocrisisrdquo and the unending pessimism
Omar KoleilatCEO Crestyl Group
I am a moderate optimist There has been a noticeable recovery of the residential sector in terms of demand and concurrently there is an evident appetite to increase the supply accordingly
Marek LokajTechnical Director YIT Stavo
A moderate market growth is anticipated in the coming year based on the positive signal of the Czech economy generally good sentiments in society and also the growing interest of clients
Outcome Service for Q3 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
GDP expenses fixed purchase prices
The number of issued building permits
Inflation rate expressed through a CPI increase in the same month in the previous year
Unemployment rate
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
GDP
In the 3Q 2014 GDP net of price and
seasonal effects was almost 24
higher than in the same period of
the previous year This favourable
development predominantly arises from
the manufacturing industry especially
with regard to the production of
transportation means chemicals and
chemical products
InflationThere was a moderate increase in inflation to 07 in October The highest rates of inflation were reported for shoes (79) and food Nevertheless these are noticeably lower values in comparison with previous years In the EU (HICP) inflation fluctuated around 05
Macroeconomic data
Development
4
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Zdroj ČSUacute
Approximate value of issuedpermits in CZK million
The volume of mortgage loans
Q1 Q2 Q3 Q4
5SMART bull winter 2014
Monitoring
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Construction production 2009-2014
Average number of people employed in the construction sector
Average gross monthly salary of individuals
Projects of construction businesses at the end of quarter in CZK billion (bc)
Proportion of public and pri-vate contracts of construction businesses at the end of 3Q 2014 to the aggregate value of domestic projects
Proportion of public and private contracts of construction businesses at the end of 3Q 2014 to the aggregate number of domestic projects
New projects of construction businesses in CZK billion (bc)
Construction industry
In Q3 2014 a real increase in
the construction industry amounted
to 1323 year-on-year There
was a year-on-year drop of 3 in
terms of the number of building
permits issued by Building Offices
The approximate value of issued
permits decreased by 8
Construction industry
Granted public contracts in the third quarter of 2014
Individually In association
Rank Company Number Value in CZK thousand
Number Number of participant
Value in CZK thousand
1 Skanska as 69 4 852 659 19 66 736 142
2 EUROVIA CS as 159 2 986 289 87 270 5 895 328
3 Metrostav as 83 3 816 593 68 215 2 826 889
Listed as an aggregate value of contracts in association not as the companylsquos contribution
Source UacuteRS Praha Czech Statistical Office
Authors Zdeněk Kunc kuncursprahacz Ondřej Zabloudil ozabloudildeloittececom
Note business with 50 and more employees
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Q1 Q2 Q3 Q4
Total projects at the end of quarter
public public
New projects in the quarter ndash inland
Civil construction ndash inland Civil construction
Building construction ndash inland
private private
Building construction
64
44 36
56
6
David Marek Chief Economist at Deloitte dmarekdeloittececom
After two recessions occurring shortly one after another most parameters of the Czech economy improved in 2014 GDP grew at an accelerated pace
unemployment saw a decrease and wages started to grow again The weaker exchange rate of the Czech crown averted deflation The sentiments of households and businesses has noticeably improved Household consumption expenditure as well as corporate investments are on the rise and they represent the main source of GDP growth Last but not least favourable economic development was also boosted by fiscal and monetary policies What is 2015 going to be like
External conditionsIn anticipating the likely short-term development of the Czech economy it is necessary to take into account the situation abroad Owing to the characteristics of the Czech economy as well as a high and constantly increasing GDP-to-export ratio the expected foreign development represents the key input for anticipating domestic development Most significantly the Czech economy is influenced by the Eurozone where 62 of the total export from the Czech Republic is directed The correlation between the GDP of the Czech Republic and the Eurozone has reached 90 in the last 10 years
Optimistic views concerning the future development in the Eurozone have subsided to a certain extent however continuing moderate growth in GDP is still expected The results of an examination performed by the Bloomberg agency indicate that an average growth of 12 is antici-pated Again countries that have higher significance for Czech foreign trade should grow at a faster pace On average anticipated growth in Germany amounts to 14 and an even higher percentage in Slovakia at 28 Other central European countries should also experience satisfac-tory dynamic growth 32 in Poland and 25 in Hungary
Minimal acceleration of GDP growthAll of the components that contribute to GDP use should lead to GDP growth in 2015 accordingly there should be a moderate acceleration of the growth rate amounting to 23
The key contribution shall lead to increased household consumption supported by decreasing unemployment and accelerated growth in real wages Following a reluctance to spend during a period of reces-sion the household savings rate has already decreased and its further decline is not expected
Consumer loans shall not stimulate the degree of consumption and their aggregate volume is being continuously and moderately reduced Real household expenditure increased by 23
Corporate investments should be stimulated by the financial situation in the corporate sector and by closing the output gap ie higher use
of existing production capacities Low interest rates and less stringent loan standards of banks are also positive Larger volume of public funds (from the state budget and the EU funds) should be aimed at invest-ments in infrastructure Gross generation of the fixed capital will rise by 32 in the next year
Net export should benefit from the depreciation of the Czech crown The impact of this measure has not yet been fully projected The reason for this fact is that companies often use financial and natural hedg-ing in terms of foreign exchange risks which decelerates the impacts of foreign exchange changes on the real development of exports and the economy as a whole The contribution of net export to the GDP growth should amount to 07 percentage points in 2015
Unemployment decrease and wage growthFrom the viewpoint of the labour market economic growth will be too slow to reduce unemployment in a significant fashion Total unemployment shall rise up to almost 5 million persons and the unem-ployment rate (based on the methodology of the Czech Statistical Office) shall drop to 59 from its original 61 in 2014 The average unemployment-to-population ratio (calculated using the methodology of the Ministry of Labour and Social Affairs) shall decrease to 70 compared to 77 in 2014 Although further positive tendencies are anticipated on the labour market the basic market indicators will not yet achieve the pre-crisis values The unemployment rate in 2008 reached 44 and the unemployment-to-population ratio amounted to 41
Rising production and demand for labour should result in faster wage growth Nevertheless low inflation should mitigate inflation expecta-tions in negotiations on wages In 2015 the average gross monthly wage shall increase by 29 to CZK 26500 Real increase in average wage should amount to 20
Further increase in foreign trade surplus External economic relation will be mainly affected by two factors development of the economic situation abroad and depreciation of the Czech crown Efficient foreign demand (considering the signifi-cance of individual countries in the export from the Czech Republic) should rise by 16 in the coming year The weakening of the Czech crown by the Czech National Bank in November 2013 will also impact foreign trade in 2015 As a consequence of both of the above factors export from the Czech Republic should experience a rise of 10-11 in 2015 The continuing growth of domestic demand should increase the import of goods by 9-10 This results in a higher trade surplus (in the national context) amounting to CZK 235-240 billion in comparison with CZK 180 billion expected in 2014
For the first time since1993 the Czech economy should achieve a sur-plus in the balance of payments accounts in 2014 which is the key indicator of external economic imbalance This surplus should increase to CZK 90 billion in 2015 ie 19 of GDP
Czech Economy Outlook in 2015 Moderate Optimism
7SMART bull winter 2014
Continuing low inflation Inflation will remain low despite continuing economic growth In 2015 the average inflation of consumer prices should amount to 08 How-ever the total development of the consumer price index is going to be affected (in a downward direction) by the introduction of the third reduced VAT rate for books medicine and baby food as well as a fur-ther decrease in electricity prices for households and an expected decline in food prices
Prices in the Eurozone may have a negative impact on inflationary developments rather slow economic growth along with a decrease in prices of energy and agriculture commodities on markets increase the risk of deflation
No monetary changes A simple scenario is expected in the area of monetary policy Most likely none of the significant parameters is going to change
The Czech National Bankrsquos commitment to keep the exchange rate between the Czech crown and Euro steadily above 270 will be in effect over the whole year Firstly the Czech National bank declares that it is likely to discontinue using the exchange rate as a monetary policy instrument by 2016 Secondly the reaction function model developed for the Czech National Bank implies the need for using a weaker exchange rate in order to achieve the requested monetary conditions while maintaining the basic interest rate of the Czech National Bank at almost zero (005)
The situation concerning interest rates is even simpler It is highly unlikely that the Czech National Bank would modify its monetary-political interest rate during the period in which the monetary commitment is effective Logically this indicates that interest rates will remain unchanged in 2015
However in terms of the rates on the money market and interest swap rates as well as bond yields perceptions on the market will play a significant role on whether the Czech National Bank shall disconti-nue its exchange rate commitment in 2016 and start increasing interest rates Market interest rate could be stimulated by the monetary policy as early as the following year
Fiscal releaseThe government submitted a draft of the state budget for 2015 to the Chamber of Deputies including the following parameters income of CZK 11185 billion expenses of CZK 12185 billion and the resul-ting deficit of exactly CZK 100 billion
In a broader sense the total deficit of the government in the next year should increase to 24 of GDP as opposed to 14 of GDP expected in 2014 Forthcoming legislative changes in 2015 will also be negati-vely projected in the development of public budgets Specifically this relates to introducing the 10 VAT rate applicable to medicine books and baby food which shall result in a decrease in collected taxes of approximately CZK 33 billion with respect to aggregate public funds or CZK 24 billion in the state budget as such The budget will also be burdened with additional adopted measures such as increased tax relief for families with two or more children or returning to the original valorisation pension scheme
Owing to the expected economic growth the regularly-adjusted pri-mary budget balance (exclusive of debt services costs) shall decrease by 14 of GDP which is a fiscal impulse that should accelerate economic growth by approximately 05 percentage points
The governmentrsquos deficit of 24 seems to be too high if we look at analysis on long-term fiscal sustainability If the public debt in relation to GDP were stabilised at the current level (44 of GDP) the defi-cit should not exceed 13 of GDP in the coming year Therefore it would be desirable that the public deficit be stabilised at least at the level achieved in 2013 and 2014 (amounting to 13 and 14 of GDP respectively) As a consequence of increasing the deficit to 24 of GDP the debt in relation to GDP is repeatedly growing which partly negates fiscal consolidation in the previous years
Risks and opportunitiesThe key risk for the Czech economy pertains to developments in the Eurozone in which the long-term growth rate of selected countries was significantly decelerated and may continue to decline with the lack of structural reforms In addition the Eurozone is also exposed to the risk of deflation and the corresponding negative effects
Potential escalation of the situation in Ukraine and Russia as well as imposing additional economic sanctions also pose a risk on economic development Sanctions imposed on Russia influence the Eurozone including the Czech Republic in a retrospective manner
Contrarily low prices of energy commodities could have a positive impact on global economic development During 2014 the cost of the Brent oil declined from USD 105barrel at the beginning of January to USD 73barrel at present A decrease in oil prices of USD 10barrel could boost global economic growth by 010-015 percentage points
8
Why Is the Forthcoming Amendment to the EIA Act So Terrifying
JUDr Pavel Novaacutek novakspsczHead of the Legislation and Legal SectionAssociation of Building Entrepreneurs of the Czech Republic
The amendment to Act No 1002001 Coll on Environmental Impact Assessment the so-called ldquoEIA Actrdquo is to be adopted any day now Unfortunately the original deadline (3 December 2014) for negotiating the amendment was postponed as the Chamber of Deputies was preoc-cupied with the negotiations on their own salaries As a result this issue which is of major importance to the construction industry was suspended
The impulse for adopting the amendment includes an infringement procedure before the European Commission that has criticised the Czech Republic for insufficient projection of the Treaty on the Functioning of the European Union and the relevant directives in Czech law Accelerated negotiations result from the threat that if the amendment does not take effect on 1 January 2015 the European Union will suspend the funding from European funds However requirements of the European Commis-sion exceed the scope of Directive 201192EU and are largely based on the judicature of the Court of Justice of the European Union
We do not know the details of negotiations of the representatives of the Czech Republic with the European Commission The fact is that the proposal contains a lot of changes that will have a major negative impact on the planning and realisation of constructions Impacts on transportation infrastructure and the construction industry will be especially extensive The amendment will complicate procedures in two basic areas
The first area involves procedural steps of administration proceedings and judicial review The amendment has a major impact on the Building Act which rules out the opportunity to connect the impact assessment with construction management The EIA processes are present in all phases of the permission procedure This includes not only the phase of spatial planning zoning decisions and building permits but it also newly involves potential modifications of unfinished buildings before their completion Previous procedures are repeatedly verified in each phase of the construc-tion management which makes the entire procedure significantly longerThe opinion of the Ministry of Labour and Social Affairs and Regional Authorities (environmental divisions) on the EIA documentation presented by the contracting authority is a binding opinion for the subsequent pro-cedure under the Building Act For this reason it is impossible to conduct a proceeding managed by the Construction Office which would involve an EIA process These are two mutually conditioned proceedings Without a binding approval of the EIA it is impossible to terminate a proceeding and issue a decision
The coherence stamp principle is in effect which means regressive verifica-tion of potential changes in all planning and implementation phases zoning decision (vs spatial planning) building permit (vs zoning decision) modification of the construction before completion (vs building permit) etc Putting a complete construction into use may also be blocked under exceptional circumstances
All decisions may be re-examined by the court Filing a claim has suspen-sory effect and subsequent decisions may not come into force without a judicial proceeding to be terminated Nevertheless the amendment includes an to acknowledge suspensory effect if the plaintiff proposes to do so in hisher lawsuit which is logically highly unlikely
The second more significant area relates to expanding the opportunities of the public to affect the process of construction approvals including construction modifications In addition to the ldquopublicrdquo that means any individual or legal person (but also a competitive company for instance) the so-called ldquoconcerned public with considerably wider rights is also introduced The concerned public must be an institution that has existed for three years All of the existing concerned public (Duha Zelenyacute kruh Děti země Jihočeskeacute matky Greenpeace etc) comply with this require-ment If they subsequently enter into a procedure they will become its participants with all rights to file an appeal proposal for a judicial review or a lawsuit at administrative courts The condition enabling the public to participate in a procedure does pertain to the territorial (local) jurisdiction ie the requirement that the specific public is directly affected by the rel-evant building project The public may express its interest in participating in the procedure by presenting a signature list containing 200 signatures which do not need to be certified therefore the real interest of the public is inconclusive In fact there is not even a requirement for the public to explain their views in environmental threads If they claim that the envi-ronment is endangered this statement is not challenged They are not obliged to support their statements with any specialised arguments but administrative bodies must nevertheless address them If all resources for administrative procedures are exhausted the concerned public is entitled to file an appeal against every proceeding This includes a proposal for a judicial review at administration courts which can be repeated for the exact same reasons Although there will be a statutory (and very long) deadline to issue a decision the entire process will be prolonged by a num-ber of months Filing a lawsuit also has suspensory effect in this situation ie it is impossible to initiate the implementation of a building project until the final ruling of the court
Some of the most serious obstacles are predominantly related to invest-ment construction that is largely funded from public sources including the implementation of construction in the interest of the public ie in the interest of the concerned public Such construction projects are quite inclusive covering roads flood control systems constructions with a positive impact on the environment the canalisation of waterways ring roads in cities in order to protect their inhabitants from the influence of transportation etc It is possible that certain permission procedures may be revoked returning certain projects to the phase of project negotiations and unfinished constructions may be discontinued
The concerned public will not need to be distressed as it is naturally not responsible for the financial consequences associated with required measures extensions of deadlines increasing administrative burden for governmental bodies as well as contracting authorities which finally result in irrational use of public funds
9SMART bull winter 2014
The proposed amendment is largely attributed to non-governmental organisations that have a more influential position in the European institutions as well as in the Chamber of Deputies than representatives of the state administration
In this respect we would like to draw your attention to the fact that we cast no doubt upon the right of the public to have qualified and completed information regarding the influence of the negotiated project on the environment However we have justifiable con-cerns that this will give various lobbying groups who often have nothing to do with environmental protec-tion room to put up further obstacles and file bullying lawsuits
The government has promised that this situation is only temporary Concurrently it has initiated work on a completely new legal regulation that should simplify and accelerate individual processes The Ministry of the Environment cannot exceed the limits of the nego-tiated amendment which is not even included in the governmentrsquos Legislative work plan for 2015
We are not optimistic that the new act is going to introduce significant modifications of environmental project assessment and unblock further implementation of investment projects There is a risk that various inter-est groups will influence the preparation of the new act in order to formulate requirements that will exceed the scope of the European directive Our concerns arise from the fact that the Czech Republic did not use the opportunity defined in European directives to adjust the relevant requirements in line with the national law If more-stringent criteria were set exceeding the scope of European directives all participants would have been more limited in the construction process
If the key objective is not achieved (ie connecting the environmental impact assessment with the pro-cedural steps regarding construction permits) and the approach of the concerned public is not managed in an appropriate manner the obstacles that have a major negative effect on investment construction will remain
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
3SMART bull winter 2014
Moderate yet noticeable optimism can finally be seen in the Czech development sector on the investment market as well as in
the construction industry Let us not be ashamed of it after a long period of five years we truly deserve it and have a good reason for it Positive thinking is a very pleasant thing let us enjoy it
In order to keep this optimism going for as long as possible we did our best to make the latest issue of the SMART magazine positive and optimistic For instance the analysis of the Czech economic outlook prepared by David Marek Deloittelsquos chief economist proves that this yearlsquos positive tendency should continue in 2015 with the main parameters being improved or stable
As is typical in the Czech Republic the minister of transport has been replaced again after a year As a result there is slight optimism in the area of infrastructure construction projects since positive change is expected in the coming yearSome indicators of the construction and real estate markets have already demonstrated positive features in the first nine months of the current year see the Outcome Service for Q3 2014 Let us hope that this trend will continue In this issue we are also introducing a new series focusing on modern iconic buildings in the world Some of us would be pleased to have such a building in Prague in the future This is a completely utopian idea given the development plans presented by the municipal authorities at major real estate events yet we would like to remind you in each issue of the SMART magazine that not only Romanesque Renaissance and Art Nouveau buildings but also modern constructions are admired elsewhere
The interview with Antoniacuten Parma an organiser of a successful conference entitled the ldquoCzech Construction Forumrdquo also demonstrates optimistic sentiments The 11th annual forum takes place in March 2015 introducing a number of changes which you should not miss The main objective of this event is to establish a dialog among individual players on the construction market ie developers investors planners construction businesses as well politicians
The current optimistic mood would certainly be much stronger if we did not feel the after-effects of the recent economic crisis and were not slightly nervous of the current geopolitical situation Moreover the Czech
Republic needs to cope with several legislative issues the main one being the amendment to the EIA Act The article by Pavel Novaacutek a member of the Association of Building Entrepreneurs of the Czech Republic (ABE) entitled ldquoWhy is the forthcoming amendment to the EIA Act so terrifyingrdquo discusses the issues that may result from the amendment As such tax and tax legislation are not usually positive either The article by Petr Tukašovskyacute focuses on the forthcoming amendments to VAT including their impacts
SMART is a magazine for real estate and construction managers I believe that the information in this issue will be interesting and largely positive for construction businesses developers and investors of funding bodies alike
I wish you a peaceful and Merry Christmas and a successful New Year full of optimism
Miroslav Linhart Real Estate amp Construction Director at Deloitte Advisory
Let Us Not Be Ashamed of Slightly Optimistic Sentiments
Glossary
Survey
We have asked residential developers What market development is expected in the next year Are you optimistic
Dušan Kunovskyacute owner Central Group
I am optimistic regarding the sale of new apartments There has been a moderate economic recovery mortgages are at a historical minimum and people are tired of the word ldquocrisisrdquo and the unending pessimism
Omar KoleilatCEO Crestyl Group
I am a moderate optimist There has been a noticeable recovery of the residential sector in terms of demand and concurrently there is an evident appetite to increase the supply accordingly
Marek LokajTechnical Director YIT Stavo
A moderate market growth is anticipated in the coming year based on the positive signal of the Czech economy generally good sentiments in society and also the growing interest of clients
Outcome Service for Q3 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
GDP expenses fixed purchase prices
The number of issued building permits
Inflation rate expressed through a CPI increase in the same month in the previous year
Unemployment rate
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
GDP
In the 3Q 2014 GDP net of price and
seasonal effects was almost 24
higher than in the same period of
the previous year This favourable
development predominantly arises from
the manufacturing industry especially
with regard to the production of
transportation means chemicals and
chemical products
InflationThere was a moderate increase in inflation to 07 in October The highest rates of inflation were reported for shoes (79) and food Nevertheless these are noticeably lower values in comparison with previous years In the EU (HICP) inflation fluctuated around 05
Macroeconomic data
Development
4
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Zdroj ČSUacute
Approximate value of issuedpermits in CZK million
The volume of mortgage loans
Q1 Q2 Q3 Q4
5SMART bull winter 2014
Monitoring
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Construction production 2009-2014
Average number of people employed in the construction sector
Average gross monthly salary of individuals
Projects of construction businesses at the end of quarter in CZK billion (bc)
Proportion of public and pri-vate contracts of construction businesses at the end of 3Q 2014 to the aggregate value of domestic projects
Proportion of public and private contracts of construction businesses at the end of 3Q 2014 to the aggregate number of domestic projects
New projects of construction businesses in CZK billion (bc)
Construction industry
In Q3 2014 a real increase in
the construction industry amounted
to 1323 year-on-year There
was a year-on-year drop of 3 in
terms of the number of building
permits issued by Building Offices
The approximate value of issued
permits decreased by 8
Construction industry
Granted public contracts in the third quarter of 2014
Individually In association
Rank Company Number Value in CZK thousand
Number Number of participant
Value in CZK thousand
1 Skanska as 69 4 852 659 19 66 736 142
2 EUROVIA CS as 159 2 986 289 87 270 5 895 328
3 Metrostav as 83 3 816 593 68 215 2 826 889
Listed as an aggregate value of contracts in association not as the companylsquos contribution
Source UacuteRS Praha Czech Statistical Office
Authors Zdeněk Kunc kuncursprahacz Ondřej Zabloudil ozabloudildeloittececom
Note business with 50 and more employees
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Q1 Q2 Q3 Q4
Total projects at the end of quarter
public public
New projects in the quarter ndash inland
Civil construction ndash inland Civil construction
Building construction ndash inland
private private
Building construction
64
44 36
56
6
David Marek Chief Economist at Deloitte dmarekdeloittececom
After two recessions occurring shortly one after another most parameters of the Czech economy improved in 2014 GDP grew at an accelerated pace
unemployment saw a decrease and wages started to grow again The weaker exchange rate of the Czech crown averted deflation The sentiments of households and businesses has noticeably improved Household consumption expenditure as well as corporate investments are on the rise and they represent the main source of GDP growth Last but not least favourable economic development was also boosted by fiscal and monetary policies What is 2015 going to be like
External conditionsIn anticipating the likely short-term development of the Czech economy it is necessary to take into account the situation abroad Owing to the characteristics of the Czech economy as well as a high and constantly increasing GDP-to-export ratio the expected foreign development represents the key input for anticipating domestic development Most significantly the Czech economy is influenced by the Eurozone where 62 of the total export from the Czech Republic is directed The correlation between the GDP of the Czech Republic and the Eurozone has reached 90 in the last 10 years
Optimistic views concerning the future development in the Eurozone have subsided to a certain extent however continuing moderate growth in GDP is still expected The results of an examination performed by the Bloomberg agency indicate that an average growth of 12 is antici-pated Again countries that have higher significance for Czech foreign trade should grow at a faster pace On average anticipated growth in Germany amounts to 14 and an even higher percentage in Slovakia at 28 Other central European countries should also experience satisfac-tory dynamic growth 32 in Poland and 25 in Hungary
Minimal acceleration of GDP growthAll of the components that contribute to GDP use should lead to GDP growth in 2015 accordingly there should be a moderate acceleration of the growth rate amounting to 23
The key contribution shall lead to increased household consumption supported by decreasing unemployment and accelerated growth in real wages Following a reluctance to spend during a period of reces-sion the household savings rate has already decreased and its further decline is not expected
Consumer loans shall not stimulate the degree of consumption and their aggregate volume is being continuously and moderately reduced Real household expenditure increased by 23
Corporate investments should be stimulated by the financial situation in the corporate sector and by closing the output gap ie higher use
of existing production capacities Low interest rates and less stringent loan standards of banks are also positive Larger volume of public funds (from the state budget and the EU funds) should be aimed at invest-ments in infrastructure Gross generation of the fixed capital will rise by 32 in the next year
Net export should benefit from the depreciation of the Czech crown The impact of this measure has not yet been fully projected The reason for this fact is that companies often use financial and natural hedg-ing in terms of foreign exchange risks which decelerates the impacts of foreign exchange changes on the real development of exports and the economy as a whole The contribution of net export to the GDP growth should amount to 07 percentage points in 2015
Unemployment decrease and wage growthFrom the viewpoint of the labour market economic growth will be too slow to reduce unemployment in a significant fashion Total unemployment shall rise up to almost 5 million persons and the unem-ployment rate (based on the methodology of the Czech Statistical Office) shall drop to 59 from its original 61 in 2014 The average unemployment-to-population ratio (calculated using the methodology of the Ministry of Labour and Social Affairs) shall decrease to 70 compared to 77 in 2014 Although further positive tendencies are anticipated on the labour market the basic market indicators will not yet achieve the pre-crisis values The unemployment rate in 2008 reached 44 and the unemployment-to-population ratio amounted to 41
Rising production and demand for labour should result in faster wage growth Nevertheless low inflation should mitigate inflation expecta-tions in negotiations on wages In 2015 the average gross monthly wage shall increase by 29 to CZK 26500 Real increase in average wage should amount to 20
Further increase in foreign trade surplus External economic relation will be mainly affected by two factors development of the economic situation abroad and depreciation of the Czech crown Efficient foreign demand (considering the signifi-cance of individual countries in the export from the Czech Republic) should rise by 16 in the coming year The weakening of the Czech crown by the Czech National Bank in November 2013 will also impact foreign trade in 2015 As a consequence of both of the above factors export from the Czech Republic should experience a rise of 10-11 in 2015 The continuing growth of domestic demand should increase the import of goods by 9-10 This results in a higher trade surplus (in the national context) amounting to CZK 235-240 billion in comparison with CZK 180 billion expected in 2014
For the first time since1993 the Czech economy should achieve a sur-plus in the balance of payments accounts in 2014 which is the key indicator of external economic imbalance This surplus should increase to CZK 90 billion in 2015 ie 19 of GDP
Czech Economy Outlook in 2015 Moderate Optimism
7SMART bull winter 2014
Continuing low inflation Inflation will remain low despite continuing economic growth In 2015 the average inflation of consumer prices should amount to 08 How-ever the total development of the consumer price index is going to be affected (in a downward direction) by the introduction of the third reduced VAT rate for books medicine and baby food as well as a fur-ther decrease in electricity prices for households and an expected decline in food prices
Prices in the Eurozone may have a negative impact on inflationary developments rather slow economic growth along with a decrease in prices of energy and agriculture commodities on markets increase the risk of deflation
No monetary changes A simple scenario is expected in the area of monetary policy Most likely none of the significant parameters is going to change
The Czech National Bankrsquos commitment to keep the exchange rate between the Czech crown and Euro steadily above 270 will be in effect over the whole year Firstly the Czech National bank declares that it is likely to discontinue using the exchange rate as a monetary policy instrument by 2016 Secondly the reaction function model developed for the Czech National Bank implies the need for using a weaker exchange rate in order to achieve the requested monetary conditions while maintaining the basic interest rate of the Czech National Bank at almost zero (005)
The situation concerning interest rates is even simpler It is highly unlikely that the Czech National Bank would modify its monetary-political interest rate during the period in which the monetary commitment is effective Logically this indicates that interest rates will remain unchanged in 2015
However in terms of the rates on the money market and interest swap rates as well as bond yields perceptions on the market will play a significant role on whether the Czech National Bank shall disconti-nue its exchange rate commitment in 2016 and start increasing interest rates Market interest rate could be stimulated by the monetary policy as early as the following year
Fiscal releaseThe government submitted a draft of the state budget for 2015 to the Chamber of Deputies including the following parameters income of CZK 11185 billion expenses of CZK 12185 billion and the resul-ting deficit of exactly CZK 100 billion
In a broader sense the total deficit of the government in the next year should increase to 24 of GDP as opposed to 14 of GDP expected in 2014 Forthcoming legislative changes in 2015 will also be negati-vely projected in the development of public budgets Specifically this relates to introducing the 10 VAT rate applicable to medicine books and baby food which shall result in a decrease in collected taxes of approximately CZK 33 billion with respect to aggregate public funds or CZK 24 billion in the state budget as such The budget will also be burdened with additional adopted measures such as increased tax relief for families with two or more children or returning to the original valorisation pension scheme
Owing to the expected economic growth the regularly-adjusted pri-mary budget balance (exclusive of debt services costs) shall decrease by 14 of GDP which is a fiscal impulse that should accelerate economic growth by approximately 05 percentage points
The governmentrsquos deficit of 24 seems to be too high if we look at analysis on long-term fiscal sustainability If the public debt in relation to GDP were stabilised at the current level (44 of GDP) the defi-cit should not exceed 13 of GDP in the coming year Therefore it would be desirable that the public deficit be stabilised at least at the level achieved in 2013 and 2014 (amounting to 13 and 14 of GDP respectively) As a consequence of increasing the deficit to 24 of GDP the debt in relation to GDP is repeatedly growing which partly negates fiscal consolidation in the previous years
Risks and opportunitiesThe key risk for the Czech economy pertains to developments in the Eurozone in which the long-term growth rate of selected countries was significantly decelerated and may continue to decline with the lack of structural reforms In addition the Eurozone is also exposed to the risk of deflation and the corresponding negative effects
Potential escalation of the situation in Ukraine and Russia as well as imposing additional economic sanctions also pose a risk on economic development Sanctions imposed on Russia influence the Eurozone including the Czech Republic in a retrospective manner
Contrarily low prices of energy commodities could have a positive impact on global economic development During 2014 the cost of the Brent oil declined from USD 105barrel at the beginning of January to USD 73barrel at present A decrease in oil prices of USD 10barrel could boost global economic growth by 010-015 percentage points
8
Why Is the Forthcoming Amendment to the EIA Act So Terrifying
JUDr Pavel Novaacutek novakspsczHead of the Legislation and Legal SectionAssociation of Building Entrepreneurs of the Czech Republic
The amendment to Act No 1002001 Coll on Environmental Impact Assessment the so-called ldquoEIA Actrdquo is to be adopted any day now Unfortunately the original deadline (3 December 2014) for negotiating the amendment was postponed as the Chamber of Deputies was preoc-cupied with the negotiations on their own salaries As a result this issue which is of major importance to the construction industry was suspended
The impulse for adopting the amendment includes an infringement procedure before the European Commission that has criticised the Czech Republic for insufficient projection of the Treaty on the Functioning of the European Union and the relevant directives in Czech law Accelerated negotiations result from the threat that if the amendment does not take effect on 1 January 2015 the European Union will suspend the funding from European funds However requirements of the European Commis-sion exceed the scope of Directive 201192EU and are largely based on the judicature of the Court of Justice of the European Union
We do not know the details of negotiations of the representatives of the Czech Republic with the European Commission The fact is that the proposal contains a lot of changes that will have a major negative impact on the planning and realisation of constructions Impacts on transportation infrastructure and the construction industry will be especially extensive The amendment will complicate procedures in two basic areas
The first area involves procedural steps of administration proceedings and judicial review The amendment has a major impact on the Building Act which rules out the opportunity to connect the impact assessment with construction management The EIA processes are present in all phases of the permission procedure This includes not only the phase of spatial planning zoning decisions and building permits but it also newly involves potential modifications of unfinished buildings before their completion Previous procedures are repeatedly verified in each phase of the construc-tion management which makes the entire procedure significantly longerThe opinion of the Ministry of Labour and Social Affairs and Regional Authorities (environmental divisions) on the EIA documentation presented by the contracting authority is a binding opinion for the subsequent pro-cedure under the Building Act For this reason it is impossible to conduct a proceeding managed by the Construction Office which would involve an EIA process These are two mutually conditioned proceedings Without a binding approval of the EIA it is impossible to terminate a proceeding and issue a decision
The coherence stamp principle is in effect which means regressive verifica-tion of potential changes in all planning and implementation phases zoning decision (vs spatial planning) building permit (vs zoning decision) modification of the construction before completion (vs building permit) etc Putting a complete construction into use may also be blocked under exceptional circumstances
All decisions may be re-examined by the court Filing a claim has suspen-sory effect and subsequent decisions may not come into force without a judicial proceeding to be terminated Nevertheless the amendment includes an to acknowledge suspensory effect if the plaintiff proposes to do so in hisher lawsuit which is logically highly unlikely
The second more significant area relates to expanding the opportunities of the public to affect the process of construction approvals including construction modifications In addition to the ldquopublicrdquo that means any individual or legal person (but also a competitive company for instance) the so-called ldquoconcerned public with considerably wider rights is also introduced The concerned public must be an institution that has existed for three years All of the existing concerned public (Duha Zelenyacute kruh Děti země Jihočeskeacute matky Greenpeace etc) comply with this require-ment If they subsequently enter into a procedure they will become its participants with all rights to file an appeal proposal for a judicial review or a lawsuit at administrative courts The condition enabling the public to participate in a procedure does pertain to the territorial (local) jurisdiction ie the requirement that the specific public is directly affected by the rel-evant building project The public may express its interest in participating in the procedure by presenting a signature list containing 200 signatures which do not need to be certified therefore the real interest of the public is inconclusive In fact there is not even a requirement for the public to explain their views in environmental threads If they claim that the envi-ronment is endangered this statement is not challenged They are not obliged to support their statements with any specialised arguments but administrative bodies must nevertheless address them If all resources for administrative procedures are exhausted the concerned public is entitled to file an appeal against every proceeding This includes a proposal for a judicial review at administration courts which can be repeated for the exact same reasons Although there will be a statutory (and very long) deadline to issue a decision the entire process will be prolonged by a num-ber of months Filing a lawsuit also has suspensory effect in this situation ie it is impossible to initiate the implementation of a building project until the final ruling of the court
Some of the most serious obstacles are predominantly related to invest-ment construction that is largely funded from public sources including the implementation of construction in the interest of the public ie in the interest of the concerned public Such construction projects are quite inclusive covering roads flood control systems constructions with a positive impact on the environment the canalisation of waterways ring roads in cities in order to protect their inhabitants from the influence of transportation etc It is possible that certain permission procedures may be revoked returning certain projects to the phase of project negotiations and unfinished constructions may be discontinued
The concerned public will not need to be distressed as it is naturally not responsible for the financial consequences associated with required measures extensions of deadlines increasing administrative burden for governmental bodies as well as contracting authorities which finally result in irrational use of public funds
9SMART bull winter 2014
The proposed amendment is largely attributed to non-governmental organisations that have a more influential position in the European institutions as well as in the Chamber of Deputies than representatives of the state administration
In this respect we would like to draw your attention to the fact that we cast no doubt upon the right of the public to have qualified and completed information regarding the influence of the negotiated project on the environment However we have justifiable con-cerns that this will give various lobbying groups who often have nothing to do with environmental protec-tion room to put up further obstacles and file bullying lawsuits
The government has promised that this situation is only temporary Concurrently it has initiated work on a completely new legal regulation that should simplify and accelerate individual processes The Ministry of the Environment cannot exceed the limits of the nego-tiated amendment which is not even included in the governmentrsquos Legislative work plan for 2015
We are not optimistic that the new act is going to introduce significant modifications of environmental project assessment and unblock further implementation of investment projects There is a risk that various inter-est groups will influence the preparation of the new act in order to formulate requirements that will exceed the scope of the European directive Our concerns arise from the fact that the Czech Republic did not use the opportunity defined in European directives to adjust the relevant requirements in line with the national law If more-stringent criteria were set exceeding the scope of European directives all participants would have been more limited in the construction process
If the key objective is not achieved (ie connecting the environmental impact assessment with the pro-cedural steps regarding construction permits) and the approach of the concerned public is not managed in an appropriate manner the obstacles that have a major negative effect on investment construction will remain
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
Outcome Service for Q3 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
GDP expenses fixed purchase prices
The number of issued building permits
Inflation rate expressed through a CPI increase in the same month in the previous year
Unemployment rate
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
GDP
In the 3Q 2014 GDP net of price and
seasonal effects was almost 24
higher than in the same period of
the previous year This favourable
development predominantly arises from
the manufacturing industry especially
with regard to the production of
transportation means chemicals and
chemical products
InflationThere was a moderate increase in inflation to 07 in October The highest rates of inflation were reported for shoes (79) and food Nevertheless these are noticeably lower values in comparison with previous years In the EU (HICP) inflation fluctuated around 05
Macroeconomic data
Development
4
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Zdroj ČSUacute
Approximate value of issuedpermits in CZK million
The volume of mortgage loans
Q1 Q2 Q3 Q4
5SMART bull winter 2014
Monitoring
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Construction production 2009-2014
Average number of people employed in the construction sector
Average gross monthly salary of individuals
Projects of construction businesses at the end of quarter in CZK billion (bc)
Proportion of public and pri-vate contracts of construction businesses at the end of 3Q 2014 to the aggregate value of domestic projects
Proportion of public and private contracts of construction businesses at the end of 3Q 2014 to the aggregate number of domestic projects
New projects of construction businesses in CZK billion (bc)
Construction industry
In Q3 2014 a real increase in
the construction industry amounted
to 1323 year-on-year There
was a year-on-year drop of 3 in
terms of the number of building
permits issued by Building Offices
The approximate value of issued
permits decreased by 8
Construction industry
Granted public contracts in the third quarter of 2014
Individually In association
Rank Company Number Value in CZK thousand
Number Number of participant
Value in CZK thousand
1 Skanska as 69 4 852 659 19 66 736 142
2 EUROVIA CS as 159 2 986 289 87 270 5 895 328
3 Metrostav as 83 3 816 593 68 215 2 826 889
Listed as an aggregate value of contracts in association not as the companylsquos contribution
Source UacuteRS Praha Czech Statistical Office
Authors Zdeněk Kunc kuncursprahacz Ondřej Zabloudil ozabloudildeloittececom
Note business with 50 and more employees
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Q1 Q2 Q3 Q4
Total projects at the end of quarter
public public
New projects in the quarter ndash inland
Civil construction ndash inland Civil construction
Building construction ndash inland
private private
Building construction
64
44 36
56
6
David Marek Chief Economist at Deloitte dmarekdeloittececom
After two recessions occurring shortly one after another most parameters of the Czech economy improved in 2014 GDP grew at an accelerated pace
unemployment saw a decrease and wages started to grow again The weaker exchange rate of the Czech crown averted deflation The sentiments of households and businesses has noticeably improved Household consumption expenditure as well as corporate investments are on the rise and they represent the main source of GDP growth Last but not least favourable economic development was also boosted by fiscal and monetary policies What is 2015 going to be like
External conditionsIn anticipating the likely short-term development of the Czech economy it is necessary to take into account the situation abroad Owing to the characteristics of the Czech economy as well as a high and constantly increasing GDP-to-export ratio the expected foreign development represents the key input for anticipating domestic development Most significantly the Czech economy is influenced by the Eurozone where 62 of the total export from the Czech Republic is directed The correlation between the GDP of the Czech Republic and the Eurozone has reached 90 in the last 10 years
Optimistic views concerning the future development in the Eurozone have subsided to a certain extent however continuing moderate growth in GDP is still expected The results of an examination performed by the Bloomberg agency indicate that an average growth of 12 is antici-pated Again countries that have higher significance for Czech foreign trade should grow at a faster pace On average anticipated growth in Germany amounts to 14 and an even higher percentage in Slovakia at 28 Other central European countries should also experience satisfac-tory dynamic growth 32 in Poland and 25 in Hungary
Minimal acceleration of GDP growthAll of the components that contribute to GDP use should lead to GDP growth in 2015 accordingly there should be a moderate acceleration of the growth rate amounting to 23
The key contribution shall lead to increased household consumption supported by decreasing unemployment and accelerated growth in real wages Following a reluctance to spend during a period of reces-sion the household savings rate has already decreased and its further decline is not expected
Consumer loans shall not stimulate the degree of consumption and their aggregate volume is being continuously and moderately reduced Real household expenditure increased by 23
Corporate investments should be stimulated by the financial situation in the corporate sector and by closing the output gap ie higher use
of existing production capacities Low interest rates and less stringent loan standards of banks are also positive Larger volume of public funds (from the state budget and the EU funds) should be aimed at invest-ments in infrastructure Gross generation of the fixed capital will rise by 32 in the next year
Net export should benefit from the depreciation of the Czech crown The impact of this measure has not yet been fully projected The reason for this fact is that companies often use financial and natural hedg-ing in terms of foreign exchange risks which decelerates the impacts of foreign exchange changes on the real development of exports and the economy as a whole The contribution of net export to the GDP growth should amount to 07 percentage points in 2015
Unemployment decrease and wage growthFrom the viewpoint of the labour market economic growth will be too slow to reduce unemployment in a significant fashion Total unemployment shall rise up to almost 5 million persons and the unem-ployment rate (based on the methodology of the Czech Statistical Office) shall drop to 59 from its original 61 in 2014 The average unemployment-to-population ratio (calculated using the methodology of the Ministry of Labour and Social Affairs) shall decrease to 70 compared to 77 in 2014 Although further positive tendencies are anticipated on the labour market the basic market indicators will not yet achieve the pre-crisis values The unemployment rate in 2008 reached 44 and the unemployment-to-population ratio amounted to 41
Rising production and demand for labour should result in faster wage growth Nevertheless low inflation should mitigate inflation expecta-tions in negotiations on wages In 2015 the average gross monthly wage shall increase by 29 to CZK 26500 Real increase in average wage should amount to 20
Further increase in foreign trade surplus External economic relation will be mainly affected by two factors development of the economic situation abroad and depreciation of the Czech crown Efficient foreign demand (considering the signifi-cance of individual countries in the export from the Czech Republic) should rise by 16 in the coming year The weakening of the Czech crown by the Czech National Bank in November 2013 will also impact foreign trade in 2015 As a consequence of both of the above factors export from the Czech Republic should experience a rise of 10-11 in 2015 The continuing growth of domestic demand should increase the import of goods by 9-10 This results in a higher trade surplus (in the national context) amounting to CZK 235-240 billion in comparison with CZK 180 billion expected in 2014
For the first time since1993 the Czech economy should achieve a sur-plus in the balance of payments accounts in 2014 which is the key indicator of external economic imbalance This surplus should increase to CZK 90 billion in 2015 ie 19 of GDP
Czech Economy Outlook in 2015 Moderate Optimism
7SMART bull winter 2014
Continuing low inflation Inflation will remain low despite continuing economic growth In 2015 the average inflation of consumer prices should amount to 08 How-ever the total development of the consumer price index is going to be affected (in a downward direction) by the introduction of the third reduced VAT rate for books medicine and baby food as well as a fur-ther decrease in electricity prices for households and an expected decline in food prices
Prices in the Eurozone may have a negative impact on inflationary developments rather slow economic growth along with a decrease in prices of energy and agriculture commodities on markets increase the risk of deflation
No monetary changes A simple scenario is expected in the area of monetary policy Most likely none of the significant parameters is going to change
The Czech National Bankrsquos commitment to keep the exchange rate between the Czech crown and Euro steadily above 270 will be in effect over the whole year Firstly the Czech National bank declares that it is likely to discontinue using the exchange rate as a monetary policy instrument by 2016 Secondly the reaction function model developed for the Czech National Bank implies the need for using a weaker exchange rate in order to achieve the requested monetary conditions while maintaining the basic interest rate of the Czech National Bank at almost zero (005)
The situation concerning interest rates is even simpler It is highly unlikely that the Czech National Bank would modify its monetary-political interest rate during the period in which the monetary commitment is effective Logically this indicates that interest rates will remain unchanged in 2015
However in terms of the rates on the money market and interest swap rates as well as bond yields perceptions on the market will play a significant role on whether the Czech National Bank shall disconti-nue its exchange rate commitment in 2016 and start increasing interest rates Market interest rate could be stimulated by the monetary policy as early as the following year
Fiscal releaseThe government submitted a draft of the state budget for 2015 to the Chamber of Deputies including the following parameters income of CZK 11185 billion expenses of CZK 12185 billion and the resul-ting deficit of exactly CZK 100 billion
In a broader sense the total deficit of the government in the next year should increase to 24 of GDP as opposed to 14 of GDP expected in 2014 Forthcoming legislative changes in 2015 will also be negati-vely projected in the development of public budgets Specifically this relates to introducing the 10 VAT rate applicable to medicine books and baby food which shall result in a decrease in collected taxes of approximately CZK 33 billion with respect to aggregate public funds or CZK 24 billion in the state budget as such The budget will also be burdened with additional adopted measures such as increased tax relief for families with two or more children or returning to the original valorisation pension scheme
Owing to the expected economic growth the regularly-adjusted pri-mary budget balance (exclusive of debt services costs) shall decrease by 14 of GDP which is a fiscal impulse that should accelerate economic growth by approximately 05 percentage points
The governmentrsquos deficit of 24 seems to be too high if we look at analysis on long-term fiscal sustainability If the public debt in relation to GDP were stabilised at the current level (44 of GDP) the defi-cit should not exceed 13 of GDP in the coming year Therefore it would be desirable that the public deficit be stabilised at least at the level achieved in 2013 and 2014 (amounting to 13 and 14 of GDP respectively) As a consequence of increasing the deficit to 24 of GDP the debt in relation to GDP is repeatedly growing which partly negates fiscal consolidation in the previous years
Risks and opportunitiesThe key risk for the Czech economy pertains to developments in the Eurozone in which the long-term growth rate of selected countries was significantly decelerated and may continue to decline with the lack of structural reforms In addition the Eurozone is also exposed to the risk of deflation and the corresponding negative effects
Potential escalation of the situation in Ukraine and Russia as well as imposing additional economic sanctions also pose a risk on economic development Sanctions imposed on Russia influence the Eurozone including the Czech Republic in a retrospective manner
Contrarily low prices of energy commodities could have a positive impact on global economic development During 2014 the cost of the Brent oil declined from USD 105barrel at the beginning of January to USD 73barrel at present A decrease in oil prices of USD 10barrel could boost global economic growth by 010-015 percentage points
8
Why Is the Forthcoming Amendment to the EIA Act So Terrifying
JUDr Pavel Novaacutek novakspsczHead of the Legislation and Legal SectionAssociation of Building Entrepreneurs of the Czech Republic
The amendment to Act No 1002001 Coll on Environmental Impact Assessment the so-called ldquoEIA Actrdquo is to be adopted any day now Unfortunately the original deadline (3 December 2014) for negotiating the amendment was postponed as the Chamber of Deputies was preoc-cupied with the negotiations on their own salaries As a result this issue which is of major importance to the construction industry was suspended
The impulse for adopting the amendment includes an infringement procedure before the European Commission that has criticised the Czech Republic for insufficient projection of the Treaty on the Functioning of the European Union and the relevant directives in Czech law Accelerated negotiations result from the threat that if the amendment does not take effect on 1 January 2015 the European Union will suspend the funding from European funds However requirements of the European Commis-sion exceed the scope of Directive 201192EU and are largely based on the judicature of the Court of Justice of the European Union
We do not know the details of negotiations of the representatives of the Czech Republic with the European Commission The fact is that the proposal contains a lot of changes that will have a major negative impact on the planning and realisation of constructions Impacts on transportation infrastructure and the construction industry will be especially extensive The amendment will complicate procedures in two basic areas
The first area involves procedural steps of administration proceedings and judicial review The amendment has a major impact on the Building Act which rules out the opportunity to connect the impact assessment with construction management The EIA processes are present in all phases of the permission procedure This includes not only the phase of spatial planning zoning decisions and building permits but it also newly involves potential modifications of unfinished buildings before their completion Previous procedures are repeatedly verified in each phase of the construc-tion management which makes the entire procedure significantly longerThe opinion of the Ministry of Labour and Social Affairs and Regional Authorities (environmental divisions) on the EIA documentation presented by the contracting authority is a binding opinion for the subsequent pro-cedure under the Building Act For this reason it is impossible to conduct a proceeding managed by the Construction Office which would involve an EIA process These are two mutually conditioned proceedings Without a binding approval of the EIA it is impossible to terminate a proceeding and issue a decision
The coherence stamp principle is in effect which means regressive verifica-tion of potential changes in all planning and implementation phases zoning decision (vs spatial planning) building permit (vs zoning decision) modification of the construction before completion (vs building permit) etc Putting a complete construction into use may also be blocked under exceptional circumstances
All decisions may be re-examined by the court Filing a claim has suspen-sory effect and subsequent decisions may not come into force without a judicial proceeding to be terminated Nevertheless the amendment includes an to acknowledge suspensory effect if the plaintiff proposes to do so in hisher lawsuit which is logically highly unlikely
The second more significant area relates to expanding the opportunities of the public to affect the process of construction approvals including construction modifications In addition to the ldquopublicrdquo that means any individual or legal person (but also a competitive company for instance) the so-called ldquoconcerned public with considerably wider rights is also introduced The concerned public must be an institution that has existed for three years All of the existing concerned public (Duha Zelenyacute kruh Děti země Jihočeskeacute matky Greenpeace etc) comply with this require-ment If they subsequently enter into a procedure they will become its participants with all rights to file an appeal proposal for a judicial review or a lawsuit at administrative courts The condition enabling the public to participate in a procedure does pertain to the territorial (local) jurisdiction ie the requirement that the specific public is directly affected by the rel-evant building project The public may express its interest in participating in the procedure by presenting a signature list containing 200 signatures which do not need to be certified therefore the real interest of the public is inconclusive In fact there is not even a requirement for the public to explain their views in environmental threads If they claim that the envi-ronment is endangered this statement is not challenged They are not obliged to support their statements with any specialised arguments but administrative bodies must nevertheless address them If all resources for administrative procedures are exhausted the concerned public is entitled to file an appeal against every proceeding This includes a proposal for a judicial review at administration courts which can be repeated for the exact same reasons Although there will be a statutory (and very long) deadline to issue a decision the entire process will be prolonged by a num-ber of months Filing a lawsuit also has suspensory effect in this situation ie it is impossible to initiate the implementation of a building project until the final ruling of the court
Some of the most serious obstacles are predominantly related to invest-ment construction that is largely funded from public sources including the implementation of construction in the interest of the public ie in the interest of the concerned public Such construction projects are quite inclusive covering roads flood control systems constructions with a positive impact on the environment the canalisation of waterways ring roads in cities in order to protect their inhabitants from the influence of transportation etc It is possible that certain permission procedures may be revoked returning certain projects to the phase of project negotiations and unfinished constructions may be discontinued
The concerned public will not need to be distressed as it is naturally not responsible for the financial consequences associated with required measures extensions of deadlines increasing administrative burden for governmental bodies as well as contracting authorities which finally result in irrational use of public funds
9SMART bull winter 2014
The proposed amendment is largely attributed to non-governmental organisations that have a more influential position in the European institutions as well as in the Chamber of Deputies than representatives of the state administration
In this respect we would like to draw your attention to the fact that we cast no doubt upon the right of the public to have qualified and completed information regarding the influence of the negotiated project on the environment However we have justifiable con-cerns that this will give various lobbying groups who often have nothing to do with environmental protec-tion room to put up further obstacles and file bullying lawsuits
The government has promised that this situation is only temporary Concurrently it has initiated work on a completely new legal regulation that should simplify and accelerate individual processes The Ministry of the Environment cannot exceed the limits of the nego-tiated amendment which is not even included in the governmentrsquos Legislative work plan for 2015
We are not optimistic that the new act is going to introduce significant modifications of environmental project assessment and unblock further implementation of investment projects There is a risk that various inter-est groups will influence the preparation of the new act in order to formulate requirements that will exceed the scope of the European directive Our concerns arise from the fact that the Czech Republic did not use the opportunity defined in European directives to adjust the relevant requirements in line with the national law If more-stringent criteria were set exceeding the scope of European directives all participants would have been more limited in the construction process
If the key objective is not achieved (ie connecting the environmental impact assessment with the pro-cedural steps regarding construction permits) and the approach of the concerned public is not managed in an appropriate manner the obstacles that have a major negative effect on investment construction will remain
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
5SMART bull winter 2014
Monitoring
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Construction production 2009-2014
Average number of people employed in the construction sector
Average gross monthly salary of individuals
Projects of construction businesses at the end of quarter in CZK billion (bc)
Proportion of public and pri-vate contracts of construction businesses at the end of 3Q 2014 to the aggregate value of domestic projects
Proportion of public and private contracts of construction businesses at the end of 3Q 2014 to the aggregate number of domestic projects
New projects of construction businesses in CZK billion (bc)
Construction industry
In Q3 2014 a real increase in
the construction industry amounted
to 1323 year-on-year There
was a year-on-year drop of 3 in
terms of the number of building
permits issued by Building Offices
The approximate value of issued
permits decreased by 8
Construction industry
Granted public contracts in the third quarter of 2014
Individually In association
Rank Company Number Value in CZK thousand
Number Number of participant
Value in CZK thousand
1 Skanska as 69 4 852 659 19 66 736 142
2 EUROVIA CS as 159 2 986 289 87 270 5 895 328
3 Metrostav as 83 3 816 593 68 215 2 826 889
Listed as an aggregate value of contracts in association not as the companylsquos contribution
Source UacuteRS Praha Czech Statistical Office
Authors Zdeněk Kunc kuncursprahacz Ondřej Zabloudil ozabloudildeloittececom
Note business with 50 and more employees
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
05
1
15
2
25
3
35
4
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 102011 2012 2013 2014
05 000
10 00015 00020 00025 00030 00035 000
Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q32011 2012 2013 2014
020 00040 00060 00080 000
100 000120 000
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32011 2012 2013 2014
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
0
10 000 000
20 000 000
30 000 000
40 000 000
50 000 000
60 000 000
2011 2012 2013 2014
00200400600800
100012001400160018002000
3Q 12 3Q 13 3Q 14
mld
Kč
00
100
200
300
400
500
600
3Q 12 3Q 13 3Q 14
mld
Kč
115 084
100 56094 144
86 850
76 47886 597
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
2009 2010 2011 2012 2013 2014
-3
-2
-1
0
1
2
3
4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
330 000
340 000
350 000
360 000
370 000
380 000
390 000
400 000
410 000
2011 2012 2013 2014
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Q1 Q2 Q3 Q4
Total projects at the end of quarter
public public
New projects in the quarter ndash inland
Civil construction ndash inland Civil construction
Building construction ndash inland
private private
Building construction
64
44 36
56
6
David Marek Chief Economist at Deloitte dmarekdeloittececom
After two recessions occurring shortly one after another most parameters of the Czech economy improved in 2014 GDP grew at an accelerated pace
unemployment saw a decrease and wages started to grow again The weaker exchange rate of the Czech crown averted deflation The sentiments of households and businesses has noticeably improved Household consumption expenditure as well as corporate investments are on the rise and they represent the main source of GDP growth Last but not least favourable economic development was also boosted by fiscal and monetary policies What is 2015 going to be like
External conditionsIn anticipating the likely short-term development of the Czech economy it is necessary to take into account the situation abroad Owing to the characteristics of the Czech economy as well as a high and constantly increasing GDP-to-export ratio the expected foreign development represents the key input for anticipating domestic development Most significantly the Czech economy is influenced by the Eurozone where 62 of the total export from the Czech Republic is directed The correlation between the GDP of the Czech Republic and the Eurozone has reached 90 in the last 10 years
Optimistic views concerning the future development in the Eurozone have subsided to a certain extent however continuing moderate growth in GDP is still expected The results of an examination performed by the Bloomberg agency indicate that an average growth of 12 is antici-pated Again countries that have higher significance for Czech foreign trade should grow at a faster pace On average anticipated growth in Germany amounts to 14 and an even higher percentage in Slovakia at 28 Other central European countries should also experience satisfac-tory dynamic growth 32 in Poland and 25 in Hungary
Minimal acceleration of GDP growthAll of the components that contribute to GDP use should lead to GDP growth in 2015 accordingly there should be a moderate acceleration of the growth rate amounting to 23
The key contribution shall lead to increased household consumption supported by decreasing unemployment and accelerated growth in real wages Following a reluctance to spend during a period of reces-sion the household savings rate has already decreased and its further decline is not expected
Consumer loans shall not stimulate the degree of consumption and their aggregate volume is being continuously and moderately reduced Real household expenditure increased by 23
Corporate investments should be stimulated by the financial situation in the corporate sector and by closing the output gap ie higher use
of existing production capacities Low interest rates and less stringent loan standards of banks are also positive Larger volume of public funds (from the state budget and the EU funds) should be aimed at invest-ments in infrastructure Gross generation of the fixed capital will rise by 32 in the next year
Net export should benefit from the depreciation of the Czech crown The impact of this measure has not yet been fully projected The reason for this fact is that companies often use financial and natural hedg-ing in terms of foreign exchange risks which decelerates the impacts of foreign exchange changes on the real development of exports and the economy as a whole The contribution of net export to the GDP growth should amount to 07 percentage points in 2015
Unemployment decrease and wage growthFrom the viewpoint of the labour market economic growth will be too slow to reduce unemployment in a significant fashion Total unemployment shall rise up to almost 5 million persons and the unem-ployment rate (based on the methodology of the Czech Statistical Office) shall drop to 59 from its original 61 in 2014 The average unemployment-to-population ratio (calculated using the methodology of the Ministry of Labour and Social Affairs) shall decrease to 70 compared to 77 in 2014 Although further positive tendencies are anticipated on the labour market the basic market indicators will not yet achieve the pre-crisis values The unemployment rate in 2008 reached 44 and the unemployment-to-population ratio amounted to 41
Rising production and demand for labour should result in faster wage growth Nevertheless low inflation should mitigate inflation expecta-tions in negotiations on wages In 2015 the average gross monthly wage shall increase by 29 to CZK 26500 Real increase in average wage should amount to 20
Further increase in foreign trade surplus External economic relation will be mainly affected by two factors development of the economic situation abroad and depreciation of the Czech crown Efficient foreign demand (considering the signifi-cance of individual countries in the export from the Czech Republic) should rise by 16 in the coming year The weakening of the Czech crown by the Czech National Bank in November 2013 will also impact foreign trade in 2015 As a consequence of both of the above factors export from the Czech Republic should experience a rise of 10-11 in 2015 The continuing growth of domestic demand should increase the import of goods by 9-10 This results in a higher trade surplus (in the national context) amounting to CZK 235-240 billion in comparison with CZK 180 billion expected in 2014
For the first time since1993 the Czech economy should achieve a sur-plus in the balance of payments accounts in 2014 which is the key indicator of external economic imbalance This surplus should increase to CZK 90 billion in 2015 ie 19 of GDP
Czech Economy Outlook in 2015 Moderate Optimism
7SMART bull winter 2014
Continuing low inflation Inflation will remain low despite continuing economic growth In 2015 the average inflation of consumer prices should amount to 08 How-ever the total development of the consumer price index is going to be affected (in a downward direction) by the introduction of the third reduced VAT rate for books medicine and baby food as well as a fur-ther decrease in electricity prices for households and an expected decline in food prices
Prices in the Eurozone may have a negative impact on inflationary developments rather slow economic growth along with a decrease in prices of energy and agriculture commodities on markets increase the risk of deflation
No monetary changes A simple scenario is expected in the area of monetary policy Most likely none of the significant parameters is going to change
The Czech National Bankrsquos commitment to keep the exchange rate between the Czech crown and Euro steadily above 270 will be in effect over the whole year Firstly the Czech National bank declares that it is likely to discontinue using the exchange rate as a monetary policy instrument by 2016 Secondly the reaction function model developed for the Czech National Bank implies the need for using a weaker exchange rate in order to achieve the requested monetary conditions while maintaining the basic interest rate of the Czech National Bank at almost zero (005)
The situation concerning interest rates is even simpler It is highly unlikely that the Czech National Bank would modify its monetary-political interest rate during the period in which the monetary commitment is effective Logically this indicates that interest rates will remain unchanged in 2015
However in terms of the rates on the money market and interest swap rates as well as bond yields perceptions on the market will play a significant role on whether the Czech National Bank shall disconti-nue its exchange rate commitment in 2016 and start increasing interest rates Market interest rate could be stimulated by the monetary policy as early as the following year
Fiscal releaseThe government submitted a draft of the state budget for 2015 to the Chamber of Deputies including the following parameters income of CZK 11185 billion expenses of CZK 12185 billion and the resul-ting deficit of exactly CZK 100 billion
In a broader sense the total deficit of the government in the next year should increase to 24 of GDP as opposed to 14 of GDP expected in 2014 Forthcoming legislative changes in 2015 will also be negati-vely projected in the development of public budgets Specifically this relates to introducing the 10 VAT rate applicable to medicine books and baby food which shall result in a decrease in collected taxes of approximately CZK 33 billion with respect to aggregate public funds or CZK 24 billion in the state budget as such The budget will also be burdened with additional adopted measures such as increased tax relief for families with two or more children or returning to the original valorisation pension scheme
Owing to the expected economic growth the regularly-adjusted pri-mary budget balance (exclusive of debt services costs) shall decrease by 14 of GDP which is a fiscal impulse that should accelerate economic growth by approximately 05 percentage points
The governmentrsquos deficit of 24 seems to be too high if we look at analysis on long-term fiscal sustainability If the public debt in relation to GDP were stabilised at the current level (44 of GDP) the defi-cit should not exceed 13 of GDP in the coming year Therefore it would be desirable that the public deficit be stabilised at least at the level achieved in 2013 and 2014 (amounting to 13 and 14 of GDP respectively) As a consequence of increasing the deficit to 24 of GDP the debt in relation to GDP is repeatedly growing which partly negates fiscal consolidation in the previous years
Risks and opportunitiesThe key risk for the Czech economy pertains to developments in the Eurozone in which the long-term growth rate of selected countries was significantly decelerated and may continue to decline with the lack of structural reforms In addition the Eurozone is also exposed to the risk of deflation and the corresponding negative effects
Potential escalation of the situation in Ukraine and Russia as well as imposing additional economic sanctions also pose a risk on economic development Sanctions imposed on Russia influence the Eurozone including the Czech Republic in a retrospective manner
Contrarily low prices of energy commodities could have a positive impact on global economic development During 2014 the cost of the Brent oil declined from USD 105barrel at the beginning of January to USD 73barrel at present A decrease in oil prices of USD 10barrel could boost global economic growth by 010-015 percentage points
8
Why Is the Forthcoming Amendment to the EIA Act So Terrifying
JUDr Pavel Novaacutek novakspsczHead of the Legislation and Legal SectionAssociation of Building Entrepreneurs of the Czech Republic
The amendment to Act No 1002001 Coll on Environmental Impact Assessment the so-called ldquoEIA Actrdquo is to be adopted any day now Unfortunately the original deadline (3 December 2014) for negotiating the amendment was postponed as the Chamber of Deputies was preoc-cupied with the negotiations on their own salaries As a result this issue which is of major importance to the construction industry was suspended
The impulse for adopting the amendment includes an infringement procedure before the European Commission that has criticised the Czech Republic for insufficient projection of the Treaty on the Functioning of the European Union and the relevant directives in Czech law Accelerated negotiations result from the threat that if the amendment does not take effect on 1 January 2015 the European Union will suspend the funding from European funds However requirements of the European Commis-sion exceed the scope of Directive 201192EU and are largely based on the judicature of the Court of Justice of the European Union
We do not know the details of negotiations of the representatives of the Czech Republic with the European Commission The fact is that the proposal contains a lot of changes that will have a major negative impact on the planning and realisation of constructions Impacts on transportation infrastructure and the construction industry will be especially extensive The amendment will complicate procedures in two basic areas
The first area involves procedural steps of administration proceedings and judicial review The amendment has a major impact on the Building Act which rules out the opportunity to connect the impact assessment with construction management The EIA processes are present in all phases of the permission procedure This includes not only the phase of spatial planning zoning decisions and building permits but it also newly involves potential modifications of unfinished buildings before their completion Previous procedures are repeatedly verified in each phase of the construc-tion management which makes the entire procedure significantly longerThe opinion of the Ministry of Labour and Social Affairs and Regional Authorities (environmental divisions) on the EIA documentation presented by the contracting authority is a binding opinion for the subsequent pro-cedure under the Building Act For this reason it is impossible to conduct a proceeding managed by the Construction Office which would involve an EIA process These are two mutually conditioned proceedings Without a binding approval of the EIA it is impossible to terminate a proceeding and issue a decision
The coherence stamp principle is in effect which means regressive verifica-tion of potential changes in all planning and implementation phases zoning decision (vs spatial planning) building permit (vs zoning decision) modification of the construction before completion (vs building permit) etc Putting a complete construction into use may also be blocked under exceptional circumstances
All decisions may be re-examined by the court Filing a claim has suspen-sory effect and subsequent decisions may not come into force without a judicial proceeding to be terminated Nevertheless the amendment includes an to acknowledge suspensory effect if the plaintiff proposes to do so in hisher lawsuit which is logically highly unlikely
The second more significant area relates to expanding the opportunities of the public to affect the process of construction approvals including construction modifications In addition to the ldquopublicrdquo that means any individual or legal person (but also a competitive company for instance) the so-called ldquoconcerned public with considerably wider rights is also introduced The concerned public must be an institution that has existed for three years All of the existing concerned public (Duha Zelenyacute kruh Děti země Jihočeskeacute matky Greenpeace etc) comply with this require-ment If they subsequently enter into a procedure they will become its participants with all rights to file an appeal proposal for a judicial review or a lawsuit at administrative courts The condition enabling the public to participate in a procedure does pertain to the territorial (local) jurisdiction ie the requirement that the specific public is directly affected by the rel-evant building project The public may express its interest in participating in the procedure by presenting a signature list containing 200 signatures which do not need to be certified therefore the real interest of the public is inconclusive In fact there is not even a requirement for the public to explain their views in environmental threads If they claim that the envi-ronment is endangered this statement is not challenged They are not obliged to support their statements with any specialised arguments but administrative bodies must nevertheless address them If all resources for administrative procedures are exhausted the concerned public is entitled to file an appeal against every proceeding This includes a proposal for a judicial review at administration courts which can be repeated for the exact same reasons Although there will be a statutory (and very long) deadline to issue a decision the entire process will be prolonged by a num-ber of months Filing a lawsuit also has suspensory effect in this situation ie it is impossible to initiate the implementation of a building project until the final ruling of the court
Some of the most serious obstacles are predominantly related to invest-ment construction that is largely funded from public sources including the implementation of construction in the interest of the public ie in the interest of the concerned public Such construction projects are quite inclusive covering roads flood control systems constructions with a positive impact on the environment the canalisation of waterways ring roads in cities in order to protect their inhabitants from the influence of transportation etc It is possible that certain permission procedures may be revoked returning certain projects to the phase of project negotiations and unfinished constructions may be discontinued
The concerned public will not need to be distressed as it is naturally not responsible for the financial consequences associated with required measures extensions of deadlines increasing administrative burden for governmental bodies as well as contracting authorities which finally result in irrational use of public funds
9SMART bull winter 2014
The proposed amendment is largely attributed to non-governmental organisations that have a more influential position in the European institutions as well as in the Chamber of Deputies than representatives of the state administration
In this respect we would like to draw your attention to the fact that we cast no doubt upon the right of the public to have qualified and completed information regarding the influence of the negotiated project on the environment However we have justifiable con-cerns that this will give various lobbying groups who often have nothing to do with environmental protec-tion room to put up further obstacles and file bullying lawsuits
The government has promised that this situation is only temporary Concurrently it has initiated work on a completely new legal regulation that should simplify and accelerate individual processes The Ministry of the Environment cannot exceed the limits of the nego-tiated amendment which is not even included in the governmentrsquos Legislative work plan for 2015
We are not optimistic that the new act is going to introduce significant modifications of environmental project assessment and unblock further implementation of investment projects There is a risk that various inter-est groups will influence the preparation of the new act in order to formulate requirements that will exceed the scope of the European directive Our concerns arise from the fact that the Czech Republic did not use the opportunity defined in European directives to adjust the relevant requirements in line with the national law If more-stringent criteria were set exceeding the scope of European directives all participants would have been more limited in the construction process
If the key objective is not achieved (ie connecting the environmental impact assessment with the pro-cedural steps regarding construction permits) and the approach of the concerned public is not managed in an appropriate manner the obstacles that have a major negative effect on investment construction will remain
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
6
David Marek Chief Economist at Deloitte dmarekdeloittececom
After two recessions occurring shortly one after another most parameters of the Czech economy improved in 2014 GDP grew at an accelerated pace
unemployment saw a decrease and wages started to grow again The weaker exchange rate of the Czech crown averted deflation The sentiments of households and businesses has noticeably improved Household consumption expenditure as well as corporate investments are on the rise and they represent the main source of GDP growth Last but not least favourable economic development was also boosted by fiscal and monetary policies What is 2015 going to be like
External conditionsIn anticipating the likely short-term development of the Czech economy it is necessary to take into account the situation abroad Owing to the characteristics of the Czech economy as well as a high and constantly increasing GDP-to-export ratio the expected foreign development represents the key input for anticipating domestic development Most significantly the Czech economy is influenced by the Eurozone where 62 of the total export from the Czech Republic is directed The correlation between the GDP of the Czech Republic and the Eurozone has reached 90 in the last 10 years
Optimistic views concerning the future development in the Eurozone have subsided to a certain extent however continuing moderate growth in GDP is still expected The results of an examination performed by the Bloomberg agency indicate that an average growth of 12 is antici-pated Again countries that have higher significance for Czech foreign trade should grow at a faster pace On average anticipated growth in Germany amounts to 14 and an even higher percentage in Slovakia at 28 Other central European countries should also experience satisfac-tory dynamic growth 32 in Poland and 25 in Hungary
Minimal acceleration of GDP growthAll of the components that contribute to GDP use should lead to GDP growth in 2015 accordingly there should be a moderate acceleration of the growth rate amounting to 23
The key contribution shall lead to increased household consumption supported by decreasing unemployment and accelerated growth in real wages Following a reluctance to spend during a period of reces-sion the household savings rate has already decreased and its further decline is not expected
Consumer loans shall not stimulate the degree of consumption and their aggregate volume is being continuously and moderately reduced Real household expenditure increased by 23
Corporate investments should be stimulated by the financial situation in the corporate sector and by closing the output gap ie higher use
of existing production capacities Low interest rates and less stringent loan standards of banks are also positive Larger volume of public funds (from the state budget and the EU funds) should be aimed at invest-ments in infrastructure Gross generation of the fixed capital will rise by 32 in the next year
Net export should benefit from the depreciation of the Czech crown The impact of this measure has not yet been fully projected The reason for this fact is that companies often use financial and natural hedg-ing in terms of foreign exchange risks which decelerates the impacts of foreign exchange changes on the real development of exports and the economy as a whole The contribution of net export to the GDP growth should amount to 07 percentage points in 2015
Unemployment decrease and wage growthFrom the viewpoint of the labour market economic growth will be too slow to reduce unemployment in a significant fashion Total unemployment shall rise up to almost 5 million persons and the unem-ployment rate (based on the methodology of the Czech Statistical Office) shall drop to 59 from its original 61 in 2014 The average unemployment-to-population ratio (calculated using the methodology of the Ministry of Labour and Social Affairs) shall decrease to 70 compared to 77 in 2014 Although further positive tendencies are anticipated on the labour market the basic market indicators will not yet achieve the pre-crisis values The unemployment rate in 2008 reached 44 and the unemployment-to-population ratio amounted to 41
Rising production and demand for labour should result in faster wage growth Nevertheless low inflation should mitigate inflation expecta-tions in negotiations on wages In 2015 the average gross monthly wage shall increase by 29 to CZK 26500 Real increase in average wage should amount to 20
Further increase in foreign trade surplus External economic relation will be mainly affected by two factors development of the economic situation abroad and depreciation of the Czech crown Efficient foreign demand (considering the signifi-cance of individual countries in the export from the Czech Republic) should rise by 16 in the coming year The weakening of the Czech crown by the Czech National Bank in November 2013 will also impact foreign trade in 2015 As a consequence of both of the above factors export from the Czech Republic should experience a rise of 10-11 in 2015 The continuing growth of domestic demand should increase the import of goods by 9-10 This results in a higher trade surplus (in the national context) amounting to CZK 235-240 billion in comparison with CZK 180 billion expected in 2014
For the first time since1993 the Czech economy should achieve a sur-plus in the balance of payments accounts in 2014 which is the key indicator of external economic imbalance This surplus should increase to CZK 90 billion in 2015 ie 19 of GDP
Czech Economy Outlook in 2015 Moderate Optimism
7SMART bull winter 2014
Continuing low inflation Inflation will remain low despite continuing economic growth In 2015 the average inflation of consumer prices should amount to 08 How-ever the total development of the consumer price index is going to be affected (in a downward direction) by the introduction of the third reduced VAT rate for books medicine and baby food as well as a fur-ther decrease in electricity prices for households and an expected decline in food prices
Prices in the Eurozone may have a negative impact on inflationary developments rather slow economic growth along with a decrease in prices of energy and agriculture commodities on markets increase the risk of deflation
No monetary changes A simple scenario is expected in the area of monetary policy Most likely none of the significant parameters is going to change
The Czech National Bankrsquos commitment to keep the exchange rate between the Czech crown and Euro steadily above 270 will be in effect over the whole year Firstly the Czech National bank declares that it is likely to discontinue using the exchange rate as a monetary policy instrument by 2016 Secondly the reaction function model developed for the Czech National Bank implies the need for using a weaker exchange rate in order to achieve the requested monetary conditions while maintaining the basic interest rate of the Czech National Bank at almost zero (005)
The situation concerning interest rates is even simpler It is highly unlikely that the Czech National Bank would modify its monetary-political interest rate during the period in which the monetary commitment is effective Logically this indicates that interest rates will remain unchanged in 2015
However in terms of the rates on the money market and interest swap rates as well as bond yields perceptions on the market will play a significant role on whether the Czech National Bank shall disconti-nue its exchange rate commitment in 2016 and start increasing interest rates Market interest rate could be stimulated by the monetary policy as early as the following year
Fiscal releaseThe government submitted a draft of the state budget for 2015 to the Chamber of Deputies including the following parameters income of CZK 11185 billion expenses of CZK 12185 billion and the resul-ting deficit of exactly CZK 100 billion
In a broader sense the total deficit of the government in the next year should increase to 24 of GDP as opposed to 14 of GDP expected in 2014 Forthcoming legislative changes in 2015 will also be negati-vely projected in the development of public budgets Specifically this relates to introducing the 10 VAT rate applicable to medicine books and baby food which shall result in a decrease in collected taxes of approximately CZK 33 billion with respect to aggregate public funds or CZK 24 billion in the state budget as such The budget will also be burdened with additional adopted measures such as increased tax relief for families with two or more children or returning to the original valorisation pension scheme
Owing to the expected economic growth the regularly-adjusted pri-mary budget balance (exclusive of debt services costs) shall decrease by 14 of GDP which is a fiscal impulse that should accelerate economic growth by approximately 05 percentage points
The governmentrsquos deficit of 24 seems to be too high if we look at analysis on long-term fiscal sustainability If the public debt in relation to GDP were stabilised at the current level (44 of GDP) the defi-cit should not exceed 13 of GDP in the coming year Therefore it would be desirable that the public deficit be stabilised at least at the level achieved in 2013 and 2014 (amounting to 13 and 14 of GDP respectively) As a consequence of increasing the deficit to 24 of GDP the debt in relation to GDP is repeatedly growing which partly negates fiscal consolidation in the previous years
Risks and opportunitiesThe key risk for the Czech economy pertains to developments in the Eurozone in which the long-term growth rate of selected countries was significantly decelerated and may continue to decline with the lack of structural reforms In addition the Eurozone is also exposed to the risk of deflation and the corresponding negative effects
Potential escalation of the situation in Ukraine and Russia as well as imposing additional economic sanctions also pose a risk on economic development Sanctions imposed on Russia influence the Eurozone including the Czech Republic in a retrospective manner
Contrarily low prices of energy commodities could have a positive impact on global economic development During 2014 the cost of the Brent oil declined from USD 105barrel at the beginning of January to USD 73barrel at present A decrease in oil prices of USD 10barrel could boost global economic growth by 010-015 percentage points
8
Why Is the Forthcoming Amendment to the EIA Act So Terrifying
JUDr Pavel Novaacutek novakspsczHead of the Legislation and Legal SectionAssociation of Building Entrepreneurs of the Czech Republic
The amendment to Act No 1002001 Coll on Environmental Impact Assessment the so-called ldquoEIA Actrdquo is to be adopted any day now Unfortunately the original deadline (3 December 2014) for negotiating the amendment was postponed as the Chamber of Deputies was preoc-cupied with the negotiations on their own salaries As a result this issue which is of major importance to the construction industry was suspended
The impulse for adopting the amendment includes an infringement procedure before the European Commission that has criticised the Czech Republic for insufficient projection of the Treaty on the Functioning of the European Union and the relevant directives in Czech law Accelerated negotiations result from the threat that if the amendment does not take effect on 1 January 2015 the European Union will suspend the funding from European funds However requirements of the European Commis-sion exceed the scope of Directive 201192EU and are largely based on the judicature of the Court of Justice of the European Union
We do not know the details of negotiations of the representatives of the Czech Republic with the European Commission The fact is that the proposal contains a lot of changes that will have a major negative impact on the planning and realisation of constructions Impacts on transportation infrastructure and the construction industry will be especially extensive The amendment will complicate procedures in two basic areas
The first area involves procedural steps of administration proceedings and judicial review The amendment has a major impact on the Building Act which rules out the opportunity to connect the impact assessment with construction management The EIA processes are present in all phases of the permission procedure This includes not only the phase of spatial planning zoning decisions and building permits but it also newly involves potential modifications of unfinished buildings before their completion Previous procedures are repeatedly verified in each phase of the construc-tion management which makes the entire procedure significantly longerThe opinion of the Ministry of Labour and Social Affairs and Regional Authorities (environmental divisions) on the EIA documentation presented by the contracting authority is a binding opinion for the subsequent pro-cedure under the Building Act For this reason it is impossible to conduct a proceeding managed by the Construction Office which would involve an EIA process These are two mutually conditioned proceedings Without a binding approval of the EIA it is impossible to terminate a proceeding and issue a decision
The coherence stamp principle is in effect which means regressive verifica-tion of potential changes in all planning and implementation phases zoning decision (vs spatial planning) building permit (vs zoning decision) modification of the construction before completion (vs building permit) etc Putting a complete construction into use may also be blocked under exceptional circumstances
All decisions may be re-examined by the court Filing a claim has suspen-sory effect and subsequent decisions may not come into force without a judicial proceeding to be terminated Nevertheless the amendment includes an to acknowledge suspensory effect if the plaintiff proposes to do so in hisher lawsuit which is logically highly unlikely
The second more significant area relates to expanding the opportunities of the public to affect the process of construction approvals including construction modifications In addition to the ldquopublicrdquo that means any individual or legal person (but also a competitive company for instance) the so-called ldquoconcerned public with considerably wider rights is also introduced The concerned public must be an institution that has existed for three years All of the existing concerned public (Duha Zelenyacute kruh Děti země Jihočeskeacute matky Greenpeace etc) comply with this require-ment If they subsequently enter into a procedure they will become its participants with all rights to file an appeal proposal for a judicial review or a lawsuit at administrative courts The condition enabling the public to participate in a procedure does pertain to the territorial (local) jurisdiction ie the requirement that the specific public is directly affected by the rel-evant building project The public may express its interest in participating in the procedure by presenting a signature list containing 200 signatures which do not need to be certified therefore the real interest of the public is inconclusive In fact there is not even a requirement for the public to explain their views in environmental threads If they claim that the envi-ronment is endangered this statement is not challenged They are not obliged to support their statements with any specialised arguments but administrative bodies must nevertheless address them If all resources for administrative procedures are exhausted the concerned public is entitled to file an appeal against every proceeding This includes a proposal for a judicial review at administration courts which can be repeated for the exact same reasons Although there will be a statutory (and very long) deadline to issue a decision the entire process will be prolonged by a num-ber of months Filing a lawsuit also has suspensory effect in this situation ie it is impossible to initiate the implementation of a building project until the final ruling of the court
Some of the most serious obstacles are predominantly related to invest-ment construction that is largely funded from public sources including the implementation of construction in the interest of the public ie in the interest of the concerned public Such construction projects are quite inclusive covering roads flood control systems constructions with a positive impact on the environment the canalisation of waterways ring roads in cities in order to protect their inhabitants from the influence of transportation etc It is possible that certain permission procedures may be revoked returning certain projects to the phase of project negotiations and unfinished constructions may be discontinued
The concerned public will not need to be distressed as it is naturally not responsible for the financial consequences associated with required measures extensions of deadlines increasing administrative burden for governmental bodies as well as contracting authorities which finally result in irrational use of public funds
9SMART bull winter 2014
The proposed amendment is largely attributed to non-governmental organisations that have a more influential position in the European institutions as well as in the Chamber of Deputies than representatives of the state administration
In this respect we would like to draw your attention to the fact that we cast no doubt upon the right of the public to have qualified and completed information regarding the influence of the negotiated project on the environment However we have justifiable con-cerns that this will give various lobbying groups who often have nothing to do with environmental protec-tion room to put up further obstacles and file bullying lawsuits
The government has promised that this situation is only temporary Concurrently it has initiated work on a completely new legal regulation that should simplify and accelerate individual processes The Ministry of the Environment cannot exceed the limits of the nego-tiated amendment which is not even included in the governmentrsquos Legislative work plan for 2015
We are not optimistic that the new act is going to introduce significant modifications of environmental project assessment and unblock further implementation of investment projects There is a risk that various inter-est groups will influence the preparation of the new act in order to formulate requirements that will exceed the scope of the European directive Our concerns arise from the fact that the Czech Republic did not use the opportunity defined in European directives to adjust the relevant requirements in line with the national law If more-stringent criteria were set exceeding the scope of European directives all participants would have been more limited in the construction process
If the key objective is not achieved (ie connecting the environmental impact assessment with the pro-cedural steps regarding construction permits) and the approach of the concerned public is not managed in an appropriate manner the obstacles that have a major negative effect on investment construction will remain
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
7SMART bull winter 2014
Continuing low inflation Inflation will remain low despite continuing economic growth In 2015 the average inflation of consumer prices should amount to 08 How-ever the total development of the consumer price index is going to be affected (in a downward direction) by the introduction of the third reduced VAT rate for books medicine and baby food as well as a fur-ther decrease in electricity prices for households and an expected decline in food prices
Prices in the Eurozone may have a negative impact on inflationary developments rather slow economic growth along with a decrease in prices of energy and agriculture commodities on markets increase the risk of deflation
No monetary changes A simple scenario is expected in the area of monetary policy Most likely none of the significant parameters is going to change
The Czech National Bankrsquos commitment to keep the exchange rate between the Czech crown and Euro steadily above 270 will be in effect over the whole year Firstly the Czech National bank declares that it is likely to discontinue using the exchange rate as a monetary policy instrument by 2016 Secondly the reaction function model developed for the Czech National Bank implies the need for using a weaker exchange rate in order to achieve the requested monetary conditions while maintaining the basic interest rate of the Czech National Bank at almost zero (005)
The situation concerning interest rates is even simpler It is highly unlikely that the Czech National Bank would modify its monetary-political interest rate during the period in which the monetary commitment is effective Logically this indicates that interest rates will remain unchanged in 2015
However in terms of the rates on the money market and interest swap rates as well as bond yields perceptions on the market will play a significant role on whether the Czech National Bank shall disconti-nue its exchange rate commitment in 2016 and start increasing interest rates Market interest rate could be stimulated by the monetary policy as early as the following year
Fiscal releaseThe government submitted a draft of the state budget for 2015 to the Chamber of Deputies including the following parameters income of CZK 11185 billion expenses of CZK 12185 billion and the resul-ting deficit of exactly CZK 100 billion
In a broader sense the total deficit of the government in the next year should increase to 24 of GDP as opposed to 14 of GDP expected in 2014 Forthcoming legislative changes in 2015 will also be negati-vely projected in the development of public budgets Specifically this relates to introducing the 10 VAT rate applicable to medicine books and baby food which shall result in a decrease in collected taxes of approximately CZK 33 billion with respect to aggregate public funds or CZK 24 billion in the state budget as such The budget will also be burdened with additional adopted measures such as increased tax relief for families with two or more children or returning to the original valorisation pension scheme
Owing to the expected economic growth the regularly-adjusted pri-mary budget balance (exclusive of debt services costs) shall decrease by 14 of GDP which is a fiscal impulse that should accelerate economic growth by approximately 05 percentage points
The governmentrsquos deficit of 24 seems to be too high if we look at analysis on long-term fiscal sustainability If the public debt in relation to GDP were stabilised at the current level (44 of GDP) the defi-cit should not exceed 13 of GDP in the coming year Therefore it would be desirable that the public deficit be stabilised at least at the level achieved in 2013 and 2014 (amounting to 13 and 14 of GDP respectively) As a consequence of increasing the deficit to 24 of GDP the debt in relation to GDP is repeatedly growing which partly negates fiscal consolidation in the previous years
Risks and opportunitiesThe key risk for the Czech economy pertains to developments in the Eurozone in which the long-term growth rate of selected countries was significantly decelerated and may continue to decline with the lack of structural reforms In addition the Eurozone is also exposed to the risk of deflation and the corresponding negative effects
Potential escalation of the situation in Ukraine and Russia as well as imposing additional economic sanctions also pose a risk on economic development Sanctions imposed on Russia influence the Eurozone including the Czech Republic in a retrospective manner
Contrarily low prices of energy commodities could have a positive impact on global economic development During 2014 the cost of the Brent oil declined from USD 105barrel at the beginning of January to USD 73barrel at present A decrease in oil prices of USD 10barrel could boost global economic growth by 010-015 percentage points
8
Why Is the Forthcoming Amendment to the EIA Act So Terrifying
JUDr Pavel Novaacutek novakspsczHead of the Legislation and Legal SectionAssociation of Building Entrepreneurs of the Czech Republic
The amendment to Act No 1002001 Coll on Environmental Impact Assessment the so-called ldquoEIA Actrdquo is to be adopted any day now Unfortunately the original deadline (3 December 2014) for negotiating the amendment was postponed as the Chamber of Deputies was preoc-cupied with the negotiations on their own salaries As a result this issue which is of major importance to the construction industry was suspended
The impulse for adopting the amendment includes an infringement procedure before the European Commission that has criticised the Czech Republic for insufficient projection of the Treaty on the Functioning of the European Union and the relevant directives in Czech law Accelerated negotiations result from the threat that if the amendment does not take effect on 1 January 2015 the European Union will suspend the funding from European funds However requirements of the European Commis-sion exceed the scope of Directive 201192EU and are largely based on the judicature of the Court of Justice of the European Union
We do not know the details of negotiations of the representatives of the Czech Republic with the European Commission The fact is that the proposal contains a lot of changes that will have a major negative impact on the planning and realisation of constructions Impacts on transportation infrastructure and the construction industry will be especially extensive The amendment will complicate procedures in two basic areas
The first area involves procedural steps of administration proceedings and judicial review The amendment has a major impact on the Building Act which rules out the opportunity to connect the impact assessment with construction management The EIA processes are present in all phases of the permission procedure This includes not only the phase of spatial planning zoning decisions and building permits but it also newly involves potential modifications of unfinished buildings before their completion Previous procedures are repeatedly verified in each phase of the construc-tion management which makes the entire procedure significantly longerThe opinion of the Ministry of Labour and Social Affairs and Regional Authorities (environmental divisions) on the EIA documentation presented by the contracting authority is a binding opinion for the subsequent pro-cedure under the Building Act For this reason it is impossible to conduct a proceeding managed by the Construction Office which would involve an EIA process These are two mutually conditioned proceedings Without a binding approval of the EIA it is impossible to terminate a proceeding and issue a decision
The coherence stamp principle is in effect which means regressive verifica-tion of potential changes in all planning and implementation phases zoning decision (vs spatial planning) building permit (vs zoning decision) modification of the construction before completion (vs building permit) etc Putting a complete construction into use may also be blocked under exceptional circumstances
All decisions may be re-examined by the court Filing a claim has suspen-sory effect and subsequent decisions may not come into force without a judicial proceeding to be terminated Nevertheless the amendment includes an to acknowledge suspensory effect if the plaintiff proposes to do so in hisher lawsuit which is logically highly unlikely
The second more significant area relates to expanding the opportunities of the public to affect the process of construction approvals including construction modifications In addition to the ldquopublicrdquo that means any individual or legal person (but also a competitive company for instance) the so-called ldquoconcerned public with considerably wider rights is also introduced The concerned public must be an institution that has existed for three years All of the existing concerned public (Duha Zelenyacute kruh Děti země Jihočeskeacute matky Greenpeace etc) comply with this require-ment If they subsequently enter into a procedure they will become its participants with all rights to file an appeal proposal for a judicial review or a lawsuit at administrative courts The condition enabling the public to participate in a procedure does pertain to the territorial (local) jurisdiction ie the requirement that the specific public is directly affected by the rel-evant building project The public may express its interest in participating in the procedure by presenting a signature list containing 200 signatures which do not need to be certified therefore the real interest of the public is inconclusive In fact there is not even a requirement for the public to explain their views in environmental threads If they claim that the envi-ronment is endangered this statement is not challenged They are not obliged to support their statements with any specialised arguments but administrative bodies must nevertheless address them If all resources for administrative procedures are exhausted the concerned public is entitled to file an appeal against every proceeding This includes a proposal for a judicial review at administration courts which can be repeated for the exact same reasons Although there will be a statutory (and very long) deadline to issue a decision the entire process will be prolonged by a num-ber of months Filing a lawsuit also has suspensory effect in this situation ie it is impossible to initiate the implementation of a building project until the final ruling of the court
Some of the most serious obstacles are predominantly related to invest-ment construction that is largely funded from public sources including the implementation of construction in the interest of the public ie in the interest of the concerned public Such construction projects are quite inclusive covering roads flood control systems constructions with a positive impact on the environment the canalisation of waterways ring roads in cities in order to protect their inhabitants from the influence of transportation etc It is possible that certain permission procedures may be revoked returning certain projects to the phase of project negotiations and unfinished constructions may be discontinued
The concerned public will not need to be distressed as it is naturally not responsible for the financial consequences associated with required measures extensions of deadlines increasing administrative burden for governmental bodies as well as contracting authorities which finally result in irrational use of public funds
9SMART bull winter 2014
The proposed amendment is largely attributed to non-governmental organisations that have a more influential position in the European institutions as well as in the Chamber of Deputies than representatives of the state administration
In this respect we would like to draw your attention to the fact that we cast no doubt upon the right of the public to have qualified and completed information regarding the influence of the negotiated project on the environment However we have justifiable con-cerns that this will give various lobbying groups who often have nothing to do with environmental protec-tion room to put up further obstacles and file bullying lawsuits
The government has promised that this situation is only temporary Concurrently it has initiated work on a completely new legal regulation that should simplify and accelerate individual processes The Ministry of the Environment cannot exceed the limits of the nego-tiated amendment which is not even included in the governmentrsquos Legislative work plan for 2015
We are not optimistic that the new act is going to introduce significant modifications of environmental project assessment and unblock further implementation of investment projects There is a risk that various inter-est groups will influence the preparation of the new act in order to formulate requirements that will exceed the scope of the European directive Our concerns arise from the fact that the Czech Republic did not use the opportunity defined in European directives to adjust the relevant requirements in line with the national law If more-stringent criteria were set exceeding the scope of European directives all participants would have been more limited in the construction process
If the key objective is not achieved (ie connecting the environmental impact assessment with the pro-cedural steps regarding construction permits) and the approach of the concerned public is not managed in an appropriate manner the obstacles that have a major negative effect on investment construction will remain
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
8
Why Is the Forthcoming Amendment to the EIA Act So Terrifying
JUDr Pavel Novaacutek novakspsczHead of the Legislation and Legal SectionAssociation of Building Entrepreneurs of the Czech Republic
The amendment to Act No 1002001 Coll on Environmental Impact Assessment the so-called ldquoEIA Actrdquo is to be adopted any day now Unfortunately the original deadline (3 December 2014) for negotiating the amendment was postponed as the Chamber of Deputies was preoc-cupied with the negotiations on their own salaries As a result this issue which is of major importance to the construction industry was suspended
The impulse for adopting the amendment includes an infringement procedure before the European Commission that has criticised the Czech Republic for insufficient projection of the Treaty on the Functioning of the European Union and the relevant directives in Czech law Accelerated negotiations result from the threat that if the amendment does not take effect on 1 January 2015 the European Union will suspend the funding from European funds However requirements of the European Commis-sion exceed the scope of Directive 201192EU and are largely based on the judicature of the Court of Justice of the European Union
We do not know the details of negotiations of the representatives of the Czech Republic with the European Commission The fact is that the proposal contains a lot of changes that will have a major negative impact on the planning and realisation of constructions Impacts on transportation infrastructure and the construction industry will be especially extensive The amendment will complicate procedures in two basic areas
The first area involves procedural steps of administration proceedings and judicial review The amendment has a major impact on the Building Act which rules out the opportunity to connect the impact assessment with construction management The EIA processes are present in all phases of the permission procedure This includes not only the phase of spatial planning zoning decisions and building permits but it also newly involves potential modifications of unfinished buildings before their completion Previous procedures are repeatedly verified in each phase of the construc-tion management which makes the entire procedure significantly longerThe opinion of the Ministry of Labour and Social Affairs and Regional Authorities (environmental divisions) on the EIA documentation presented by the contracting authority is a binding opinion for the subsequent pro-cedure under the Building Act For this reason it is impossible to conduct a proceeding managed by the Construction Office which would involve an EIA process These are two mutually conditioned proceedings Without a binding approval of the EIA it is impossible to terminate a proceeding and issue a decision
The coherence stamp principle is in effect which means regressive verifica-tion of potential changes in all planning and implementation phases zoning decision (vs spatial planning) building permit (vs zoning decision) modification of the construction before completion (vs building permit) etc Putting a complete construction into use may also be blocked under exceptional circumstances
All decisions may be re-examined by the court Filing a claim has suspen-sory effect and subsequent decisions may not come into force without a judicial proceeding to be terminated Nevertheless the amendment includes an to acknowledge suspensory effect if the plaintiff proposes to do so in hisher lawsuit which is logically highly unlikely
The second more significant area relates to expanding the opportunities of the public to affect the process of construction approvals including construction modifications In addition to the ldquopublicrdquo that means any individual or legal person (but also a competitive company for instance) the so-called ldquoconcerned public with considerably wider rights is also introduced The concerned public must be an institution that has existed for three years All of the existing concerned public (Duha Zelenyacute kruh Děti země Jihočeskeacute matky Greenpeace etc) comply with this require-ment If they subsequently enter into a procedure they will become its participants with all rights to file an appeal proposal for a judicial review or a lawsuit at administrative courts The condition enabling the public to participate in a procedure does pertain to the territorial (local) jurisdiction ie the requirement that the specific public is directly affected by the rel-evant building project The public may express its interest in participating in the procedure by presenting a signature list containing 200 signatures which do not need to be certified therefore the real interest of the public is inconclusive In fact there is not even a requirement for the public to explain their views in environmental threads If they claim that the envi-ronment is endangered this statement is not challenged They are not obliged to support their statements with any specialised arguments but administrative bodies must nevertheless address them If all resources for administrative procedures are exhausted the concerned public is entitled to file an appeal against every proceeding This includes a proposal for a judicial review at administration courts which can be repeated for the exact same reasons Although there will be a statutory (and very long) deadline to issue a decision the entire process will be prolonged by a num-ber of months Filing a lawsuit also has suspensory effect in this situation ie it is impossible to initiate the implementation of a building project until the final ruling of the court
Some of the most serious obstacles are predominantly related to invest-ment construction that is largely funded from public sources including the implementation of construction in the interest of the public ie in the interest of the concerned public Such construction projects are quite inclusive covering roads flood control systems constructions with a positive impact on the environment the canalisation of waterways ring roads in cities in order to protect their inhabitants from the influence of transportation etc It is possible that certain permission procedures may be revoked returning certain projects to the phase of project negotiations and unfinished constructions may be discontinued
The concerned public will not need to be distressed as it is naturally not responsible for the financial consequences associated with required measures extensions of deadlines increasing administrative burden for governmental bodies as well as contracting authorities which finally result in irrational use of public funds
9SMART bull winter 2014
The proposed amendment is largely attributed to non-governmental organisations that have a more influential position in the European institutions as well as in the Chamber of Deputies than representatives of the state administration
In this respect we would like to draw your attention to the fact that we cast no doubt upon the right of the public to have qualified and completed information regarding the influence of the negotiated project on the environment However we have justifiable con-cerns that this will give various lobbying groups who often have nothing to do with environmental protec-tion room to put up further obstacles and file bullying lawsuits
The government has promised that this situation is only temporary Concurrently it has initiated work on a completely new legal regulation that should simplify and accelerate individual processes The Ministry of the Environment cannot exceed the limits of the nego-tiated amendment which is not even included in the governmentrsquos Legislative work plan for 2015
We are not optimistic that the new act is going to introduce significant modifications of environmental project assessment and unblock further implementation of investment projects There is a risk that various inter-est groups will influence the preparation of the new act in order to formulate requirements that will exceed the scope of the European directive Our concerns arise from the fact that the Czech Republic did not use the opportunity defined in European directives to adjust the relevant requirements in line with the national law If more-stringent criteria were set exceeding the scope of European directives all participants would have been more limited in the construction process
If the key objective is not achieved (ie connecting the environmental impact assessment with the pro-cedural steps regarding construction permits) and the approach of the concerned public is not managed in an appropriate manner the obstacles that have a major negative effect on investment construction will remain
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
9SMART bull winter 2014
The proposed amendment is largely attributed to non-governmental organisations that have a more influential position in the European institutions as well as in the Chamber of Deputies than representatives of the state administration
In this respect we would like to draw your attention to the fact that we cast no doubt upon the right of the public to have qualified and completed information regarding the influence of the negotiated project on the environment However we have justifiable con-cerns that this will give various lobbying groups who often have nothing to do with environmental protec-tion room to put up further obstacles and file bullying lawsuits
The government has promised that this situation is only temporary Concurrently it has initiated work on a completely new legal regulation that should simplify and accelerate individual processes The Ministry of the Environment cannot exceed the limits of the nego-tiated amendment which is not even included in the governmentrsquos Legislative work plan for 2015
We are not optimistic that the new act is going to introduce significant modifications of environmental project assessment and unblock further implementation of investment projects There is a risk that various inter-est groups will influence the preparation of the new act in order to formulate requirements that will exceed the scope of the European directive Our concerns arise from the fact that the Czech Republic did not use the opportunity defined in European directives to adjust the relevant requirements in line with the national law If more-stringent criteria were set exceeding the scope of European directives all participants would have been more limited in the construction process
If the key objective is not achieved (ie connecting the environmental impact assessment with the pro-cedural steps regarding construction permits) and the approach of the concerned public is not managed in an appropriate manner the obstacles that have a major negative effect on investment construction will remain
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
10
Series
The GherkinLondon
Series Construction Icons
Ondřeh Zabloudil Analyst ozabloudildeloittececom
The building at 30 St Mary Axe informally known as The Gherkin is a modern skyscraper located in Londonlsquos primary financial district the City of London
The building stands on the former site of the marine exchange build-ing the Baltic Exchange the history of which dates back to 1903 This historical building suffered extensive damage in 1992 during a terrorist attack by the Irish republican Army Although English Heritage originally insisted on returning the building to its original state it later admitted that the damage caused by one tonne of explosives was too serious to be repaired Owing to the fact that the plot was not included in the so-called ldquoProtected Viewrdquo which protects a view of specific London sights there were no further obstacles in erecting a new skyscraper in the City of London - the first one in 30 years
Construction of the buildingAt 180 meters The Gherkin is the third tallest building in the City of London and the eighth tallest building in London Its characteristic design was created by way of diagonal steel beams This unusual method reduced the volume of steel necessary in the construction to 11000 tonnes In order to save space on the plot and due to other constructional benefits the buildinglsquos circumference gradually widens before tapering to a point at the top One of the most serious issues related to skyscrapers is the winds that are formed at the foundation of buildings which can be unpleasant for people in the surrounding neighbourhoods The specific design of The Gherkin contributes to the minimisation of such winds Another advantage of such design is a reduction of the surface area of the building by 25 compared with the more traditional cuboid shape This results in the decreased energy performance of the building
The lowest possible energy performance of the building was one of the main objectives of the planning phase For this reason there are six vertically spiralling light wells in the shape of triangles along the buildinglsquos circumference that enable natural light to flood into interiors and enhance natural ventilation This decreases the energy performance in terms of lighting and ventilation There is another reason for the spiralling shape of the light wells - mathematic modelling proved that this form is ideal for maximising air ventilation As a result of such design The Gherkin should use 50 less energy than a traditional skyscraper
After completionAfter completion in 2004 The Gherkin became the first ecologic skyscraper in London and one of its most admired modern buildings It has won a number of significant awards including the RIBA Stirling Prize - it is worth mentioning that for the first time in the prizelsquos history the judges reached a unanimous decision
The primary owner of the building was the Swiss company Swiss Re The buildinglsquos construction costs including the cost of the plot amounted to pound229 million The building was then sold for pound630 million in 2007 mak-ing it Britainlsquos most expensive office building Despite including additional unspecified costs which amounted to tens of millions of British pounds The Gherkin was a very good investment for its owner The building was jointly purchased by IVG Immobillien AG and a UK investment firm Evans Randall Recently 10 years after its completion The Gherkin was put up for sale again because the current owners could no longer afford to make the loan repayments in a foreign currency The transaction was managed by Deloitte UK and Savills Over 200 potential buyers showed their interest in purchasing the building In the end The Gherkin was sold to the Safra Group controlled by the Brazilian billionaire Joseph Safra The transaction value is estimated at pound726 million with a yield of 38
The Gherkin in numbers
1 is the number of pieces of curved glass on the building remaining glass panels are completely flat The special lens-shape piece of glass is on the very top and enables a 360deg panoramic view London Its perimeter is 24m weighing 250 kilogrammes
5 is the number of degrees by which each floor is rotated compared with the previous one
6 meters per second is the speed of 18 elevators in The Gherkin It takes no more than 30 seconds to get from the ground floor to the top floor
9 professional clean the external glass panels of The Gherkin for 10 days
20 companies are currently occupying the building
39 is the number of the floor on which the highest restaurant in London is located
41 is the total number of floors
180 meters is the height of the building
386 meters is the height of Millennium Tower which was to be originally built at the location of The Gherkin Its project was not implemented because it would disrupt airline routes
5700 square meters is the surface area of the plot on which The Gherkin is situated
46914 square meters is the net rentable surface area of the building
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
11SMART bull winter 2014
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
12
Top 50 European Powers of Construction 2013Sales of major European companies decreased in 2013 yet only by an average of 21 Nevertheless the increasing value of European construction firms indicates a brighter future The internationalisation of companies is on the rise and an increasingly larger volume of their sales arise from foreign markets However leaders in the construction companies should know that the expansion of activities abroad involves certain risks This is obvious from the fact that on average the margins of foreign engagements achieved by international companies are lower than the margins of domestic projects Yet it is positive that the market value of the companies in the ranking grew by 297 as a result of optimistic expectations
Jiřiacute Chroustovskyacute Deloittelsquos Analystjchroustovskydeloittececom
The ranking of 50 major construction companies by the volume of their sales was headed by the French Vinci group in 2013 followed by ACS and Bouygues There
were no changes in the top six when compared to 2012 In terms of the top ten Balfour Beatty the only UK representative in the list lost two places whereas Colas and Strabag gained one place each
The top places in the ranking are dominated by French companies with four of them placed among the top ten These French construction com-panies increased their sales by 2 in 2013 In the ranking by country first place is occupied by the UK with a total of 13 companies listed In total the sales of major European construction companies decreased by 21 On the other hand the market value of the companies in the ranking increased by 297 as a result of the anticipated growth in the European economy Construction firms also reported good results in terms of the Euro Stoxx 50 index which grew by 18 in 2013 Despite this only eight construction firms from the ranking reported higher market capitalisation values than before the crisis The parent companies of firms present on the Czech market also achieved favourable results The value of Hochtief AG Skanska AB and Strabag SE grew by 41 19 and 4 respectively
Diversification and internationalisationA total of 56 of sales attained by the companies resulted from their international activities The expansion of companies abroad is often to compensate for relatively small or highly-competitive domestic markets The degree of diversification of companies ie the volume of sales from non-construction activities was 23 in 2013 Diversification decreased by 6 in comparison with 2012 On the other hand internationalisation expressed by the proportion of foreign sales saw an aggregate increase of 7
Total EBIT margins of companies dropped by 02 to 44 between 2012 and 2013 This resulted from a decrease in margins of non-con-struction activities to 88 (from 112) On the other hand the margin of construction activities rose from 26 in 2012 to 31 in 2013
The growing internationalisation of construction businesses also involves certain risks Generally companies should consider the fact that winning a foreign engagement is not as difficult as making it profitable Expan-
sion abroad includes risks such as a weaker knowledge of customers subcontractors and prices In this respect it is noteworthy that the mar-gin of construction activities attained by most international companies in the ranking is on average 09 lower than the margin achieved by the remaining companies This results from the fact that in general the margin reported by companies on domestic markets is considerably higher than on international markets
The highly cyclical nature of the construction industry means that finan-cial problems are likely for many construction companies during periods of recession For this reason many construction companies diversify their activities and expand to areas that are less dependent on the economic cycle It is worth mentioning that the top three most diversified compa-nies in the ranking also reported the highest EBIT margin at an average of 68 This is caused by the fact that margins of non-constructional activities are usually higher than margins of the construction sector
Central European construction sectorAccording to the study entitled ldquoDeloitte CE Top 500rdquo major central European companies also experienced a decrease in sales in 2013 In comparison with a moderate decline in the European construction industry the sales drop of -157 reported by the seven largest firms in central Europe is rather high The companies continued to report a sales decrease of -117 as recorded in 2012
Among the companies in the ranking the most significant decline in sales was seen by Polish construction firms This was caused by the fact that the construction boom in Poland between 2010 and 2012 has faded away On the other hand major Czech construction companies recorded a lower decline in margins than in the previous years which may indicate that the Czech construction sector has already found its bottom line
The complete study ldquoEuropean Powers of Constructionrdquo in EnglishThe study also contains other facts from the European construction industry analyses of the strategies of the top 20 companies in the ranking and profiles of these firms
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
13SMART bull winter 2014
Study
Total sales of Top in 2013 by country (Deloitte European Powers of construction 2013)
Country Number of companies Total sales in 2013 (euro mil) Change 2013 vs 2012 Market capitalisation (eurom) Change 2013 vs 2012
France 4 100 996 18 45 190 309
Spain 6 66 621 (73) 27 332 269
UK 13 40 444 (30) 24 392 464
Germany 3 35 512 04 8 853 252
Sweden 4 28 898 23 11 746 284
Austria 2 15 170 (08) 2 730 90
Netherlands 3 10 364 (59) 1 376 315
Finland 2 3 961 (432) 1 603 (258)
Italy 3 6 119 45 3 182 430
Turkey 1 4 930 102 6 464 26
Portugal 2 3 944 71 1 254 1756
Norway 1 2 790 51 780 (25)
Poland 2 1 695 (304) 857 437
Switzerland 1 2 483 110 979 603
Belgium 1 2 267 194 848 477
Denmark 1 987 (246) 102 1344
Greece 1 1 242 07 563 656
Total 50 328 423 (21) 138 251 297
Top 7 central European construction companies by sales in 2013 (Deloitte CEE TOP 500)
Ranking Name Country Sales in 2013 (euro mil) Comparison with 2012 Ranking 2013 vs 2012
1 Budimex Poland 1 128 (223) =
2 Metrostav Czech Republic 1 069 (01) =
3 Skanska Polska Poland 999 (23) =
4 Strabag Polska Poland 663 (295) 1
5 Polimex Mostostal Poland 561 (429) 1
6 EUROVIA CS Czech Republic 507 (157) NA
7 Strabag CR Czech Republic 482 (53) 1
Top 20 by sales in 2013 (Deloitte European Powers of Construction 2013)
Ranking Name Country Total sales in
2013 (eurom)
Variation 2013
vs 2012
Market
capitalisation (eurom)
Ranking change
2013 vs 2012
1 VINCI SA France 40338 4 28704 =
2 ACTIV DE CONSTR Y SERV SA (ACS) Spain 38373 0 7873 =
3 BOUYGUES SA France 33345 (1) 8727 =
4 HOCHTIEF AG Germany 25693 1 4779 =
5 SKANSKA AB Sweden 15776 6 6228 =
6 EIFFAGE SA France 14264 2 3743 =
7 COLAS SA France 13049 0 4017 1
8 STRABAG SE Austria 12476 (4) 2430 1
9 BALFOUR BEATTY PLC UK 11914 (11) 2371 2
10 BILFINGER SE Germany 8515 (1) 3752 1
11 FERROVIAL SA Spain 8166 6 10317 1
12 KONINKLIJKE BAM GROEP NV Netherlands 7042 (5) 1019 1
13 FOMENTO DE CONSTR Y CONTRATAS SA (FCC) Spain 6727 (40) 2059 3
14 NCC AB Sweden Sweden 6684 2 2568 1
15 ACCIONA SA Spain 6607 (6) 2381 1
16 PEAB AB Sweden 4981 (7) 1315 1
17 ENKA INSAAT Turkey 4930 10 6464 2
18 CARILLION PLC UK 4804 (12) 1706 2
19 OBRASCON HUARTE LAIN SA (OHL) Spain 3684 (9) 2937 1
20 BARRATT DEVELOPMENTS PLC UK 3159 15 4119 4
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
14
Changes of VAT in the Real Estate Area under Preparation
Petr Tušakovskyacute Managerptusakovskydeloittececom
Recently we have informed you of the changes affect-ing the application of VAT in the supply of real estate (ie immovable assets) from 1 January 2014 in connection
with the private law recodification As we expected the wording of the relevant provisions of the VAT Act and the interpretation thereof compliant with the EU Directive brought about in practice consider-able complications to entrepreneurial entities Even though the GeneraI Financial Directorate decided in respect of the number of questions raised by professional public and tax payers to issue at the end of 2013 a Briefing Paper On the Application of VAT in the Supply and Lease of Selected Real Estate it was obvious after 1 January 2014 that it will be necessary to amend the relevant provisions of the VAT Act as soon as possible
Currently there is a further proposal of the amendment to the VAT Act in legislation process that should take effect on 1 January 2015 The wording under preparation has been approved by the Chamber of Deputies and will thus pass to the Senate Our comments are based on the wording of the so-called ldquotechnical amendment ldquowhich was approved by the Chamber of Deputies Thus it can still happen that the final wording of the amendment will differ from the proposal that is available to us
In this article we would like to especially point out the below-men-tioned changes concerning real estate
bull Tax exemption in the supply of plots of land
bull Term for the taxation of real estate
bull Calculation of the floor space in social flats for VAT purposes
Term for Real Estate Taxation
The five-year period for the real estate taxation shall be preserved After the expiration of this period the transfer of the real estate will be tax-exempted In any case according to the new regulation this period will begin running after any substantial change made in the construction However the amendment to the act does not contain the definition of substantial change An explanatory memorandum provides that a substantial change in the construction is the change causing a substantial infringement of the real estate with respect to its current value or in the case of the construction with respect to the current floor space thereof Thus it can be deduced that for example the extensions of residential houses will be considered the substantial change Also the conversion of a non-operating factory into residential units will be considered the substantial change How-ever it can be expected that a number of situations will occur in this area that will not be unambiguous and will lead to a number of uncertainties
Similarly as has been the case up to now the payer will also have the option to tax the relevant transfer of the real estate after the expiration of the five-year period (or a three-year period in the case of the immovable assets acquired until 31 December 2012) Newly a buyer must also agree with the taxable transfer if he is a VAT payer However a substantial change is that in situations where contractual parties agree on the taxable transfer of the real estate whose sale will take place after the five-year taxation period the buyer will in compli-ance with the new regulation be obliged to use the regime of the transfer of the tax obligation to such a real estate trans-fer In these cases the obligation to report the tax liability in the buyerrsquos tax return arises for the buyer of the relevant real estate
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
15SMART bull winter 2014
Finance
Tax-exemption in the Supply of Plots of Land from 2015
Nowadays only such a transfer of the plot of land is exempted according to the VAT Act where the land is not built-up with the construction connected with the ground by a solid foundation or infrastructure networks and where at the same time a construc-tion approval or approval with the construction of a registered building is issued in respect thereof According to the above-mentioned paper of the General Financial Directorate it is necessary to respect the principle of the indivisibility of the building and adjoining plot of land taxation regime Based on this principle the purchase of land is also tax-exempted if a building stands on a plot of land that meets the conditions for the application of VAT exemption The tax regime for the plot of land will thus be deter-mined according to the regime for the construction located on it Either way problems with the interpretation of the current wording have occurred in rela-tion to whether the tax regime will be taken over by the plot of land on which the construc-tion stands or by a part of the land adjoining the relevant construction The second option arises from the wording of the EU Directive
Lawmakers are attempting to remove uncertainties concerning the current interpretation Newly the plots of land whose purchase will be exempted should be selectively determinedA supply of the plots of land should be exempted only if the plot of land meets two conditions ie (i) it is a building plot of land and (ii) it does not form a unit with a construction firmly connected with the ground What does this mean in practiceThe amendment again brings up the subject of the definition of a building plot of land The building plot of land is newly understood to be the plot of land on which the construction firmly connected with the ground is to be built or where construction works or preparatory construction works were performed on such a plot of land or in the surroundings thereof for the purposes of this building It also concerns the plot of land which is the subject of administrative acts (eg filing the application for the change of development plan) However it only concerns the con-struction works and administrative acts performed for the purposes of a particular building At the same time it still applies that the build-ing plot of land is also the plot of land for which the construction approval or the approval with the construction of a registered building was issued In simple terms if a construction firmly con-nected with the ground is to be built on the relevant plot of land and steps have been taken to achieve this goal this course of action will concern a building plot of land whose sale will be taxed
The second condition for the application of the exemption in the supply of the plot of land is according to the proposal of the VAT Act the situation where the plot of land does not form a functional unit with the building A functional unit with the build-ing is formed by such a plot of land on which the building firmly connected with the ground stands and this plot of land serves to the needs of the operation of this building fulfilment of its function or is exploited together with this building According to the new regulation also such a plot of land will be tax-exempted on which such constructions stand which are not connected with the use thereof ndash eg an electricity pylon owned by owner other than the owner of the land
Calculation of the Floor Space in Social Flats
The amendment further brings about a substantial change for residential developers If the amendment is approved in the pro-posed wording certain flats which currently meet the definition of the basic tax rate can be reclassified
The VAT Act determines the conditions under which it is possible to apply a decreased VAT rate in the case of the buildings deter-mined for the so-called social living However the current wording of the act defines the flat for social living as a flat whose total floor space does not exceed 120m2 Currently the VAT Act contains its own definition of the total floor spaceFor the purposes of VAT the floor space is assessed according to an inside ldquosteppingldquo area of the flat and at the same time the spaces forming the flat appurtenances are counted in this area for example utility rooms cellars or other premises
The relevant amendment of the VAT Act introduces a substan-tial change in the manner of calculation of the floor space of residential premises with respect to that fact that from 1 January 2014 governmental decree No 366 dated 30 October 2013 on amendment of certain matters connected to flat coownership (the ldquoDecreerdquo) is effective
The calculation of the floor space for VAT purposes should newly be governed by the above-mentioned Decree According to this Decree the flat is defined as a spatially separated part of a house restricted by inside surfaces fixed to perimeter walls flooring ceil-ing or truss constructions and fillings for building holes in the walls bordering the flat The floor space will also include a floor space covered by built-in objects as eg fitted wardrobes bathtubs and other objects in the inside area of the flat The amendment of the VAT Act currently under preparation thus takes into consideration that a part of the flat floor space will also include an area built-up with inside walls ie the area under inside flat walls columns pillars etc This change will de facto result in disadvantaging the sale of flats whose inside usable area reaches 120m2 and less but whose total area including parti-tions walls ect exceeds this value
On the other hand according to the new regulation the area of 120m2 should not include the space of the rooms which are currently determined by the VAT Act as the flat ldquoappurtenancesldquo(cellars utility rooms) As the Explanatory Memo-randum provides by way of this measure the legal regulation should equalise possible negative impacts of the new manner of calculation of the flat floor space that would be increased due to counting the area of inside walls in the total area of the flat
Residential developers and other entrepreneurial entities planning to sell new flats with an area of 120m2 excluding appurtenances (calculated according to the current methodology) in the next years should take into account the option of reclassification of these flats into the basic tax rate
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
16
In the Next Year the Czech Construction Forum Plans to Return to Its Roots
Miroslav Linhart Director of Real Estate Deloitte Function mlinhartdeloitteCEcom
Over 20 years you have been organising various professional events on our market Why have you been involved with the construction sector for over 10 yearsIt is true that in our conference activities we cover many topics and branches Everything originated in such a way that we were a part of a community including a research agency that saw an opening for the application of a number of various research studies in the conference format and had intent among other things to establish itself in the con-struction market We did research and found out that a top professional event in the concept that was successfully examined by us in other sectors was missing in the construction market despite the presence of seemingly competitive projects thus we started working After two years we ended our affiliation with the research agency because we wanted the programs of our conferences to be completely independent We searched for a new knowledgeable partner for the well-established format of the building conference and we found it in the Association of Building Entrepreneurs of the Czech Republic whose interest was and is to uplift the success of the whole branch and the professional testimony thereof
And what did it bring to youEven though our company organises about 15 professional events a year (led by Retail Summit which in February 2015 will enter as the biggest Central Europe retail conference its 21st year) a number of our events do
not have such factual content significance and media impact as the build-ing conference Thanks to the fact that the building industry affects so many branches logically there is always a need for a wider cooperation with the state authorities After all in some years we had up to a quarter of the government participating including the prime minister
In addition the building industry does not change as quickly as other sectors in which the commencement of the digital era completely changes all paradigms Here the ldquomaterialldquo still takes centre stage Thus it is a challenge for us to endeavour to somehow enrich this rather more conservative business area with new trends as well as bring a breath of fresh air and an air of positivity in it It is deeply imbedded in the genes of our company that we must only do things that we like to do and for the people we value Even the building conference must be prepared in such way so that the participants and organisers enjoy it and it can be a place for a useful exchange of opinions sharing inspiration and projecting energy
How did the character of the conference change during the 10 years And what innovations are you preparing for the coming yearThe first years of the Czech Construction Forum were topically designed in a much wider form originally it was a platform for meeting all play-ers in the market ie not only construction companies and building material suppliers but also investors designers and developers Step by step under the impact of the progressing crisis in the building industry the content of the conference topically narrowed to a dialogue between
In March 2015 the 11th year of the Czech Construction Forum will take place That is why we addressed its organiser Blue Events which is focused on the preparation and realisation of successful professional conferences and summits in the Czech Republic in order to discover with what intention it will organise the Czech Construction Forum The interview was conducted with Mr Antoniacuten Parma the general manager of Blue Events
The year 2014 was held at the congress hall of the Clarion Hotel The conference in March 2015 will also take place at this venue
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
17SMART bull winter 2014
Interview
the government and the construction companies and became a kind of a wailing wall for the Czech builders But now when according to many signals it seems that we are slowly rising from the crisis we would like to go back to our roots In order for the conference meetings to not only be a medicine for illnesses and a pain soother we would especially like to function as a supportive mean for driving discussions on development intents
We would like to differ from a number of other socio-political meetings by way of having a real expert program We want to inspire in the areas of furthering the possibilities of cooperation among the players in the market taking into account the questions of project management or arrival of new technologies and touching upon the topics that invite an optimistic view of the future of the work of builders developers designers and building material and technology suppliers
Will the participants of the 11th year of the Czech Construction Forum notice any innovationsThe Forum will be designed in such a way so that it is interesting and inspiring for all actors of a big realisation chain While the initial part will be devoted to the trends and strategies in investment and building areas having a society-wide overlap the second half of the conference will be dedicated to the so far biggest number of parallel workshops where truly detailed professional discussions for developers designers and construction companies will be given space We would like to devote
a special space to young businessmen new talents and also students who could bring new energy and ideas into this conservative field For the first time in the history of the event we will also allow an independ-ent registration (and thereby also an effective price of a conference fee) for a specialised afternoon programme In this way we want to satisfy a number of interested parties who are rather interested in narrower array of specialised topics or cannot or do not want to devote a whole day to the conference
Facts on the Czech Construction Forum 2015
bull The 11th year will be held on 10 March 2015 in Clarion Congress Hotel Prague
bull For the first time the organisers are preparing the program for 5 parallel professional sections
bull So far over 200 domestic and foreign speakers and 2000 delegates have taken part in the past years
bull The organisers of the Forum are Blue Events and the Asso-ciation of Building Entrepreneurs of the Czech Republic
According to many signals it seems that we are slowly rising from the crisis We want to be a supportive mean for driving discussions on development intents
For the next year discussions are again planned to take place among investors builders and politicians about the industryrsquos plans and futureIt has become a tradition for Martin Veselovskyacute to host the event
Antoniacuten Parma
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
Calendar
Deloitte Immovables
2015 ndash Changes in Tax
Regulations
9 December 2014 Prague
httpeventsdeloitteczcs
Žofiacuten Forum Development of territorial units
16 December 2014 Praguehttpwwwzofinczcszofinska-fora
FOR PASIV 2014
22-24 January 2015 Praguewwwforpasivcz
Czech Construction Forum (Foacuterum českeacuteho stavebnictviacute)
10 March 2015 Praguehttpwwwconstruction21cz
For HabitatFurnitureOfficeGarden
19-22 March 2015 Praguehttpwwwforhabitatcz2015czinterceptasp
Wohnen amp Interieur
7-15 March 2015 Viennahttpwwwwohnen-interieurat
Dřevostavby
11-14 February 2015 Praguehttpwwwdrevostavbyeu
Windoor expo
11-14 February 2015 Praguehttpwwwwindoorexpocz
Christmas Eve
24 December 2014at home
BAU
19 ndash 24 January 2015 Germany
httpwwwbau-muenchencom
Real Estate Market 2014 - 2015Balance and planning
10 December 2014 Praguehttpwwwstavebni-forumcz
Christmas market
5-14 December Brnohttpwwwbvvczvanocni-trhy
copy 2014 Deloitte Czech Republic Association of Building Entrepreneurs of the Czech Republic UacuteRS Praha
Ing Vaacuteclav Matyaacuteš SPSmatyasspscz wwwspscz
Ing Miroslav Linhart Deloittemlinhartdeloittececom wwwdeloittecom
Ing František Glazar UacuteRS Prahaglazarursprahacz wwwursprahacz
SMART Archive
All previous issues are available at wwwspscz under ldquoSMART constructionrdquo wwwspscz
SMART magazine is also available on the website in English
Write to us ndash we will appreciate any comments or questions
