The View 9

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The slowing growth in construction output is primarily due to the weaker dynamics on the residential development market. On the back of robust demand, developers’ intention to build new residential units was strengthening - reflected in the sharp rise of building permits to around 35-40,000 p.a. since 2016. Nevertheless, the number of actual occupational permits never managed to exceed 15-20,000 units p.a. and even started to show a decline in H2 2019. The wide gap between the planned volume and the actual realization is only partially due to issue of capacity and continuous delays seen on the residential development market. The previous regulation of applicable VAT (whereas the preferential VAT rate was dependent on the date of building permit) heavily motivated developers to accelerate their efforts in obtain building permits. By the end of 2019 we can see that the residential market has passed its local peak in the cycle, and we anticipate a further decline in building permits and in occupational permits - to a smaller extent. Permitting processes will be more centralized as of March 2020 - in the good faith of speeding up the process and relieving the local municipalities. Nevertheless, this change will certainly give more room to the government to decide on individual projects so it remains to be seen how this change will impact the development market.