Leader talks: Horizon CEO Yishay Furman on the future of affordable housing

Yishay Furman is the CEO of Horizon, one of the Czech Republic’s largest real estate developers operating on the market since 2001. With the company’s twentieth year on the market seeing unprecedented demand for affordable housing in the Czech Republic, Furman spoke with William Nattrass about the Czech housing market and the situation facing developers trying to meet high demand in the wake of the Covid pandemic.

This interview was edited for length and clarity.

Has the Czech Republic become a more or less welcoming destination for real estate developers and investors during Horizon's 20 years of existence?

I have seen the Czech market develop significantly in the twenty years I have been working here. I'm from Israel, and I can confirm that the standard of residential construction projects in the Czech Republic is now at a similar level to other developed markets, such as Germany, Austria, Poland and my home country. If you compare the number of projects in the Czech Republic now to when I arrived here, the number has increased massively.

Still, there are far more new projects now than there were 20 years ago. The quality of developments has increased significantly from the relatively low levels of the past, while the standard of labor here is very high. Czech designers and workers are very open to using new technologies and trying out new ways of doing things. The fact that we would always choose to cooperate with local suppliers is a testament to the quality of the real estate industry in the Czech Republic.

In terms of housing affordability, how does the Czech market compare internationally?

One aspect which is unique to the Czech market, especially Prague, is an ongoing correction in residential real estate prices. Historically, house prices in Prague have been unreasonably low compared to other capitals and major cities across the borders. Now, sales prices are correcting themselves compared to the past. So, if you measure the affordability of housing by comparing sales prices with average wages, housing is becoming unaffordable here at a quicker rate than in other markets because the correction in prices is leading to a spike that is outstripping wage growth.

How has the pandemic affected demand for affordable housing?

It is clear that the Czech market is characterized by high demand, and Covid did nothing to change this: 2020 was a record year. The demand for living space is unbelievable, which is influencing prices; it is also leading us to start new construction phases to meet this demand.

Far from being affected by Covid, the supply of affordable housing in the Czech Republic is more strongly affected by cumbersome approval and development processes. Within the current permitting process for urban developments, a timeframe of three years, from submitting plans for approval to the completion of the project, is the minimum. Usually, developments take much longer than this to complete.

On average the development process here is, from start to finish, the longest in Europe. And while a new Metropolitan Plan for Prague was set to be finalized by 2023, this has now been delayed until 2028, meaning many projects will be held up as they were planned for this new system. This means less building projects in the city as a whole.

Another problem for affordable housing is the fact that there are simply not enough plots in Prague available for residential construction. This means less supply and therefore higher prices.

How has the current situation, both in terms of skyrocketing housing prices and the threat of another lockdown, influenced the kinds of living spaces people are looking for?

I think the fact that prices have increased so dramatically in Prague in the last few years will mean people who would like to live spaciously, who do not want to compromise by taking a small 2+KK or 3+KK but want to move to a bigger flat, yet who still want to work in the city, will increasingly choose properties outside the city center.

Many of our projects now help meet the demand for living space in commuter areas outside Prague. Our previous successes with such projects encouraged us to buy a new project named AURA in Statenice, where we will develop 600 units in a range of property types including family houses, villas, and apartments which will definitely be cheaper than similar types of properties purchased in Prague.

But are developments situated on the outskirts of cities better for those cities in general in the long term? And doesn't suburban development in fact lead to, for example, the building of hypermarkets around Prague, a decrease in public transport use, and a corresponding increase in private car ownership?

Building on the outskirts of cities means cheaper plots, and also correspondingly cheaper sale prices. But it also demands investment into infrastructure to a far greater extent than building within existing city limits. Water treatment, schools, junctions, and access roads all have to be considered. It's impossible to say if building in or outside a city is better or worse. For us, projects at the edge of cities are different, sometimes allowing bigger developments than would be possible within the city itself, where plot sizes and costs can impose limitations.

In terms of whether these developments lead to urbanization outside cities; naturally, as the required services are not yet available in these locations (such as shops and supermarkets), such developments are indeed needed to serve the new developments as well as other nearby areas. Sometimes, even everyday services have to be introduced, such as kindergartens and post offices, for example. We know that the big supermarkets chains are looking to expand their operations, and as we were informed, they are currently seeking out plots for 300-500 new supermarkets in the Czech Republic. Many of these new plots are situated at the edge of the big cities, in the same locations as new residential developments.

What are the major challenges developers face when developing affordable housing projects in and around Prague?

As I mentioned earlier, a key problem is the lack of plots available for immediate construction. Another is the slow permitting process. Many developers would now choose to develop in a smaller town in the Czech Republic, rather than Prague, as the whole process in such locations is shorter and less cumbersome.

If I could change one thing to help the market, increase housing supply, and thus lower prices making housing more affordable, it would be a streamlining of the whole approval process.

Appeals are made against almost every development, no matter its merits. Such appeals take time away from developers, and they are sometimes made for questionable reasons. Not only can direct neighbors of the project in question can appeal: essentially anyone can appeal, whether they be environmental activists or other groups.

As well as developers, such appeals take time away from the authorities, cost money, and as such actively limit the supply of housing to meet the high demand. So, while it is important for us to listen to local voices, it would be helpful to have a law requiring a financial deposit to made for launching an appeal. This would make people think twice about whether or not they have a serious and valid objection to a construction project.

Is the rising global cost of raw construction materials and logistics services causing problems for your current projects and your plans for the future?

Prices have risen across the board: the price of land, the price of labor, the price of construction materials. Some material prices have increased by over 100 percent in the last year. In some cases, we agreed with our suppliers to compensate for the higher-cost of materials, but we always made sure the final cost of our developments were what we agreed with buyers.

With some developers in other cities and other countries, this has not been the case: they would change the final sales prices of houses and flats to reflect changes in material costs. We will never do this.

What are Horizon’s biggest residential projects offering affordable housing in the Czech Republic?

We currently have nine ongoing residential projects in Prague and the surrounding area. Our already-finished projects include the first phase of our Čámovka development, with a total of 145 units, the Rezidence Vltava project with 105 units, and other developments Velká Brána with 195 units, the last phase of Modřanka with 55 units, and Zahálka with 800 units. Another phase of the Čámovka development is one of our ongoing projects: new homes here are set to be handed over starting at the end of this year.

We also have a new project called “Blízká”, located in Prague’s trendy Karlín neighborhood, which will offer 130 flats for sale and others kept for lease. We will meanwhile be starting a project in Prague’s Smíchov district in 2022, which will provide around 179 flats on a previously neglected brownfield site. Together, these projects make us one of the top five real estate developers in Prague.