The last quarter of 2019 saw another significant decline in launched construction projects in Hungary, amounting to only HUF 424bln worth started total construction works – as per the latest edition of EBI Construction Activity Report. Works started in the sector in a much lower value for the 2019 year as a whole as well. The drop in 2019 was 21% over 2018; and even compared to 2017, the difference was -11%. In 2019 the Activity Start Indicator of the Report totalled less than HUF 2200bln, compared to the almost HUF 2790bln a year earlier.
Building construction activity fell in Q4 2019
The Report has also found that in Q4 2019 building construction registered a lower value of started works than in the previous quarter, amounting to HUF 311bln. Overall, in 2019, Activity Start for building construction accounted for HUF 1364bln – significantly less than in 2018 and marking a decrease of 15%. However, calculated based on the ibuild.info project database, even the value in 2017 surpassed the 2019 one.
Weakening non-residential and multi-unit housing construction figures both were to blame for the slump in building construction. Multi-unit housing projects had also been seeing a decline in the value of Activity Start indicator over the past quarters, and the trend continued in Q4 2019 as well. Non-residential construction projects posted a much more modest drop.
Launched building construction projects in Q4 2019 comprise several hotels and office buildings, the construction of the Szeged Handball Arena, Phase I of Nagykanizsa multifunctional sports and event hall, upgrades of M3 Business Center buildings A and B, and renovation works of Hungexpo.
Published quarterly, the EBI Construction Activity Report creates aggregates from project data for 18 segments by object type (multi-unit residential, 9 non-residential segments and 8 civil engineering segments). It is prepared by Buildecon, Eltinga (creation of indicators and development of algorithms for aggregation) and ibuild.info (project research and project database). Full publications can be purchased at ebi@ibuild.info.
The fourth quarter of 2019 was very poor in civil engineering
Even though the period between April and September 2019 saw the start of civil engineering works in a massive value, Q4 2019 recorded a huge drop in numbers. Activity Start amounted to only HUF 113bln, the lowest value since Q4 2016 and only one-third of the value in Q3 2019. As a result, civil engineering closed the year with a massive decline, posting 30% fewer started construction projects in 2019 than in 2018 (a 22% drop against 2017). However, the 2019 Activity Start (HUF 835bln) is not considered to be extremely low in the segment. Rather, the years of 2017 and 2018 are considered to be extremely high.
In 2019, within civil engineering, mainly road and railway construction projects started in a much lower number than in 2017 and 2018, accounting for HUF 432bln. This was mainly due to the major decline in the Activity Start of railway construction projects, with only HUF 48bln of projects entering construction phase. The HUF 384bln worth Activity Start in road construction showed a much smaller difference compared to 2017-2018, and it surpassed the values in preceding years.
Started civil engineering projects in Q4 2019 are scarce, but include the construction start of the South Railway Bridge on the Danube in November 2019, for example.
Central Hungary was in the lead again in Q4 2019
Like Q3 2019, Q4 2019 also saw the start of fewer projects than in previous years in Eastern Hungary, offsetting the region’s high share in H1 2019. Thus, in 2019, 36% of the value of started construction works concentrated in Eastern Hungary.
Central Hungary was the other way around: while in H1 2019 its relative share in Activity Start was lower than in previous years, in H2 2019 it significantly exceeded it. The Report has found that between October and December 2019 more than half of the value of new construction works concentrated in Central Hungary.
There is a clear downturn in multi-unit housing construction
From January 1 this year, resetting the VAT rate from the previous 5% back to 27% brought a major change in the Hungarian multi-unit housing market. As of this year, units in projects having obtained a building permit after November 1, 2018 can only be sold at the higher VAT (above net prices). Last year, the approaching end-of-December deadline increasingly had a knock-on effect on the value of started construction works. The value of the EBI Activity Start Indicator for multi-unit housing construction amounted to only HUF 49bln in Q4 2019. For comparison, in all quarters of 2018 the value of projects started for three months exceeded HUF 100bln. In 2019, as a result of the downturn, construction works started in a total of HUF 263bln against the more than HUF 400bln in the previous two years. Last year, the EBI Activity Start Indicator for multi-unit housing construction fell 39% nationwide.
Despite the rosy figures of Q3 2019, only 44% of the investment value was concentrated in Budapest, so the capital city’s share in multi-unit housing construction dipped compared to previous years. It is not surprising, though, as in 2019 the shrinkage in construction starts was 51% y-o-y, according to the EBI Construction Activity Report. Central Hungary had a share of 52% of the total value of newly built multi-unit buildings, indicating a huge drop against previous years.
In 2019, the EBI Activity Completion Indicator for multi-unit housing construction considerably increased, with projects completed at a value of HUF 322bln during the year, marking a rise of 50% over the previous year. At the same time, total construction cost of completed projects was lower than projected: in Q4 2019 it brought far worse-than-expected figures given that project deliveries shifted to the first and second quarters of 2020.
Mass hotel buildings
Major growth was seen in hotel construction last year when the total value of projects entering construction phase broke all-time records. The Q4 Report has found that the total amount of started projects accounted for HUF 77bln, which was a respective increase of 77% and 83% over the better performing years of 2017 and 2018. 52% of this amount was registered in Budapest (HUF 40bln) and 48% in the rest of the country (HUF 37bln).
Thus, even though Budapest experienced a considerable growth (36%) compared to previous years, it did not even approach the expansion in the rest of Hungary. As per the latest EBI Construction Activity Report, outside Budapest, in 2019 started hotel construction works were nearly three times as high as a year earlier. For instance, renovation works started in the Zánka Erzsébet Camp and the Fonyódliget Erzsébet Camp. As well as this, the construction of Mária Valéria Hotel in Esztergom and that of the promenade project in Balatonszemes started. When it comes to Budapest, it saw the launch of construction works in Dorottya Hotel and Residence, A52 Hotel and B&B Hotel.
In 2019, the value of completed hotel constructions also broke a multi-year record: hotels reached completion on a total of HUF 35bln (a rise of 28%) like Hilton Garden Inn Budapest City Center, Barceló Budapest, or Hotel Sóstó SPA & Resort in Nyíregyháza.
Yet, the big expansion in the value of completed hotels is expected for this year, according to the ibuild.info project database. 2020 might see the completion of renovation works in Matild Palace, the construction of Hotel Akadémia, E12 Hotel and W Budapest Hotel, as well as the hotel conversion from Józsefváros Telephone Center and the construction of Balatonszemes Promenade Holiday Resort.
Hungary’s Kisfaludy Tourism Development Program might keep Hotel Activity Start high in the 2020-2021 period as well, providing additional funds for hotel projects.
Health-related construction projects and other building constructions
Health-related construction projects in Hungary started in the value of HUF 25bln in 2019, much lower than in 2018; although the latter was the second highest year after 2013 if we consider the period of 2000-2019. On average, between 2000 and 2018, construction works in the segment began at an annual rate of HUF 29bln. In 2019, among others, construction started on the following projects: Law Enforcement Health Center (Berettyóújfalu), SZTE Clinic Center (Szeged), Polyclinic and Psychiatric Care Center (Dunakeszi), Oncoradiology Center (Debrecen) and Szent Kristóf Health Center (Budapest).
In 2019, health-related construction projects reached completion on HUF 26bln, including the renovation of Dr. Romics László Health Institute (Érd), the construction of Szent Lőrinc Nursing Home (Pécs), the completion of Phase I of Szent Ferenc Hospital (Budapest) and finishing works of the Oncoradiology Center (Debrecen) mentioned above.
In 2020, health-related projects are set to be completed in a much greater value than last year such as the completion of Phase I of Buda Hospital of the Hospitaller Order and 5 other rural hospitals (Pápa, Kisvárda, Hatvan, Aszód, Kistarcsa).
Construction starts in other building constructions (cultural, sports and other community buildings) broke all records in 2019. The EBI Activity Start indicator totalled at more than HUF 288bln, surpassing the 2018 record by 25%. Several swimming pool projects started (e.g. in Zalaegerszeg, Sopron, Phase II in Miskolctapolca, Veszprém). Also, Phase I of Nagykanizsa Sports and Event Hall started, the new Szeged Handball Arena and the multifunctional Handball Arena in the 9th district of Budapest.
Not only did the total value of started construction projects set a record in the segment, but the value of previously started projects reaching completion was also significant. The value of completed facilities exceeded HUF 177bln, posting an increase of 68% over 2018 and a rise of 47% over 2017.
Original article in Hungarian written by: Tünde Tancsics, ELTINGA – English version prepared by Eszter Falucskai, Buildecon