Slovenia C-19 situation in construction (status on 26 April 2020)

Written by Dr. Ales Pustovrh – Bogatin, EECFA Slovenia

The COVID-19 pandemic has reached the Slovenian construction industry in a good shape. New construction contracts strengthened in H2 2019, resulting in some of the fastest growth of construction in early 2020 in the whole EU. The activity continued into March 2020 even though the lockdown measures were already implemented.

However, a decline is expected as halting construction works are affecting the entire sector:

  • There are some disruptions in the supply of materials as some manufacturers have stopped production and others have reduced production.
  • Construction work is being done less intensively mainly because of measures to protect workers.
  • Some foreign contractors have problems mainly with the logistics of their workers on projects in Slovenia.

Yet, the construction industry has been relatively less affected than some other industries (like tourism) as most large projects continue even during the lockdown measures. The concern is the absence of real estate contracts as the risk of making long-term investment decisions has also increased.

We are planning to issue the new EECFA Slovenia Construction Forecast Report on 29 June 2020. Sample report and order

Economic damage to construction segments will crucially depend on the duration of the crisis and the uncertainty it brings. According to some estimates, the short-term crisis is expected to result in a 5% drop in GDP. First indications that the return to normal operation of the Slovenian economy is near were the announcements that several lockdown measures were to be relaxed by the end of April 2020. Nevertheless, the actual fall of the economic activity will depend on the effectiveness of the state’s actions, where Slovenian politicians have promised one of the largest stimulus packages in the EU (estimated at more than 6% of its GDP) but they will have to be implemented in an effective way.

Ukraine C-19 situation in construction (status on 23 April 2020)

Written by Sergii Zapototskyi – UVECON, EECFA Ukraine

Physical restrictions

  • On 12 March, the Cabinet of Ministers officially quarantined the entire territory of Ukraine for three weeks due to COVID-19, with a number of restrictive measures, mainly for educational institutions and some on air traffic and border crossing at most checkpoints in Ukraine.
  • On April 6, in order to combat the spread of COVID-19, the government introduced additional restrictions prohibiting being in public places without a face mask, going out without identification documents, being outside in groups of more than two persons, visiting parks, squares, recreation areas (except for walking pets for one person), going out to sports grounds and playgrounds, visiting social security institutions and the like; catering, shopping and entertainment centres, fitness centres, and cultural institutions. The quarantine introduced by the government was to expire on April 24 but owing to the sharp increase recorded in the number of COVID-19 cases (especially after the Easter holidays) the quarantine has been extended until 11 May 2020.

Construction works

  • Even though there is no direct ban on construction, there are several restrictions. According to the recommendations of the Ministry of Health and WHO, as well as according to the orders of the Cabinet of Ministers, main restrictions refer to the recommended number of people per square meter of area at construction sites, and the requirement to provide workers with personal protective equipment and antiseptics. Traditionally, employees are instructed on these requirements.
  • Of course, not all construction work can be carried out in full with these significant quarantine restrictions, but developers try to meet the deadlines for delivering their projects.
  • There is a difficulty in the supply of building materials and the delivery of construction crews.

The new EECFA Ukraine Construction Forecast Report is planned to be issued on 29 June 2020. Sample report and order

Anticovid measures in construction

There are no direct measures to support the construction sector, but indirect protectionist measures include a moratorium on conducting tax audits, postponement of filing declarations, and the prohibition for commercial banks to raise interest rates under the loan agreements for the duration of the quarantine.

Factors limiting the construction sector’s performance

  • Construction has not yet been hit hard as it is a long-term business, but if the situation drags on until June, the market might stagnate.
  • The construction market in Ukraine faces two key challenges: 1) economic deterioration that derives from the inefficient management (and not from COVID-19) but is aggravating the already difficult economic situation associated with the virus; 2) the instability associated with a pandemic. As now no one can predict how long the quarantine will last, most participants in the real estate market are on standby. Investors do not spend, except for primary needs, until the situation becomes clear. In addition, there is the uncertainty of what will happen to the global economy which may continue to decline even after overcoming the pandemic.
  • As the active construction season usually begins in April, developers, to the extent of their financial resources and available materials, are trying to continue construction by isolating construction sites and taking security measures. This applies to both building residential and commercial real estate.
  • Companies interviewed by (leaders in the construction market such as Integral-Bud, Kievgorstroy, KAN Development, SAGA Development, Perfect Group, UDP) assure that they have enough finances to continue working at all facilities. However, this is not the case for medium and small construction companies. The latter need working capital and the possibility of obtaining preferential loans. If the pandemic drags on for a long time, this will hit housing construction in the first place because in Ukraine it is largely financed by buyers of future apartments. Residential complexes under construction that are queuing can freeze the construction of subsequent ones with only current ones being completed.
  • Commercial real estate is built as a long-term investment by developers and is based on longer-term financial models, making it less vulnerable to the temporary restrictive measures. But it is more dependent on global economic changes that affect the financial condition of investors. Also, much more imported materials are used in commercial real estates than in housing construction, so the restoration of production in Europe and the world will influence the continued construction of office and shopping centers in Ukraine. The appreciation of the US dollar has already led to an increase in the price of imported materials, and thus we should expect a price rise in domestic ones. Metal suppliers are already raising prices, for example. European building material producers are expected to increase prices after the end of quarantine measures in their countries. Construction companies need money to pay off their current obligations before starting to work again. Therefore, many developers in Ukraine are already looking for the possibility of borrowing at a subsidized 5%-7% interest rate for the entire construction period – 1.5-2 years.
  • Civil engineering had grandiose plans for the current year, but they are becoming increasingly unrealistic due to a significant lack of funds for financing.

Croatia C-19 situation in construction (status on 23 April 2020)

Written by Michael Glazer (SEE Regional Advisors) and Tatjana Halapija (Nada Projekt) – EECFA Croatia

UPDATE ON 30 APRIL 2020: During the first phase of Croatia’s response to COVID-19, the country’s construction industry was not as tightly locked down as some others (e.g., the hospitality sector). While construction firms were not as free to operate as, say, grocery stores and food processing plants, projects of national significance, some projects considered important by municipalities and other sub-national governments and some private-sector projects continued to move forward. Construction companies were also called on to assist with the cleanup effort following the March 22 Zagreb earthquake. This provided some liquidity to the sector, or at least to those lucky firms involved in the projects on which work continued. Now that the Croatian government is lifting the strictest limitations on business, including those on construction work, construction activity is likely to increase considerably.

This, though, may be a double-edged sword. Social distancing is difficult to enforce on construction projects even with the best will in the world, and anecdotal evidence suggests that in many cases there is not even an effort to do so. For example, groups of workers have been seen traveling to and from construction sites seated close to one another in vehicles with enclosed cabins, and of course there are the frequent “supervisory meetings” where several workers gather to monitor the one working. If one or more construction workers causes an outbreak at some point, the sector as a whole could suffer real consequences.

Physical restrictions

On March 20, the Croatian government imposed stringent restrictions on movement and business activity in order to combat COVID-19.

  • They included prohibitions on travel outside one’s place of residence or across international borders unless for trips defined as necessary (e.g., to transport goods to stores that remained open or internationally), closure of educational institutions and nurseries, cultural and sports facilities, prohibition on the operation of all but essential businesses and limitations on the size of gatherings (initially no more than 5 people, ultimately no more than 2)
  • Work-from-home requirements were imposed
  • Public transport was suspended

Mid-April, the Croatian government permitted travel within counties, while on April 20 restrictions were extended to May 5 but their strictness was reduced.

On March 22, a 5.5 (Richter)/5.3 (MW)/VII (MMI) earthquake struck Zagreb.

  • It damaged 26,197 buildings of which 1,900 were rendered unusable. A number of hospitals, museums, churches, schools, government offices, historic buildings and other culturally important structures (including graves) were badly damaged
  • No specific regulatory measures were immediately promulgated other than that many sidewalks were closed due to the risk of debris falling from roofs and facades

Construction works

No strict ban was imposed specifically on construction, but the industry was restricted by the broad limitation, from which it was not excepted, to working from home.

  • That said, it appears that work continued on a number of construction projects, including those of the City of Zagreb and politically connected private firms and the Pelješac Bridge, either in violation of this limitation or pursuant to special exemptions
  • Also, after the Zagreb earthquake a number of firms with the appropriate equipment were permitted to clear debris and blow things up

We are planning to issue the new EECFA Croatia Construction Forecast Report on 29 June 2020. Sample report and order

Anticovid measures in construction

  • We are not aware of any construction-sector-focused anti-COVID-19 measures
  • Construction firms are benefiting, though, from general measures that the Croatian government took to limit the economic consequences of COVID-19
  • These measures include relief from taxes and governmental contributions (primarily payment deferrals for three months but some forgiveness), payroll support payments (minimum net wage of EUR533 for three months), loan payment moratoria (three to six months), debt enforcement moratoria (during the period of extraordinary measures), liquidity loans, sector-oriented loans (for the tourism and other export sectors) and credit lines for MSMEs in the tourism and hospitality sectors (although the minimum loan amount is EUR100k, which makes them ill-suited for micro and even small businesses)

Factors limiting the construction sector’s performance

  • There is no lack of construction materials, particularly in view of the fact that most building has ceased
  • Most tourism-related construction for the coming season has been completed, since that season is at hand
  • But other construction projects are not moving forward except for those considered essential. (“Essential” can have a variety of definitions, depending on the government responsible for defining the term. Some politically connected private projects are proceeding.)
  • Croatia’s heavy dependence on tourism, and the likelihood that tourism will not recover for years, means that construction, and the Croatian economy in general, will be very negatively affected for a significant period of time

Any other

Croatia’s handling of the COVID-19 crisis has been unexpectedly, indeed startlingly, good. It flattened the curve rapidly and has already achieved an R0 of less than 1. Much is due to the chance replacement of an ethically tainted Minister of Health by a highly competent appointee shortly before the crisis broke. But much is also due to the professionalism of Croatia’s public health services and medical personnel.

It remains to be seen if Croatia can continue its stellar performance. There are signs that segments of the populace are beginning to ignore social distancing measures. But the government seems alert to the possibility of R0 rising and willing to act rapidly to bring it down again.

It is clear, though, that Croatia’s quick and effective response to COVID-19 will lessen the severity of the economic effects of the crisis.

Croatia will be hit by a reduction in remittances from its citizens abroad. There may also be political consequences, since many Croatian ex pats are returning, and their political views may have been affected by their time abroad.

It is possible, but by no means certain, that the weaknesses in Croatia’s healthcare infrastructure, and possibly increased EU funding for healthcare infrastructure generally, will lead to significantly greater hospital and healthcare facility construction. That said, healthcare tourism, and so private healthcare construction is likely to be badly damaged long-term by COVID-19.

Construction in Zagreb, though, looks likely to increase dramatically in volume for years to come as reconstruction work of a minimum value of EUR6G will be needed.

Russia C-19 situation in construction (status on 16 April 2020)

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

Physical restrictions

  • The first case of COVID-19 was registered in Russia on March 2. Since then, the situation has developed quite rapidly and on April 16, the country has 27.9 thousand cases. There is no official quarantine or emergency throughout the country to date. The government declared a «non-working days regime» from March 30 to April 30. During this period only vital organizations and areas of activity continue to operate (continuous production; medical organizations; organizations providing the population with food and essential goods; banks and financial organizations and some others). Other companies must temporarily suspend business (while maintaining wages to employees), or, if they have an opportunity, they can switch to remote work.
  • Also, on March 30, a self-isolation regime was announced on a national scale. This regime implies that citizens should not go outside without urgent need and should limit contact with other people. At the same time, the regime of self-isolation is not a quarantine, but an easier form of restrictions, whose violation entails only administrative responsibility, and not criminal, like violation of quarantine.
  • However, in different regions the situation with incidence is developing in different ways and in order to contain the spread of the virus in some regions full quarantine or additional restrictive measures have been introduced with a complete ban on moving around the city and region without special permits. Such an enhanced regime with more stringent restrictions on movement is temporarily in effect in 26 out of 85 regions of the Russian Federation. In Krasnodar region too.

Construction works

  • The construction sector is ranked by the government as a continuous production, therefore, currently there is no complete or partial ban on construction work, however, the situation will depend on the incidence rate and the dynamics of the spread of the virus. Of all the Russian regions, temporary restrictions on construction work have been introduced only in Moscow and the Moscow region (locations with the most COVID cases). Here the construction of all objects, except medical and transport ones, has temporarily been suspended. In other regions of Russia, a construction stop was discussed, but not undertaken.

The new EECFA Russia Construction Forecast Report is planned to be issued on 29 June 2020. Sample report and order

Anticovid measures in construction

  • Although construction has not stopped anywhere, except for the capital’s region, the industry is already ranked among those that will be most affected by the crisis. The final package of measures to support the construction industry is still under discussion, but it is already clear that these measures will extend mainly to the biggest segment of the construction industry in Russia – residential construction. The anti-crisis program, currently being developed by the Ministry of Construction, includes subsidizing interest rates on mortgage loans to support demand, as well as credit and tax moratorium for developers and reducing the cost of project financing (lower lending rates).
  • Another possible direction of support may be the purchase of unsold apartments from developers by state-owned companies. Purchased apartments can be used for social rentals or sold later on the open market.
  • In addition, until January 1, 2021 housing developers will not be fined or otherwise punished for the improper fulfillment of obligations under contracts in shared construction participation (for the delays in the completion of residential buildings).
  • In non-residential and civil engineering segments, as support measures, it is planned to increase a number of government contracts and lift advances on those contracts from 30% to 50%.

Factors limiting the construction sector’s performance

  • The current situation in the Russian construction industry is determined by the macroeconomic background which depends not only on the negative effects of the coronavirus, but also on the consequences of the “price war” with Saudi Arabia in the oil market and the OPEC + deal, which was disrupted in early March, followed by a collapse in prices for oil and the rapid devaluation of the national currency. Many experts talk about the “perfect storm” in which the Russian economy is now. All this will directly affect the income level of citizens, which will also inevitably affect the construction industry, especially housing construction.
  • At the same time, the effectiveness of supporting demand with the planned subsidization of mortgage rates is most likely to only slow down its decline, but not prevent it. Banks will not significantly increase mortgage rates, but the share of approved applications for borrowers from the most affected sectors of the Russian economy may decrease: tourism, hospitality, air travel, advertising, catering, non-food retail, etc. Tighter requirements for borrowers and a drop in real income will inevitably lead to a reduction in the number of transactions in the market.
  • The ruble exchange rate is highly dependent on the dynamics of oil prices, which, despite OPEC + new agreements, are expected to be at low levels at least until the autumn or until the end of the year. Accordingly, the ruble exchange rate against world currencies should remain at the current low level, contributing to the rapid rise in price of imported building materials, the price of many of which is tied to the dollar.
  • Limited workforce is also a direct consequence of the pandemic and will also adversely affect the construction industry. Traditionally, a large number of guest workers from neighboring countries are employed in the Russian construction industry. Closing borders with these countries is expected to result in a shortage of cheap labor.

Bulgaria C-19 situation in construction (status on 15 April 2020)

Written by Yasen Georgiev and Dragomir Belchev, EPI – EECFA Bulgaria

Physical restrictions

There is no curfew or full lockdown, but there are some physical restrictions most important of which are:

  • Foreign nationals are not allowed to enter Bulgaria (with some exceptions);
  • Introduction of checkpoints at the entry and exit roads of the largest cities (regional centers);
  • All places for public access for gathering of people are closed (restaurants, malls, kindergartens, schools, parks, etc.);
  • 14-day quarantine for all Bulgarians arriving from abroad is mandatory.
  • All employers, depending on the specifics and capabilities, should introduce a remote work for their employees. If it is not possible, employers organize enhanced anti-epidemic measures on the workplace.

The state of emergency, firstly announced on March 13, along with restrictive measures regarding COVID 19, were extended to May 13, 2020.

Construction works

According to the Association of Construction Entrepreneurs, there are no frozen residential construction sites, but it is hard to imagine that the work is going to continue with the same volumes. Additionally, obtaining construction permits is becoming increasingly difficult despite the effort of municipalities to introduce e-services.

Construction works of largest infrastructure projects continue at present, but with slower pace since there are difficulties in deliveries of construction materials. Delays are expected on the Bulgarian part of ‘TurkStream’ due to the obligatory 14-day quarantine for foreign workers who are employed on the site.

We are planning to issue the new EECFA Bulgaria Construction Forecast Report on 29 June 2020. Sample report and order

Anticovid measures in construction

There are no specific anticovid measures regarding the construction sector. Most important current economic measures implemented by the government include:

  • The government will support companies with proven impact from the epidemic by covering 60% of the employees’ wages for up to three months. The initial aid package has been set at approximately €2.3bln, a sum which Prime Minister Boyko Borissov predicts may be insufficient. The list of eligible sectors was firstly narrowed to tourism and catering, later on extended to manufacturing industries. However, this scheme is not meant for companies that cannot prove direct COVID implications.
  • The deadline for annual financial statements and payment of corporate taxes is postponed from end-March to end-June (estimated effect of BGN 800mn/EUR 400mn within the year).
  • Possibility for companies and individuals to postpone loan and interest payments for 6 months.
  • Interest-free loans granted by the state-owned Bulgarian Development Bank directed to individuals, which are in difficult financial situation as a result of the COVID 19 restrictions.
  • Interest-free loans are also planned for companies, but conditions are not clear yet.