In case of project completions, Q2 2020 did not mark a drop compared to the previous period, but construction works reached completion in the value of nearly HUF 450 billion, considerably lower than expected in Q1. In the first three months of 2020, the analysts of EBI Construction Activity Report expected the completion of works to be worth nearly HUF 785 billion in the period between April and June, based on iBuild construction project database.
No real pandemic impact on starts of civil engineering projects in Q2
The decline in new construction works in Q2 2020 can clearly be attributed to the decrease in the Activity Start Indicator of building construction as slightly more civil engineering works (in value terms) started in Q2 than in Q1. Yet the Activity Start Indicator of civil engineering was already lower in Q1 than in previous years.
In H1 2020, civil engineering works started at a value of slightly more than HUF 300 billion, significantly less than in both halves of last year. At the same time, the previous three years saw a lot of projects in the subsector; and the beginning of this year does not seem so bad either. It is also true that there was no big difference between the figures for Q1 and Q2 in the Activity Start Indicators for civil engineering, that is, project starts did not feel the negative impact of the pandemic. For instance, Q2 2020 saw the construction start of 1) the section between Szentkirály and Lakitelek on M44 expressway, 2) the southern part of main road 8 bypassing Veszprém and 3) a hazardous waste storage facility, as well as the projects of a well, water supply, sewerage and closed drainage (Paks).
Building construction project starts suffering in Q2
Looking at building construction works, the value of started construction works did not decrease in H1 against the same period of the previous year, but this was due to better figures in Q1. Q2 already saw much more decline in the Activity Start Indicator of EBI Construction Activity Report: since the last quarter of 2016 no such low value of construction works has started in building construction. The total value of projects entering construction phase accounted for HUF 251 billion, 46% less than in the previous quarter. Within building construction, both residential and non-residential works were affected by the downturn in Q2 2020, with the former showing a 65% drop and the latter indicating a 42% decrease in Activity Start.
The biggest non-residential projects entering construction phase in Q2 2020 included 1) Jysk logistics and distribution center in Ecser, 2) Caadex steel structure production hall in Komló, 3) EMC measurement laboratory and server center project in Budapest and 4) Phase 1 of Corvin 7 office building.
Hardly any new multi-unit housing project starts in pandemic months
Q1 2020 already brought a strong reduction in multi-unit housing construction compared to previous years, but then the drop was less visible on the rolling yearly total. In Q2 2020 the value of started construction works fell even lower, which impacted the rolling yearly total as well. And when it comes to the number of started projects, the period of April-June was an unprecedentedly low number not seen since the upswing.
The share of Budapest and its surroundings greatly increased in Q1 2020 compared to previous years in the value of multi-unit dwellings entering construction phase. More than 70% of projects that started between January and March were concentrated in this region. By Q2 2020, however, the share of construction works started in Central Hungary massively decreased and remained slightly below the average value of previous years, according to EBI Construction Activity Report.
Several factors might have caused the decline in the Activity Start Indicator of multi-unit housing construction:
- Among all subsectors of construction, the housing market may have been most affected by the lockdown. It is important for buyers to meet agents in person, visit the site, see the housing project in person, all of which they failed to do due to the restrictive measures. Thus, several developers might have chosen to postpone the start of their project.
- The preferential 5% VAT rate was reset to 27% from January 2020 on, which was a big blow to the housing market. Lower demand at the beginning of the year might have made investors put off their projects, as evidenced by the declining figures of Q1 2020.
- Mainly those planning projects in Budapest may wait on to find out more details of the development conditions in brownfield sites. It may partly explain the much bigger decline in Q2 in the value of multi-unit housing projects entering construction phase in the capital city than in Q1.
Article in Hungarian: Tünde Tancsics (ELTINGA) – English version: Eszter Falucskai (BUILDECON)