Press Release on EBI Construction Activity Report Hungary Q2 2022
Hungary’s high construction Activity Start in Q1 2022 was followed by a slowdown in Q2. The Q2 2022 EBI Construction Activity Report has found that between this April and June construction works started at a value of around HUF 800 billion. Although the value of projects entering construction decreased in Q2, these are not low numbers at all as Activity Start has been the 5th highest (on a quarterly basis) of recent years. It should be added, though, that recently construction costs have dramatically increased, massively pushing up the Activity Start indicator calculated at current prices, while at constant prices the volume would be lower.
The value of building construction works increased
In terms of building construction works, Activity Start rose in Q2 2022: the value of started construction works in the segment exceeded Q1 2022 and accounted for more than HUF 560 billion, the second highest level in recent years (after the period between April and June 2021). It is also true here that Activity Start calculated at current prices has significantly increased due to the hike in construction costs in recent years.
Within building construction works, Q2 2022 brought a massive drop in residential buildings. At the same time, non-residential buildings had a major expansion with Activity Start indicator going up to over HUF 500 billion between April and June 2022, the second highest after Q2 2021.
The largest building construction projects that started in Q2 2022 included the renovation works of the church buildings of the castle district in Veszprém, IV. Béla király High School in Dunakeszi, and VSZC Lányi Ferenc Vocational Training School, as well as the construction works of Kárpáti György Swimming Pool, the construction of Sisecam glass packaging material manufacturing plant in Kaposvár, HelloParks project in Páty and Maglód, the first phase of the BMW painting plant and central office building in Debrecen, phase 1 of Rubin NewCo’s half-shaft and cardan shaft manufacturing plant in Felsőzsolca, the construction of Center Point 3 office building, the construction of the Hungarian Post’s (Magyar Posta) Central Parcel Processor in Maglód, and the construction of the outdoor training fields of the Budapest Athletic Stadium.
EBI Construction Activity Report Hungary analyses the construction industry on a quarterly basis, including the volume of newly started construction works and the value of projects completed in each quarter in aggregate and by segment as well. It is prepared by Buildecon, Eltinga (creation of indicators and development of algorithms for aggregation) and iBuild (project research and project database). The EBI Construction Activity Report Q2 2022 has been released and can be purchased at ebi@ibuild.info.
Decline in civil engineering
As per the previous EBI Construction Activity Report, thanks to two large projects, Civil Engineering Activity Start broke all previous records in Q1 2022. Q2 brought a significant decline though, and civil engineering construction works started on less than HUF 240 billion, (the average of the same quarters of the previous years). The drop against Q1 affected road and railway constructions where the Activity Start indicator did not reach HUF 90 billion. But in case of non-road and railway works several projects started, representing a higher value than in Q1, amounting to roughly HUF 150 billion.
Only one road project made it to the list of biggest civil engineering projects, the construction of the Szentdomonkos-Borsodnádasd stretch of main road 25. Major civil engineering project starts in Q2 also included the development of drinking water supply network in Adony and Ercs microregions, as well as the start of a project to improve drinking water quality of the wells in Budapest and its surroundings.
Lower share of Transdanubia in value of started constructions
This year Central Hungary recorded the largest share of Activity Start (43%), followed by Eastern Hungary (37%), and then Western Hungary (slightly less than 20% of the value of the started construction works). Compared to the period of 2014-2021, Central and Eastern Hungary’s share in started construction works was higher in H1 2022, while that of Western Hungary was lower.
Last year Budapest and the Southern Great Plain saw the highest total value of projects entering construction among all regions. West Transdanubia and South Transdanubia witnessed the lowest shares in Activity Start.
Less active multi-unit residential developers
Multi-unit residential buildings (MURBs) started to be built on less than HUF 60 billion in Q2 2022, the lowest value since 2016 (excluding H2 2020). Construction costs have greatly increased since then, that is, at constant prices, this means a much smaller construction volume.
Compared to Q1, the decline in Activity Start was around 40%, but compared to Q2 2021, there was a much smaller fallback (around 18%). Overall, multi-unit residential construction activity in the first half of this year has been rather modest with about HUF 150 billion worth of started projects, lower than all H1 figures registered since 2016. Project launches continue to be hindered by market uncertainties, the difficult procurement of building materials and their price increases that are hard to predict. At the same time, demand also seems to be dropping due to economic hardships, and financing is provided under worse and worse conditions.
On a positive note, the preferential 5% VAT applicable to new home purchases has been extended until end 2024, so developers don’t have to rush to obtain building permits until the end of this year. Another change is that the introduction of stricter energy regulations originally effective from 1 July 2022 (occupancy permits are not to be issued for dwellings with an energy rating lower than BB) has also been postponed by two years. However, a new administrative burden has been introduced: in case of buildings larger than 5,000sqm, and in case of new MURBs with a total useful floor area of more than 1,500sqm on one building plot and consisting of at least 6 dwellings, the National Architectural Planning Council led by the chief architect will have a veto right.
In Q2 2022 the total value of completed MURBs slightly grew against Q1, meaning that Activity Completion in the first half of this year was over HUF 100 billion in the segment. A large number of additional projects is set to be completed this year, but completion may be delayed in case of several projects owing to current market conditions.
The regional distribution of multi-unit residential construction works is still uneven. In H1 2022 more than 60% of the Activity Start was registered in Central Hungary, more or less the same as the level in 2014-2021. Eastern Hungary’s share in H1 2022 was higher than previously, while Western Hungary had a lower share in the first 6 months of this year.
Regional focus: Southern Great Plain
The last quarter of last year saw a high value of construction starts in the region and even though in Q1 2022 the value of the started construction works surged thanks to two big-volume projects in the region of the Southern Great Plain, Q2 2022 did not record an outstanding construction activity here. In H1 2022, the Activity Start indicator totalled more than HUF 400 billion, and in terms of the last 4 quarters, the total value of started construction works surpassed HUF 660 billion. The outliers for the whole construction industry in the Southern Great Plain could be traced back to civil engineering. In the past 4 quarters, the total value of civil engineering projects entering construction phase exceeded HUF 500 billion, severalfold higher than the previous peak values.
In case of MURBs, the Activity Start of H2 2021 continued into H1 2022 as well, meaning a higher level in July 2019-June 2021 than the figures of each half year. The current level is lagging behind the peak in regional multi-unit residential Activity Start in 2018 when the construction of Cédrus Liget residential park began in Szeged. The volume of this project indicates that the value of large multifamily residential projects of recent years in the region was only a fraction of this project’s value and mostly the construction of medium-sized MURBs started (Domby 60 apartment building, phase 2 of building A of Balaton Residential Park and phase 1 of Green Residential Park in Kecskemét).
In H1 2022 the Central Statistical Office recorded roughly as many home permits issued as in 2021. Permit numbers fell short of the 2018 and 2019 levels between January and June this year. About two-thirds of permits were issued for single-family homes, a drop against 2021 and a bit lower than in 2020.
2021 was a record year for non-residential building construction starts in the Southern Great Plain, not far ahead of 2018. 2021 saw the construction start of the Mercedes K1 press plant in Kecskemét, the regional marketplace in Békéscsaba, and that of the thermal bath in Makó. 2022 began with a slight increase over H2 2021 in the value of started non-residential construction works, marking the third strongest half year (of the past years) in the region. In March 2022, for instance, the project related to Kada Elek Vocational School started in Kecskemét.
In civil engineering, 2021 brought a major expansion in Activity Start in the Southern Great Plain. Last year, for instance, the construction of the public railway line Békéscsaba-Lőkösháza started. The construction of the new Danube bridge between Kalocsa and Paks and the related road network also began, as well as the construction of the railway section between Szeged and Röszke. Yet, in 2022, based on the H1 figures, Activity Start for civil engineering broke all previous annual records because of the start of construction works on the Budapest-Belgrade railway line between Soroksár and Kelebia, as well as the construction of the section between Kecskemét and Szentkirály on M44 expressway.