Q4 2022 sees a continued low value of construction starts in Hungary

Press Release on EBI Construction Activity Report Hungary Q4 2022

The latest EBI Construction Activity Report has found that after the weak Q3 2022, Q4 2022 saw a slight nominal expansion in Activity-Start in Hungarian construction. Nonetheless, the value of started construction works was still very low; between October and December 2022 they totalled roughly HUF 650 billion.

This time, though, for better comparability, the analysts of EBI Construction Activity Report also looked at the development of Activity-Start in Q4 2022 at constant prices. This shows that Q4 witnessed a considerably lower construction value, a bit more than Q3 (the negative record in recent years). Yet, whole-year-figures were high thanks to the higher Activity-Start in the first two quarters of 2022 and projects entered construction on more than HUF 3600 billion. Although it was a new record at current prices, it did not approach the highest values of 2017 and 2018 at constant prices and was at the level of 2019 and 2021. Annual change compared to 2021 at current prices was about +21%, while at constant prices it meant a drop of 0.6%.

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 Q4 2022 can be purchased at ebi@ibuild.info.

Expansion in value of started building construction works

The modest rise in Activity-Start at current prices was mostly coming from the expansion of building construction with the value of started construction works being HUF 500 billion in Q4 2022. Overall, the entire 2022 brought high numbers. Projects worth more than HUF 2000 billion entered implementation – the highest ever registered.

In Q4 the improvement over Q3 was evident in building construction even at constant prices. But the value of started works, except for 2020, was lower than the quarterly values of the past years. At constant prices, the Activity-Start indicator dropped during 2022 (-16.8%) and was roughly at the level of 2019. The better last three months were also typical for multi-unit housing and non-residential buildings, whether we look at current or constant prices.

In 2022, non-residential construction works were launched at a value of more than HUF 1800 billion, the highest amount so far. Thanks to the good first half of the year, even at constant prices, last year was considered a strong year: constant-price Activity Start of EBI Construction Activity Report was the third highest after 2018 and 2021.

Building construction projects launched in Q4 2022 included the CATL battery factory, the BMW plant, and the EcoPro BM electric battery cathode manufacturing plant in Debrecen.  Construction also began on the CTP warehouses in Szigetszentmiklós, the University of Veterinary Medicine and the Siemens Energy M2B gas and steam turbine parts manufacturing plant in Budapest, as well as the logistics hall of HelloParks in Fót.

Further drop in civil engineering Activity-Start

Activity-Start in civil engineering fell further in the last quarter of 2022 with the value of construction starts not even close to HUF 150 billion. Compared to previous years, it is low even at current prices, but at constant prices, the decrease is even more striking: the segment has not seen such a feeble quarter since 2016. The decline affected both road and railway construction, as well as other civil engineering works.

Yet, the exceptionally high Q1 2022 figures pushed up whole-year ones. Thus, the other weak quarters are not visible in a yearly comparison. At current prices, civil engineering registered the highest Activity-Start in 2022, and even at constant prices, 2022 was a strong year. Compared to 2021, there was an increase of more than 65% at current prices, and nearly 40% at constant ones. The start of two big-volume projects at the beginning of the year brought the spiking Activity-Start indicator in civil engineering: the Budapest-Belgrade railway stretch between Kelebia and Soroksár and the Kecskemét-Szentkirály section of M44.

The biggest civil engineering projects started in Q4 2022 comprised several water pipeline and sewer related ones, such as the DV-Dráva watershed in Zala and Baranya counties, the Eastern watermain’s drinking water treatment plant, the Balmazújváros-Hajdúnánás-Hajdúböszörmény transmission line and the Balmazújváros-Debrecen 1st waterworks transmission line. Only one road project made it to the list of biggest projects in Q4 2022, the Soltvadkert bypass section of highway 53.

Regional Activity-Start

Last year Budapest continued to record the largest value of started construction projects, although with a somewhat decreased share against 2021. Northern Great Plain had the second largest share, closely followed by Pest County and the Southern Great Plain. Lowest-value projects were launched in Southern and Western Transdanubia.

Activity-Start in multi-unit housing showing slight improvement

Activity-Start

Q4 2022 registered a slightly higher building activity in multi-unit housing than the two preceding quarters. And even though the total value of projects entering construction phase slightly rose between October and December compared to previous years, it was still not particularly high, and at constant prices, it is in fact rather low. In total, construction projects worth slightly more than HUF 90 billion saw construction start. The temporarily higher numbers were mostly due to the launch of certain phases of larger, multi-phase projects, and do not indicate recovery in the segment. Further, developers are facing falling demand in the market for new homes, and due to economic uncertainties and expensive financing, this may also stretch to the coming months.

2022 on the whole recorded a decline in Activity-Start of multi-unit housing construction compared to 2021 at current prices, and the value of the started construction works did not reach that of 2018 and 2017 either. At constant prices, the difference is even more stunning: in the period since 2016, only 2020 registered a lower number.

For the time being, developers have time to implement their projects based on previously obtained building permits, as well as to prepare new plans. After the extension of the reduced VAT, homes in projects having obtained a valid construction permit until the end of 2024 can be sold at 5% VAT until the end of 2028.

Activity-Completion

When it comes to completions, fewer multi-unit homes were completed in Q4 2022 than expected, indicating great delays in projects owing to supply chain disruptions. Since the value of completed multi-unit homes in Q4 somewhat fell short of Q3, 2022 as a whole posted a lower Activity-Completion indicator than 2021; multi-unit homes worth slightly more than HUF 280 billion were completed in Hungary.

Regional disparity

Disparity between Budapest and the rest of the country continued to grow in 2022. 66% of multi-unit construction works started in Budapest, while the corresponding number a year earlier was 59%. Only 9% of projects started in Western Hungary and the Northern Great Plain, which came second and third, respectively in 2022. Northern Hungary saw the lowest multi-unit housing project starts last year.

Northern Hungary in focus

Northern Hungary witnessed a slight increase in 2022 over 2021 in the Activity-Start of EBI Construction Activity Report with the value of started construction works surpassing HUF 260 billion. This was mainly due to the exceptionally high figures of Q2 as the last two quarters saw low figures.

It was civil engineering that fuelled the increase in the value of started construction works. In 2022, civil engineering projects on a total of HUF 130 billion entered construction, up from around HUF 100 billion in 2021. Primarily, the high numbers of Q2 caused last year’s annual improvement in Activity-Start. For example, the construction of Szentdomonkos-Borsodnádasd section of Highway 25 and the Bátonyterenye-Kisterenye section of Highway 23 started, as well as several water pipeline and wastewater projects.

In case of buildings, works also started on around HUF 130 billion, down from 2021. Although the first two quarters of 2022 still brought high numbers, in the second half of the year, Activity-Start of building construction in the region fell massively. Both non-residential and multi-unit residential buildings saw a decline in Activity-Start. The latter is traditionally lower than in other regions and the further decline reflects that while in 2021 the region’s share of the national multi-unit housing Activity-Start was still 3%, this dropped to 1% by 2022.

The Activity-Start indicator of non-residential buildings shrank last year against the previous year, but it remained high. In fact, 2022 was the second highest ever measured, although the figures for Q3-Q4 remained modest. In 2022, for instance, construction works started on Rubin NewCo half-shaft and cardan shaft manufacturing plant in Felsőzsolca, the Bosch production hall in Maklár, and Decathlon warehouse in Hatvan.

Original article: Tünde Tancsics, ELTINGA

English version: Eszter Falucskai, Buildecon