Press Release on EBI Construction Activity Report Hungary Q2 2021

After a relative stagnation in previous quarters, Q2 2021 saw a considerable expansion in the Activity Start indicator of EBI Construction Activity Report. It was the first three months of 2018 last that witnessed a higher value of construction works to start in a quarter. In H1 2021, projects entered construction phase on a total of HUF 1,398 billion, marking a significant increase of 20% and 18%, respectively, against the same period of the previous two years.

EBI Construction Activity Report examines the situation of the Hungarian 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). Full publications can be purchased at ebi@ibuild.info.

Compared to Q1 2021, Q2 2021 registered a continued growth in the Activity Start indicator of EBI Construction Activity Report for building construction. Overall, HUF 558 billion worth of construction works started in this submarket: the highest quarterly value in recent years. Due to the high figures for the first and second quarters of this year, the total value of construction works started between January and June grew by 19% like-for-like. And when compared to the same period in 2019, the rise amounts to 34%.

Within building construction, the Activity Start indicator of non-residential construction grew in H1 2021, 25% up from H1 2020. The expansion is mainly due to the particularly high Q2 figures. Projects entering construction phase include the SK Innovation battery plant in Iváncsa and the renovation of the headquarters of the Ministry of Finance and the MNB (Hungarian National Bank) in Budapest. The construction of several office buildings also began in Budapest, like Phase I of Dürer Park Office Building and Phase IV of Madarász Office Park. In Dunavarsány the first construction phase of Dunapack plant (paper packaging) also started.

The multi-unit housing segment witnessed a significant decline in Activity Start Indicator between April and June compared to the first three months of the year. However, Activity Start in H1 2021 shows only a minimal decrease over H1 2020 due to the stronger first quarter.

The civil engineering Activity Start indicator of EBI Construction Activity Report registered a substantial growth in Q2 2021 against Q1 2021. It was also the highest value in recent quarters. In the first six months of 2021, projects entering construction phase accounted for HUF 423 billion. Within civil engineering, both road and rail, and non-road and rail sub-markets saw a considerable growth in Q2 against Q1. The biggest civil engineering projects comprise the Bóly-Ivándárda section of M6 motorway and the construction of the new Danube bridge and related road network in Kalocsa-Paks.

Regions

The share of the total value of construction works launched in H1 2021 was the highest in the Western regions (39%), more than 10 percentage points higher than the average share of the region in previous years.

Yet, both the regions of Eastern and Central Hungary saw a lower share of started construction works in the first 6 months of this year than in previous years with Eastern Hungary recording the lowest share (27%).

Multi-unit housing

After an exceptionally high Activity Start value in Q1 2021 over previous quarters, Q2 data showed a major decline in the multi-unit housing segment. The value for the first half of the year is thus slightly lower overall like-for-like.

As of 1 January 2021, new homes can again be sold at the reduced VAT rate of 5% (those that obtained a valid building permit until 31 December 2022 and will be sold until 31 December 2026). The higher value of construction works to start at the beginning of the year is no surprise; given the low VAT rate, developers can now start the plans previously parked due to the 27% VAT. This may have contributed to the spike in the Activity Start of EBI Construction Activity Report.

At the same time, there was little time left for investors to react to the VAT change announced last autumn, and it may take longer to plan and approve a completely new project. As a result, the actual start of construction works may be delayed, which may partly explain the weaker Q2 numbers. As the number of building permits rose in the first half of this year against last year (CSO data), the future may see an increase in the Activity-Start indicator of multi-unit housing construction as well. In addition, the ‘green loan’ effective from this autumn and the interest-free CSOK loan (Family Housing Support Program) for modern newly built homes may have a positive impact and increase demand for newly built homes.

When it comes to the Activity Completion indicator of multi-unit housing construction, it sank in Q2 2021 compared to Q1 2021. It may be related to the delay of construction projects as we can still expect many new multi-unit buildings to be completed in the following periods. In the first half of the year, projects worth a total of HUF 138 billion were completed.

Almost three-quarters of the total value of multi-unit construction projects that started in H1 2021 realized in Central Hungary, but this is mainly thanks to the high numbers in Q1. In the already weak Q2, the share of launched construction projects was slightly higher than in previous years in case of Central Hungary. The share of western and eastern regions was much lower in H1 2021 than in previous years, with the lowest share of multi-unit housing projects launched in the eastern regions.

Road and railway

Q2 2021 registered a major rise in the Activity Start indicator of EBI Construction Activity Report for the road and rail construction segments over the previous quarters. It was last in Q3 2019 when we saw a higher number than this one. Although construction works started on HUF 140 billion between April and June, data for the first half of the year are not outstanding due to the weaker first quarter, so the figures for the first six months were similar to those for the last half years, only showing a slight increase. The high Activity Start value in Q2 is attributable to the outstanding road construction numbers as rail construction works barely started.

Between April and June, far more road and rail construction works reached completion than in the first three months of the year. Within road and railway construction, the improving Q2 value can be attributed to railway construction, with projects worth HUF 74 billion completed between April and June, which is the highest number in recent years. In comparison, the value of completed road construction works amounted to only HUF 16 billion, after the already low value of HUF 9 billion in Q1.

Despite the high Q2 figures, the Activity Completion indicator in H1 2021 was lower than in H1 and H2 2020. It was last in in H1 2019 when a lower value of projects got completed than in the first 6 months of this year. In the coming quarters, however, road and railway construction projects may be completed in a significant value. And based on the expected completion date of projects, the value of Activity Completion indicator may be one of the highest in recent years.

Section A of M30 expressway between Miskolc and Tornyosnémeti already reached completion in the summer, and sections B and C are also set to be completed yet this year. It is also expected that the stretch between Szentkirály and Lakitelek of M44 expressway and the section between Körmend and Rábafüzes of M8 expressway will be completed.

In case of railway projects, Phase 2 of the Kelenföld-Pusztaszabolcs section was completed in the summer and they plan to complete the reconstruction works of the Rákos-Hatvan section of railway line 80.

Building Construction in Turkey during the Pandemic based on H1 statistics for 3 years up to 2021

The Covid-19 pandemic that began in March 2020 has caused significant disruption in the Turkish economy and building construction. The exchange rate crisis in H2 2018 resulted in big rises of construction costs and sharp drops in building construction in 2019. In H1 2020 the economy and the construction sector were recovering from that crisis when the pandemic struck.

Written by Prof. Ali TUREL, EECFA Turkey

Karaköy, İstanbul, Turkey. Photo by Kadir Celep. Source: https://unsplash.com/

Building starts in the first six months of 2020 were about 41% up from the same six months of 2019. The government’s subsidy policy to provide mortgage loans under market exchange rates by the three state-owned banks was in effect from the beginning of June to the end of August 2020, greatly stimulating demand for housing and housing transactions. House building starts appear to have gained momentum from the subsidy policy, and building construction permits, dominated by residential buildings, grew by 45,3% in H1 2021. Nonetheless, there is a large backlog of buildings under construction in almost every use.  

The hike in the starts of residential buildings is also reflected in their growing share in total building construction permits: 63% in 2019, 76,7% in 2020 and 79,3% in 2021. The share in total starts of commercial and industrial buildings (hotels, restaurants, wholesale and retail buildings, warehousing and industrial buildings) has had a downtrend: 15,1% in 2019, 14,8% in 2020 and 12,5% in 2021, although their starts rose by 42,6% in 2020 and by 23,5% in 2021. The shrinking share of their starts is due to the bigger growth rates in residential buildings starts. Public buildings (transport buildings, schools, research buildings and hospitals) had a 21,9% share in 2019 but dropped to 8,5% in 2020 and to 8% in 2021. Their high share in 2019 might be explained by the huge decline in private sector investments in that year.

Construction forecast for Turkey is available in the latest EECFA Forecast Report Turkey up to 2023 which can be purchased on eecfa.com. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries.

Building occupancy permits, on the other hand, had a different trend from that of construction permits. Total floor areas of completed buildings expanded by 2,8% in 2019, while construction permits dwindled by 60,1%. 2020 saw a 32,2% shrinkage in occupancy permits, followed by a 3,3% growth in 2021. And it is a known fact that builders cannot react to market signals during economic crises in a short period of time because of the heavy sunk cost of buildings under construction, particularly of those close to completion.     

Wonder why completion is above permit on the chart above? Check this visualization and choose Turkey in the <Country> dropdown

Builders of residential, commercial and publicly used buildings had almost the same reaction to the crisis caused by the pandemic: the share of these buildings did not alter much between 2019 and 2021. The only notable difference was a slight drop in the share of residential buildings from 79,5% in 2020 to 77,4% in 2021, and a 2% rise in the share of commercial and industrial buildings from 12,6% in 2020 to 14,6% in 2021.

The total floor area of residential buildings and the number of dwelling units completed in H1 2020 and H1 2021 were almost the same, while a 19% growth occurred in the total floor areas of completed commercial and industrial buildings. Housebuilders appear to be cautious in completing construction because of the shrinking demand under the conditions of high mortgage interest rates. Decreased real incomes due to big falls in the value of Turkish Lira against foreign currencies under the effects of the pandemic also contributes to the fall in demand. Mortgaged sales in housing transactions was 18,9% of total sales until the end of July, 2021. First sales have been decreasing during the pandemic from their consistently stable level of 46% to 30% in the same 7 months of 2021.

Housebuilders are also squeezed between the upsurge in building construction cost (42,48% yearly until the end June 2021) and the relatively less rise in housing prices (33% for new housing and 29,2% for all housing) within the same period. The great backlog of residential buildings under construction causes builders an additional cost of delaying completions. Thus, expectations for another subsidised mortgage scheme from the government are frequently raised in the media.

EECFA 2021 Summer Construction Forecast – 3rd Pandemic edition

EECFA’s 2021 Summer Construction Forecast Report up to 2023 was released on 28 June. Full reports can be ordered here. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries.

Southeast Europe

In the first year of the pandemic the construction market of the SEE region as a whole remained in the positive, and further expansion is expected until 2023. The only exception is Bulgaria where a harsh transition is foreseen for 2023 when the 2014-2020 EU programming period ends financially. The massive growth experienced in the years before 2020 is not anticipated to return; around 3% growth is projected for 2021 and 2022, and a 3% drop for 2023. The countries with the largest cumulated growth on the forecast horizon are Croatia and Serbia.

Bulgaria. After a drop of 4.2% in 2020, the European Commission (EC) forecasts the economy to rebound by the end of 2021 and to grow by 3.5%. Positive economic outlook, combined with low interest rates on home loans, will result in more affordable homes. But increased savings and zero deposit rates raise speculative investments in residential, pushing home prices up. Non-residential construction was expected to decelerate even before the pandemic, but the Covid-19 crisis has accelerated this process. Civil engineering is backed by advancing EU fund absorption and by 2027 will be given new opportunities. After an estimated drop in total construction in 2020 by 1.3% in Bulgaria, 2021 and 2022 are expected to see a growth of 9.2% and 12%, respectively. But a considerable drop of 24% is prognosticated in construction output in 2023 due to the slow preparation for the next programming period and the National Recovery and Resilience Plan.

Croatia. We are significantly more optimistic about output growth in a number of Croatian construction sectors than in our last report. Assistance from the EU and international financial institutions blunted the edge of the three catastrophes that struck Croatia in 2020, the COVID-19 pandemic and the Zagreb and Sisak-Maslovina earthquakes. For most (but not all) sectors, it appears that the catastrophes will not greatly change the drivers of output growth over the medium to long term, although they will have some short-term consequences. The three-year hiatus until the next elections in Croatia and the recent election of a reformist mayor in Zagreb, Croatia’s economic powerhouse, provide openings for spurring Croatia’s economic growth and so construction output, but it is not clear that they will be utilized.

Romania. The economic impact of Covid-19 has been less than initially feared. Investment into construction grew strongly in 2020, preventing GDP from a larger drop, and we expect investment to continue in the following years thanks to the RRF. Recovery is also to be quicker than previously forecasted: the EC forecasts a GDP growth of 5.1% for 2022 and 4.9% for 2023. EECFA’s forecast for 2021 and 2022 in construction output is a small contraction (-0.7% and -0.2%) with growth returning in 2023 with 2.6%. Last year residential developers focused on finishing as many projects as possible as there were concerns of a potential market downturn. It didn’t happen, but the new supply to be delivered in the next years could push prices down under normal market conditions.

Serbia. In 2021 things are getting back to normal with the economy standing strong and having already surpassed pre-pandemic levels. Serbia’s economy was one of the least affected in Europe with GDP contracting just 1% last year, and an expected real growth of around 6.5% this year. Recovery is visible in almost all economic segments except for some service sectors still struggling to reach 2019 levels. Serbia’s weaker exposure to tourism and related services moderated losses during the pandemic, and investment stayed strong in both 2020 and 2021. In addition, the government increased public investments in infrastructure and civil engineering projects. Demand in Europe is also recovering, orders are growing again, and with tourism on the rise as well, there is a lot of reason for optimism in the coming period.

Slovenia. Construction industry and the economy in general was less disrupted by the pandemic than originally expected. While GDP decreased by 5.5% in 2020, it is expected to rebound strongly in 2021. Total construction output stayed at almost exactly the same level in 2020 as in 2019: EUR 3.4bln; and it is prognosticated to increase strongly in 2021 and 2022, and exceed EUR 4.1bln in 2023, for the first time since 2008. An interesting recent development though has been the rise in construction costs in 2021 resulting from high demand and supply disruptions owing to the pandemic and its economic aftermath. However, we estimate that this increase in construction cost will be temporary and will decelerate after 2022.

East Europe

The worst performer in 2020 in the Eastern region of EECFA was Turkey, but the downtrend here started well before the pandemic struck. As recovery is awaited to start this year in Turkey, the region as a whole could turn to positive in 2021. Expansion is our current scenario for the region with 9% cumulated real growth until 2023. The largest cumulated market growth on the horizon, thanks to the relatively low starting point, could happen in Turkey.

Russia. The economy is coping with the effects of the pandemic relatively well. GDP contraction last year turned out to be less serious than anticipated with one reason being the stability of the construction sector that showed high resilience to the crisis on the back of active government support for the entire industry, the implementation of many transport and energy projects, and measures to support demand for homes. Construction output shrank by 0.9% in 2020 (against the previously expected drop of about 5%-6%). In the short term, the decline is most likely to slow down to 0.3% in 2021 with a transition to active growth in 2022-2023 within 3.9%-3.4% per year, respectively. Optimism for the next two years stems from the expected recovery in housing construction and the continued infrastructure projects in civil engineering.

Turkey. The economy is showing a rebound after the pandemic. The recent months have seen positive rates of change in GDP, industrial production, value added of construction sector, building starts, and completions. However, a weak Turkish Lira against foreign currencies continues to cause inflationary problems to the economy. Producer prices, construction costs and mortgage interest rates have been increasing at rates close to the rise in exchange rates. The government may again adopt the policy of requiring the three state-owned banks to offer preferential mortgage loans. Total construction output in Turkey is estimated to have slumped by 6.9% last year, but this year growth might return averaging roughly +4% all the way through the forecast horizon.

Ukraine. Last year the construction market was marked by the impact of Covid-19 along with internal problems such as the reform of the State Architectural and Construction Inspection, primarily affecting housing construction. On a positive note, the president launched the Big Construction scheme in March 2020 to support construction industry, so we estimate the overall decline to be 2.2%. And although the recession has reduced the investment flow in construction this year, it has increased demand for some commercial segments such as logistics and co-working offices. As the Big Construction scheme will have sufficient funds for this year as well, it gives cause for optimism for now, and Ukraine’s construction market is forecasted to register growth across the board. 

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Source of data: EECFA Construction Forecast Report, 2021 Summer

Contact information: www.eecfa.com, info@eecfa.com

Property demand pushing up Bulgarian residential construction

Written by Dragomir Belchev, EPI – EECFA Bulgaria

Construction activity

Since the start of the pandemic, the activity of construction companies in Bulgaria was hindered by economic uncertainty, the government’s anti-COVID measures and the lack of workforce due to quarantine or illness. Therefore, during the period of March 2020 – March 2021, NSI (National Statistical Institute) data shows that building construction decreased by 8.4%. However, the sector has signs of recovery as in March 2021 building construction production index increased by 8.0% for the first time compared to the same month a year earlier.

Short-term indicators also suggest the improved confidence of investors after the hesitant 2020. In the first quarter of 2021, permitted floor area was 11.0% more than in Q1 2020, and almost 4% more than Q1 2019. The same trend, but with stronger dynamics, is also observed regarding started floor area. During the first quarter, accumulated construction permits resulted in starting of more than 660 000 sqm., which is nearly 25% more than in the corresponding quarter of 2020, and by 5.5% more compared to 2019.

Sofia (Bulgaria) – Source: unsplash.com (photo taken by Georgi Kalaydzhiev)

Residential property market

Despite the experienced difficulties, residential construction is remaining in the center of investors’ attention due to the growing residential property market especially in the largest cities (Sofia, Plovdiv, Varna, Burgas, etc.). After the initial withdrawal of buyers in the middle of 2020, it became clear that there would be no evident shift on the residential property market.

Regarding the supply side of the market, 15 623 new dwellings were completed last year (Q2 2020 – Q1 2021), which is 17.4% higher than a year ago and is the highest figure in the last 10 years. Still, this cannot catch up with demand which pushed prices up at the end of 2020 and in early 2021. The number of transactions went up in the first quarter of 2021 by 17% compared to the same quarter of 2020, and it is actually the strongest first quarter in the last 5 years. The ongoing housing price increase intensified after 2015. Since then, the accumulated price growth has been over 41%.

There are several factors contributing to the ongoing process:

Low interest rates on housing loans: last year banks improved the conditions of granting loans. The average interest rate on housing loans in March 2021 is 2.75%, which is historic low. The increasing interest in buying a home resulted in a 6% growth of newly granted loans in the period of April 2020 – March 2021 compared to the same period a year earlier. In Q1 2021, 20% of all deals are financed with bank loans but there are significant differences between cities. In Sofia, where buying a property is the most expensive, nearly half of the deals are financed with the banks’ help. In Varna the share is 32%, while in Burgas and Plovdiv the respective deals are 30% and 25%.

Low deposit rates: interest rates on deposits are close to 0% as in the last months some banks started to refuse taking new term deposits, which shifted people’s savings into real estates as the most reliable option.

Speculative investment: investors’ invest in acquiring properties in early construction stages with intentions to re-sell after the completion, which generates additional demand, and increases prices. Additionally, the growing profitability of the real estate market attracts the savings of people working abroad who look for investment opportunities in their country of origin.

Residential construction forecast is available in the EECFA Construction Forecast Report Bulgaria that can be purchased on eecfa.com. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries.

Press Release on EBI Construction Activity Report Hungary Q1 2021

No improvement visible in Hungarian construction industry

The latest EBI Construction Activity Report has found that the stagnation of the total value of started construction works has not stopped. Between January and March 2021, construction works in the sector started on HUF 421bln. This, although not greatly different from the values seen in the previous three quarters, is still the lowest Activity Start indicator of the last two years. Compared to the January-March periods of the previous two years, 2021 started clearly weaker: against the positive Q1 2020, the decline was about 35%, but even over the same period in 2019, there is a 15% decrease.

Weak Q1 for building construction

The value of building construction projects in Q1 2021 showed a major decline over the same period of 2020 which brought an outstanding Activity Start, but compared to the other quarters of last year, the total value of started construction projects increased during three months.

In Q1 2021, a total of HUF 340bln worth of building construction projects entered construction phase, which was a weak three-month period compared to previous years. The previous trend also applies to non-residential buildings within building construction, where the Activity Start of EBI Construction Activity Report accounted for HUF 261bln.

Even though the drop was considerable compared to last year’s exceptionally high Activity Start in the first quarter, the value of construction works started for three months did not greatly differ from the other quarters of the year and the first three months of previous years. Among the biggest non-residential projects that began in Q1 2021, besides the construction of two office buildings, are the Water Fun Park in Győr, the second phase of Mercedes K1 press plant in Kecskemét, CTPark in Vecsés and HelloParks logistics centre in Maglód. The fortress reconstruction in Diósgyőr also started, along with Hunguest Hotel Panoráma Hévíz project and the construction of the Ice Age interactive showroom of the Zoo in Nyíregyháza.

EBI Construction Activity Report examines the situation of the Hungarian 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). Full publications can be purchased at ebi@ibuild.info.

Plunge in road and railway construction

Civil engineering saw a dramatic plunge; in Q1 2021 the value of such projects entering construction phase contracted by almost half compared to Q1 2020. Between January and March this year, only HUF 82bln worth of civil engineering projects were launched, evoking 2015-2016 levels, and representing one of the lowest values in the last five years. The drastic drop in road and railway projects largely contributed to the particularly low level of Civil Engineering Activity Start indicator of EBI Construction Activity Report. Since 2013, Q1 2021 has registered the third lowest value of started civil engineering projects.

The first three months of 2021 barely saw the start of any major road and railway projects. The Activity Start indicator of non-road and non-railway civil engineering projects also sank to HUF 63bln, marking the second lowest amount since 2016. At the same time, Q2 2021 may bring improving numbers in civil engineering as two major projects began in April: 1) the construction of the new Danube bridge between Kalocsa and Paks and the connecting road network, and 2) the construction of the M6 motorway stretch between Bóly and the Hungarian-Croatian border. Also, the EU budget cycle 2021-2027 starting this year is set to provide fresh funds for civil engineering projects.

Regional balance

In Q1 2021, the distribution of the value of construction works among the three regions was quite balanced. While the share of Central Hungary slightly dropped compared to the period of 2014-2020, the share of Western regions rose by the same rate. The share of construction projects started in the Eastern regions remained unchanged.

New impetus in multi-unit housing construction

From January 1, 2021, VAT rate on new home sales was lowered again to 5% from the 27% in 2020, giving a new impetus to multi-unit housing construction this year. The Activity Start value of EBI Construction Activity Report in 2021 thus might be way higher than in 2020. This process has already begun and is confirmed by data for the first quarter of this year. It shows that after a steady decline in last year’s Activity Start, growth resumed in January-March 2021: multi-unit housing projects began at almost the same value as in the same period in 2020. The value of Activity Start indicator for Q1 2021 was HUF 79bln which was surpassed by only two quarters in 2019 and 2020.

Unlike Activity Start, the Activity Completion of EBI Construction Activity Report increased steadily last year. This growth came to a halt in Q1 2021, but it comes as no surprise because the value of completed projects is traditionally a bit lower in the first quarter of a year. In the rest of the year, considering the expected completion dates, the value of completed multi-unit projects may remain as high as in the previous year.

Budapest & metropolitan area dominating multi-unit housing projects

In the first three months of 2021, launched multi-unit housing projects mostly concentrated in Central Hungary. The share of this region was 79%; a major increase compared to the average of 60% in 2014-2020. In parallel, the share of both Western and Eastern regions went down. The already low 15% share of Eastern regions fell to 5% in Q1 2021. The launch of several large-scale projects such as Phases 2 and 3 of Park West, BudaBright, Phase 3 of Waterfront City, BudaPart BRF and Sasad Resort SR6 contributed to the growth in Budapest.

Traditionally, larger-scale construction projects start in Budapest than in the countryside, and thanks to the already approved but not launched projects, developers here could react to the VAT change more rapidly. The increase in the share of larger projects is shown by the fact that although the Activity Start value improved compared to previous quarters, fewer projects started during the quarter than before.

Original article in Hungarian: Tünde Tancsics (ELTINGA)

English version: Eszter Falucskai (Buildecon)

Serbian construction: one of the strongest growth cycles in recent history

Written by Dejan Krajinović, Beobuild Core D.O.O., EECFA Serbia

During the last six years, between 2015 and 2020, our forecasts closely followed the significant turnaround in Serbian construction, which rolled out into one of the strongest growth cycles in recent history. The powerful surge in construction outputs surpassed all initial expectations, and there are a number of converging factors behind its formidable result. The recovery after the recession gradually transformed itself into a fully-fledged construction boom, which more than doubled Serbia’s construction outputs, from EUR 2 billion in 2015 to EUR 4 billion in 2019. Even the pandemic in 2020 didn’t change the very positive outlooks, although it did cause a slowdown and negative consolidation of construction outputs by some 5% at constant prices. The expected growth should return in 2021 and all indicators are still on the side of our initial forecast.

How ‘good’ is EECFA’s Sample Report?
The 3 charts compare our 3 forecasts for total construction output at constant price as 2014=100 index. Forecast figures are dotted, factual figures are solid lines.

Three of our previous forecasts for total construction output in Serbia
(source: EECFA)

The chart on the left shows our first forecast for 2018. It was published in June 2016 and this is our sample report. (See the full PDF and the corresponding XLS file.) The factual 2018 figures were published in the 2nd half of 2019.

The chart in the middle is our forecast issued in Winter 2019, where the 2018 figure is therefore the final one. 2018 factual data are very close to what was foreseen in June 2016.

The chart on the right is our latest forecast, including the 2019 factual figures, which was published in the meantime. Although we were very optimistic for 2019, the final results turned out to be even better.

Reforms as a prelude

With political changes in 2013, Serbia embarked on a reform path that is slowly proving to be one of the main pillars behind its success story. The initiation of the ongoing cycle happened with the new permit laws implemented in 2015, but this was also followed by new and flexible labor laws, as well as a number of smaller legislations. The new permit laws and the introduction of e-permits made administrative processes very fast and transparent, where the World Bank ranked Serbia in the Top 10 most efficient permit systems in the world. These were critically important legal reforms, which laid ground for investments in practically all construction segments. The reforms started in deep austerity, with tough fiscal reforms including linear pay cuts, halt in state funding and the cancellation of all government programs affecting construction. At the time, it would be impossible to see all the implications we see today, particularly the speed of overall changes.

Tango of public and private

What came as a new strength for this cycle in 2017 was the removal of the austerity measures after the successful fiscal consolidation. Not only public debt was reduced, and budgetary deficits closed, but the Government funds are returning as one of the major contributors in construction. This is a key factor in infrastructure, but also in various public buildings and residential construction. With all weaknesses and possible risks involved, it was very easy to underestimate the scale of the recovery. While an amazing performance of civil engineering was largely expected, the results in the construction of buildings came as a pleasant surprise. Only between 2016 and 2020, the levels of output in building construction almost doubled. The total amount grew from EUR 900 million in 2016 to EUR 1.7 billion in 2020, with a strong contribution of residential, commercial and industrial sub-segments. The star performer is the residential segment that pushed us to make several upward revisions during the last 5 years, as permits consecutively broke all expectations.

Strong foundations

In 2020, the positive effects of the boom affected literally all construction segments, and the brewing activity continued even during the pandemic. Already in the second half of 2020, the situation stabilized, and investments were desperately waiting for a full normalization. Permit numbers recovered, land and home sales returned to pre-pandemic levels and none of the investors cancelled their construction start. The overall economy is a strong supporter of the property market and conditions have been improving year by year. Most foreign investments went into manufacturing, giving a strong foundation for a sustained economic growth in the coming period. During 2020, Serbia’s GDP fell only 1.5% compared with 2019, while exports and investments continued to grow. This means we can expect a strong rebound of the economy in 2021, where GDP is expected to grow between 5%-6%. Similar growth rates are expected in 2022, as well.

Multi-vector policies

By not being a member of the European Union, Serbia was unable to access EU development funds for stable financing of its transport and other civil infrastructure. For years, the regional infrastructure was neglected, until an old friend came to the rescue. In 2009 Serbia signed a strategic cooperation deal with China, which provided full financial and logistical support in infrastructure development. The first project started in 2011 and since then, projects Serbia contracted with China have been worth over EUR 10 billion, including motorways, high-speed railways, energy, and public utilities. The Sino-Serbian partnership has been growing by the years and beside preferential development funds, it now covers a wide cooperation in various interstate projects, from education to security. Chinese companies also invested several billion of euros in the Serbian industry, including mining, metallurgy, electric and home appliances, car parts, etc. We can expect this cooperation to deepen further in the coming years, with even larger-scale projects and investments on the horizon.

How much steam in this cycle?

This is not an ordinary construction cycle, at least not in its length, potency or context. Although, construction output levels were on their historical bottom when the cycle began, its size and distribution prove this is a farther-reaching process. Such a strong recovery in construction levels is indicating an economic shift, which could produce a sustained expansion in the coming years. It can be expected for Serbia to reposition itself as a leading regional economy, and construction outputs to continue breaking historical records. While some of the construction sub-segments will eventually mature and consolidate, the overall trend in total construction figures will maintain an upward direction for several more years. The huge and long-delayed civil-engineering projects will lead construction growth in the forecasts, but buildings shouldn’t fall too much behind. The basis for growth in the construction of buildings is also strong, but its trajectory will be less pronounced and more cyclical.

Ongoing expectations

Current forecasts are showing the cycle will continue until 2023, with a particularly strong performance of civil engineering. Major civil sub-segments will be roads and railways, but other transport infrastructure and energy will also likely break new records in the coming period. Building construction should decelerate its growth rates and even top this cycle in some segments, but the overall trend is to remain positive. We expect the residential segment to maintain its growth rates until 2023, while the non-residential one will probably consolidate in 2021 and return to growth in 2022. It is possible that this cycle can even surpass the current estimates in some scenarios. A lot of external factors can affect mid-term forecasts, so it still remains to be seen how it will all play out.

Housing stock and renewal ratio in Europe in the last decade: Turkey leading the way

Written by Bálint Parragi, ELTINGA-EECFA-BUILDECON

We have examined the relationship between the renewal ratio and the actual stock in Europe (across countries covered by EECFA and EUROCONSTRUCT) during the last decade (see figure below). The renewal ratio is the ratio of the newly built homes between 2011 and 2020 and the housing stock at the beginning of 2020.

EECFA covers the construction markets of Bulgaria, Croatia, Romania, Russia, Serbia, Slovenia, Turkey, and Ukraine. EUROCONSTRUCT covers the construction markets of Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, and the United Kingdom.

When analysing the data, we have found three different country groups:
(Click the heading named Group in the table above to rearrange the order)

  1. A heterogeneous group of countries with a building stock smaller than 10 million. There are some countries, mainly from Central-Eastern Europe and the Balkans with exceptionally low renewal ratios (lower than 5% during these ten years): Portugal, Bulgaria, Hungary, Slovenia, Croatia, and Serbia. Czechia and Romania also have renewal ratios very close to 5%. Except for Portugal, all countries in Western and Northern Europe within this first category have a higher renewal ratio: in Finland, Switzerland, and Austria, every tenth building was built during the last decade.
  2. This group consists of countries with a bigger building stock, but relatively low renewal ratios. Southern Europe (Italy and Spain), the United Kingdom, Germany, and Ukraine fall under this category. Only 3%-6% of their building stock was built during the 2010’s.
  3. This category comprises countries with the highest renewal ratios in the last ten years. Poland and France have similar building stock sizes to the ones in Ukraine and Germany, respectively, but their renewal ratio is significantly higher; around 11%. Poland is especially outstanding among the postsocialist countries with a bit more than 11% renewal ratios between 2011 and 2020, followed by Slovakia (8%). There are two absolute outliers; Turkey and Russia with the two highest renewal ratios: 28% and 15%, respectively, in 2011-2020. In Turkey, almost every third building is only just 10 years old or newer, and in Russia, it is every seventh. Russia has of course the largest building stock in Europe (almost 70 million buildings), but its great renewal ratio means that they built as many buildings in the last decade as there are in Romania in total. And Turkey built more buildings in the last ten years than Poland, Ukraine, Spain, the UK, and Italy combined.

Although in this piece renewal ratio is defined as newly built homes / building stock, it is always good to have in mind that not only new housing construction contributes to the renewal of the stock, but also renovation. In some countries, typically in Western Europe, its contribution to renewal is even higher than that of new construction. In our forecast reports you may find the development stories for both new and renovation types of works.

Ukraine’s construction market amid the pandemic in 2021: a mixed bag

Written by Sergii Zapototskyi – UVECON, EECFA Ukraine

Since Ukraine is dependent on global economic changes to a great extent, the global crisis triggered by the pandemic has greatly affected its construction industry. Let’s see how.

Good news, bad news

The pace of housing construction significantly slowed down in Ukraine; the index of construction products for 2020 in the residential real estate segment amounted to 81.5% in comparison with 2019. At the same time, the average price per square meter grew by 6.5%. Yet the volume of non-residential constructions remained almost unchanged (99.3%) and civil engineering constructions even outstripped 2019 (111.6%) due to the implementation of the state program dubbed ‘Big Construction’ within which more than 3.9 thousand km of roads were repaired, and 114 schools, 100 kindergartens and 101 sports facilities were either built or reconstructed.

Source: freepik.com

As a real estate expert evaluation shows, more properties are being bought in the large cities of Ukraine such as Kiev, Odessa, Dnipro, Kharkiv and Lviv. The reason is the growing population number which is a good stimulus for the economy, construction, the development of engineering and social infrastructure, as well as business activity. In these cities, including the capital city, this year might see a further rise in prices and a greater revival of the real estate market (an increase in construction projects of residential complexes, cottage settlements, low-rise residential buildings, office and shopping centers, underground and ground parking lots).

The latest EECFA Construction Forecast Report Ukraine can be purchased on eecfa.com.

Residential

Influencing factors and reform on the downside

In 2021 the key influencing factors, which are also the risks for the real estate market of Ukraine, may be the failures of healthcare and vaccinations, which will lead to the disappointment of consumers and a passivity on their side.

And this year the factors making real estate investment risky will not be eliminated either: corruption and administrative/regulatory problems like the reform of SACI (State Architecture and Construction Inspectorate of Ukraine). SACI was planned to be liquidated on grounds of being a “corruption department”, and a transparent system for issuing permits and construction supervision was to be created instead. But what happened was that the market was simply halted. The system is on the brink of collapse; already built facilities are not being put into operation and many projects scheduled to start last year were postponed by developers. A series of defaults by high-profile developers (Arkada Bank, Ukrbud, etc.) also undermined investor confidence in the residential segment – financing housing construction in Ukraine is mostly carried out at the expense of future homeowners.

Suburban housing construction and mortgage program on the upside

Amid the pandemic most buyers are focusing on suburban housing construction as during the lockdown the remote work scheme emerged and many companies are willing to permanently switch to it. Thus, living in a city with its transport and environmental problems lost its lure for many when one can live 20-30 minutes away from the city in a comfortable suburban home. We are returning to the concept of full-fledged satellite cities with various types of buildings (multi-storey terraced houses, townhouses, cottages, etc.). Therefore, the growth in the volume of suburban construction seems to be a promising trend for the market this year, and possibly in subsequent years as well.

In March 2021 a new government program for providing preferential mortgage loans is expected to be launched. Mortgages at 7% are a long-awaited tool to revive Ukraine’s construction market and reduce the cost of housing loans. Developers say affordable lending could increase home sales by at least 10%.

Commercial

The commercial real estate sector in Ukraine had a significant blow due to the lockdown:  rising vacancies, dropping rental rates, and new construction works still being postponed.

Retail

Retail was the first to be hit by the spring 2020 lockdown as many shops and malls were closed. In November 2020, there was a so-called ‘weekend lockdown’ in effect, while a full lockdown occurred from January 8 to 24, 2021. During the lockdown consumer demand fell sharply, but then it recovered quickly. The NBU (National Bank of Ukraine) estimates that the pandemic-related crisis hit this segment less than it did offices as it was boosted by rising incomes and the quarantine flexibility (the entertainment segment was hit hard, though). Vacancy rates in the market rose by 5.4pp, and the average daily traffic in shopping centers sank by 25%-40%. In large cities of Ukraine, new supply in 2020 was about 113.5 thousand sqm. GLA, and even more shopping centers are planned to be completed in 2021-2022. This year, for instance, at least three shopping and entertainment centers are to open in Kiev (​​147.5 thousand sqm. GLA) and two in Kharkiv (122 thousand sqm GLA), among others.

Office

Offices were hammered by the pandemic, which led to a drop in rates to 10% in total in the first half of 2020. The balance of supply and demand will likely deteriorate in the near future. At the end of 2019, developers announced to release a significant volume of new supply for 2020 (about 230 thousand sqm). However, by end 2020, the real indicator of new supply was 105 thousand sqm, and completion dates for the rest was postponed to 2021-2022. Only 49% of the total office space announced for 2020 was completed last year. Now supply exceeds demand, but the situation will likely change if business activity in Ukraine revives after the pandemic subsides.

Hotel

The nearly 70% decline in passenger traffic at airports caused a decrease in hotel occupancy to the level of 15%-20% during the strict lockdown and to the level of 30%-35% in the laxer period. (For comparison, in the pre-quarantine period it was 53%). Thus, new formats had to be introduced, so an office/co-working component or service apartments were added to the hotel function.

Industry

Growth in online commerce in the pandemic increased demand for warehouses, making this segment the most resilient in the current crisis. In the long term, a decrease in vacancy and an increase in rental rates for warehouse and industrial premises are expected due to hiked demand, limited supply and the small number of projects under construction.

Will Covid-19 be remembered as ‘the good crisis’ for Slovenian construction?

Written by Dr. Ales Pustovrh – Bogatin, EECFA Slovenia

Construction output in Slovenia decreased by two-thirds between 2008 and 2015 as the effects of the global financial crisis lingered and the Slovenian banking system needed restructuring. Early signs are showing that the pandemic will have much less impact and might even prove to be beneficial to the construction sector in 2021 and beyond.

Pod Pekrsko gorco project, Maribor, Slovenia – Source: https://ssrs.si

In 2008, the Slovenian construction reached levels it had never reached before since the country became independent. According to EECFA’s research, its total construction output exceeded EUR 4,6 billion in that year, which as we know now, was unsustainable. Construction output decreased for the next 8 years and embarked on a low of EUR 2,2 billion in 2016 before rebounding to an estimated EUR 3,4 billion in 2020.

Then Covid-19 struck and the whole economy entered another crisis. With lockdown measures and restrictions to the physical movement of people, including workers, it was possible that construction would once again feel the burden of a general economic crisis that might force it into a full depression. In practical terms – how can construction workers construct new projects if they are not even allowed to work in groups on site?

After some initial confusion, it quickly emerged that Covid-19 will not have the same effect on the industry. Construction was able to continue its operations unhindered. Unlike in the Great Recession, banks have kept crediting new construction projects and at very low interest rates. Disposable income of the population has not decreased due to generous anti-crisis measures supplementing the lost income. And the government was willing to run large budget deficits as it was able to borrow at virtually zero cost on international bond markets. A part of these financing was invested in different construction projects, including in health building constructions.

Additionally, a fragile coalition of centre-left parties under Prime Minister Sarec fell apart in Spring 2020 and was replaced by centre-right coalition under the new Prime Minister Jansa. His agenda is also based on implementing some long-stalled construction projects, including the new high-voltage electricity distribution network connection with Hungary and the start of the construction of the new hydroelectric power plant near Mokrice. Some previous large construction projects have been continued or even accelerated, including the start of the construction of the so-called 3rd national road axis, as well as the planned expansion of the Slovenian railroad network that would capitalize on the ongoing construction of the new railroad connection toward Port Koper.

With these big-league construction projects and numerous smaller, privately funded ones, initial data on construction output in 2020 show that instead of decreasing, it might have actually slightly increased even during the health emergency and the accompanying economic recession. Additionally, with strong economic rebound predicted for the time after the emergency, potentially as soon as in the second half of 2021, construction output might grow further.

EECFA’s Winter 2020 forecast is envisioning for Slovenian construction a 0,3% real growth in 2021 and 1,7% in 2022, but with an upside potential.

Segment-level construction forecast is available in the EECFA Winter 2020 Construction Forecast Report Slovenia that can be purchased on eecfa.com

The new government has presented an ambitious long-term plan for civil-engineering, health and nursing home construction for the next few years (although it implementation will greatly depend on the results of the next election in 2022).

It will also have plenty of financing available from the comprehensive EU Recovery Plan. In Slovenia’s national recovery and resilience plan, the European Commission has confirmed access to EUR 5.2 billion for the 2021-2027 period. All in all, it is becoming clear that unlike in the previous crisis, access to funding for construction will not be a problem this time.

EBI Construction Activity Report Q4 2020 Hungary

Value of started construction projects on downward track in Hungary

Due to the pandemic, construction industry in Hungary last year registered a significant fall and the last quarter couldn’t save the year either. The latest EBI Construction Activity Report has found that Q4 2020, similarly to the low-value Q4 2019, saw the start of construction works at a value of HUF 442bln. Owing to the massive drop in mid-2020, 15% less construction work started than in 2019 and 30% less than in 2018. In 2020 the Activity Start Indicator of EBI Construction Activity Report accounted for less than HUF 2000bln (HUF 1990bln). And the decline affected all major subsectors.

The EBI Construction Activity Report Hungary examines the situation of the Hungarian 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 sector as well. It is prepared by Buildecon, Eltinga (creation of indicators and development of algorithms for aggregation) and iBuild (project research and project database). Full publications can be purchased at ebi@ibuild.info.

Building construction registering yet another decline in activity

Although 2020 saw quite a strong start in building construction, the momentum slowed down from Q2 on. As per the latest EBI Construction Activity Report, except for the first three months of 2020, construction works in building construction started at a lower value than in the previous period. In Q4 2020 the Activity Start of EBI Construction Activity Report amounted to only HUF 280bln. Overall, the value of building construction works started last year was HUF 1353bln, much lower than in 2019 and 2018, compared to which the difference was 10% and 17%, respectively.

The main reason for the decline is the great drop in the number of multi-unit buildings. The total value of such projects entering construction phase in Q1 2020 even exceeded the numbers of Q1 2019. Yet, the shrinkage in the following 9 months was so large that the value of projects started in 2020 fell to the level of 2015-2016 in the segment, showing a decline of almost 40% over 2019. In case of non-residential buildings, there was hardly any discrepancy in Activity Start between 2020 and 2019.

The biggest projects launched in Q4 2020 include the construction of Hotel Hévíz in Hévíz, the restoration and development of the Citadel in Budapest, and the construction of several rural industrial and factory buildings such as Nestlé Purina pet food factory in Bük or the ZalaZone military plant in Zalaegerszeg.

Q4 2020 no savior of civil engineering

2020 was a mixed year for civil engineering. In Q1 it managed to maintain the Activity Start value of the same period of the previous year, and Q4 was 70% higher than the end of 2019. In contrast, the middle of the year was well below the 2019 figures with the value of construction works started in Q2-Q3 dropping by 45% against mid-2019. Overall, the HUF 636bln Activity Start indicator for civil engineering in 2020 was almost 40% lower than the average of 2017-2019. But compared to the 2010-2016 average, this value is still 25% higher, so the period between 2017 and 2019 can still be considered outstanding.

Within civil engineering, the total value of started construction projects in road and rail segments decreased by 32% over 2019. In case of non-road and railway construction, the drop was also significant, but we could see a more modest (15%) decrease than previously presented in the Activity Start of EBI Construction Activity Report.

The highest-value civil engineering projects launched at end 2020 comprise for example, the start of construction of the Budapest Athletic Stadium and the ZalaZone automotive test track in Zalaegerszeg.

Central Hungary’s growing share

Looking at all started construction works, Central Hungary and the western regions of Hungary closed 2020 with almost the same Activity Start value as they did in 2019, with the indicator even slightly growing. But in the eastern regions, the total value of projects entering construction phase plunged (by 41%) with the decline occurring mostly in the second half of 2020. Thus, Central Hungary and the western regions increased their share in the value of started construction works, while the share of eastern regions went down to 25%, according to the latest EBI Construction Activity Report.

2021 might be a better year for the multi-unit segment

The pandemic-related economic downturn, combined with the resetting of the VAT rate to 27% as of early 2020, resulted in a remarkably low Activity Start in the multi-unit housing market last year. The last half of 2020 recorded such low numbers that can only be found in the years 2014-2015. However, the newly introduced 5% VAT rate from this year on could halt the plunge and even generate growth in the segment, which would allow the market to return to much higher Activity Start numbers this year.

When looking at Activity Completion indicators, we get a completely different picture as the total value of completed projects last year amounted to a record high of HUF 424bln. This is 40% higher than the previous peak in 2019 and it doubled compared to 2018. Preliminary data for 2021 are expected to have a similarly high value in completed projects.

The 40% countrywide decline in the Activity Start of multi-unit housing was uneven in the regions. In Budapest, the value of projects started in 2020 went down by only 9% against 2019. However, in all other regions the decrease was more than 40%, while in Pest county it was 85%. Due to these tendencies, regional shares have also changed. Because of the importance of Budapest, more than two thirds of the value of the started multi-unit construction works was concentrated in Central Hungary. The western and eastern regions remained well below their multi-year average.

Growing mood for hotel construction, stagnant Budapest

Last year also exceeded the record high value of 2019. In 2020 hotel construction works started on HUF 91bln, a 6% increase like-for-like. The last quarter of last year was outstanding with HUF 36bln of Activity Start registered, according to the latest EBI Construction Activity Report. However, this amount was distributed differently than in previous years between the capital city and rural areas. While there was a roughly 50%-50% share in 2019, in 2020 Budapest only had a 13% share and the rural Activity Start accounted for 87%. Such a low value has not been registered in the capital city since 2016. This is in sharp contrast to the 82% rural annual growth but even in this case, there are major regional differences. In 2020, the two regions pulling the segment were northern Hungary and the Lake Balaton area. For example, at the end of last year, the construction of Hotel Hévíz (Hévíz) and the Hampton by Hilton hotels (Budapest) started. Earlier last year the construction of Minaro Hotel Tokaj, Green Resort Balatonfüred and BalaLand Hotel began.

In 2020, the value of completed hotel construction works also continued to grow, with a total of HUF 48bln worth of hotel completions (a 33% increase). Regionally, the capital city had a higher share in the total value of completed projects (two-third) than in the case of started ones. This year is also expected to see a growth in completions and hotels could be completed at an even higher value.

Completed projects last year include Botaniq Castle (Tura) and Kozmo Hotel (Budapest), while works are expected to be completed in the first half of this year in Budapest for Matild Palace, InterCity Hotel and B&B Hotel. In the countryside Mária Valéria Hotel in Esztergom, Erzsébet camps in Fonyódliget and the youth sports accommodation in Felcsút can reach completion.

Soaring education-related projects

In 2020, construction works on educational buildings started at an outstanding value. Although the peak of HUF 140bln in 2018 was not achieved and fell short of the value of 2019 by a few percentages last year, it is the third most successful year with projects having started on HUF 120bln, far exceeding the average of HUF 44bln in 2000-2016. For example, 2020 saw the start of construction in EMC Measurement Lab server center in Budapest on HUF 16bln, the Semmelweis University Faculty of Medical Sciences, Department of Traditional Chinese Medicine and St. Angela Franciscan Primary School and Grammar School, and the University of Debrecen Innovation Center and Learning Center. The renovation and expansion of the Szeged Medical Sciences Training Block can start at the beginning of this year.

Education-related construction projects amounted to HUF 102bln in Hungary in 2020, and the outstanding trend of recent years can also be felt in completions. For example, the construction of the partly R&D center Univerzum Office Building in Budapest, the renovation of the campus of the Faculty of General Medicine of the University of Pécs and the reconstruction of the Ludovika Wing Building, as well as the construction of the Rózsakert Demjén István Reformed High School were also completed. In the short term, even more projects may reach completion with several of them being in Pest County. In Érd, the renovation of Batthyány Sports School and Primary School and the vocational training center of Kós Károly Vocational High School, as well as the construction of Fenyves-Parkváros Public Education Center and the construction of a primary school in Biatorbágy are planned.