Construction in Hungary leaves a weak quarter behind

Press Release on EBI Construction Activity Report Hungary Q3 2022

EBI Construction Activity-Start recorded a sharp falloff in Q3 2022. Between July and September, construction projects started at a value of less than HUF 480 billion – the lowest amount since Q3 2020.

The recent years have seen a considerable price rise in the Hungarian construction industry. In order to filter this out, the analysts of EBI Construction Activity Report compared the value of started construction works at constant prices, using Q3 2022 prices. Based on this, at constant prices, an even greater decline is seen in case of started construction works. In Q3 2022 they have registered their lowest value since 2015. At the same time, thanks to the successful first quarter, the drop was not yet visible based on the figures of the first 9 months, which even at constant prices exceeded the same periods of 2020 and 2021.

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 Q3 2022 has been released and can be purchased at ebi@ibuild.info.

Value of building construction works down

The decline in Activity-Start witnessed in the construction industry as a whole was observed in building construction, too. The total value of started construction works was around HUF 300 billion, far below the typical first and second quarters. Looking at constant prices, the drop is even more visible. One needs to go back to Q1 2015 to find a lower value than this year’s third quarter. Yet, it is also true in case of buildings that the better first and second quarters pushed up annual figures.

The decrease was also true to residential and non-residential. For the latter, the Activity-Start of EBI Construction Activity Report was around HUF 260 billion, which, at current prices, fell short not only of the figures of the first two quarters, but also of most of the levels of quarters between 2018 and 2021. At constant prices, it was the lowest since Q1 2015.

Building construction projects launched in Q3 2022 included the W-Scope separator film factory in Nyíregyháza, and ParkSide Offices, RTL HQ, Zugló-Városközpont Offices 1 in Budapest. Work also began between July and September on Phase 2 of Campus in Kecskemét, Panattoni Park Budapest City West logistics center in Törökbálint, and the Hungarian University of Agriculture and Life Sciences in Gödöllő.

Continue reading Construction in Hungary leaves a weak quarter behind

What opportunities the RRF can bring to Bulgaria’s construction

Written by Anita Dangova, EPI, EECFA Bulgaria

Bulgaria’s Recovery and Resilience Plan (RRP) aims to facilitate economic and social recovery from the COVID-19 crisis and to create a more sustainable, equitable, and successful economy. It includes a set of schemes not only to restore the economy’s growth potential, but to boost it, too. In achieving this, several construction projects to increase energy efficiency and decrease CO2 impact are to be implemented in 2023-2026.

The official cover of Bulgaria’s RRP; Source: National Recovery and Resilience Plan of the Republic of Bulgaria

How the RRP will impact housing construction

One of the major projects provides support for sustainable energy-efficient renovation of the housing stock since, currently, only 7% of the floor area of occupied residential buildings complies with modern energy efficiency (EE) requirements. The project, to be launched by end 2022 with an implementation period till 2026, will attract a total of EUR 607mln under the Recovery and Resilience Facility (RRF). Multi-family residential buildings will be eligible for financing nationwide and renovated units have to achieve 30% primary energy savings. Residential buildings to be financed under this scheme are divided into two groups depending on the time of application of owners’ associations: 

  • applications until March 2023: 100% of the project funding will be provided from the RRP, 
  • applications from April 2023 to December 2023: 80% of the project funding will be provided under the RRP, and 20% will be in the form of self-contribution. 

Another project with an implementation period till 2025 is dubbed “Program for the financing of single renewable energy measures in single-family and multi-family buildings”. Total planned funding is EUR 123mln (EUR 72mln from the RRP and EUR 51mln in the form of national and private co-financing). The project aims to increase the use of renewable energy in final energy consumption in households by financing new solar systems for domestic hot water and photovoltaic systems. There are two measures:

  • construction of solar systems for domestic hot water supply. The maximum amount of grant per individual household is to be 100% of the cost of the system, but no more than EUR 1000;
  • construction of photovoltaic systems up to 10 kW. The maximum amount of grant per individual household is to be up to 70% of the system cost, but no more than EUR 7700.

How non-residential construction will benefit from the RRP

One of the projects finances – between 2022 and 2026 – the sustainable energy renovation of non-residential buildings owned by municipalities and national authorities (regional administrations, ministries); the Bulgarian Academy of Sciences; public-private partnerships for buildings in the field of production, trade and services; non-profit legal entities, municipal enterprises, and commercial companies. The project consists of two components: 1) EUR 189mln (without VAT) to public buildings; 2) EUR 120mln (without VAT) for manufacturing, commercial and service buildings.

Continue reading What opportunities the RRF can bring to Bulgaria’s construction

How subsidized mortgages changed the Russian housing market

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

Housing construction remains one of the biggest segments of the Russian construction market, affecting both related industries and the overall macroeconomic situation, including GDP dynamics and labor market indicators. Because of the stagnating real income of the population over the past years, housing demand was stimulated by affordable mortgages. State programs that started back in 2018 targeted specific groups, but due to the pandemic in 2020 they became part of a comprehensive anti-crisis package to stimulate the economy, and unprecedented measures were launched to support construction. Thus, preferential mortgage became available to everyone. This excess demand caused record price increases in 2020-2021 and the rapid exhaustion of the positive effect of cheaper loans. As a result, housing has become even less affordable for buyers, and the market has become addicted to cheap mortgages whose issuance was supported exclusively by the state. Owing to the economic crisis caused by the events in early 2022, the central budget will experience a shortage of funds and spending on certain areas will be reduced. The mass subsidizing of mortgage rate is also likely to fall under sequestration, which may have negative consequences on the market in terms of demand.

Subsidized mortgage schemes then and now

Subsidized mortgage schemes to stimulate housing demand and support housing construction as a whole started in 2018. By then, the real income of the population had been declining for more than 3 years (from 2014 on). Subsidized mortgage rates (at the time about 10%) could stimulate demand and help those in need of buying a new home:

  • ‘Family Mortgage’: launched in 2018, it was the first program to reduce mortgage rates to 6% for families with children.
  • ‘Far Eastern Mortgage’: a targeted state program that started at end 2019 (a reduction to 2% for buying a home in the regions of the Far Eastern Federal District). Both programs are still in effect (with minor changes in conditions) and are valid until the end of 2023.
  • ‘Rural Mortgage’: a targeted mortgage scheme, though geographically limited, started in 2020 (this year it was announced to become indefinite) for citizens intending to buy or build an own house in settlements with a population of less than 30,000. Participants can take up a loan for a new home or for a used home. The goal is to increase the number of people living in rural areas.

All three programs apply only to borrowers meeting certain conditions. All of them supported demand and stimulated buyer activity. But:

  • The ‘Preferential Mortgage’ program (as part of anti-crisis measures to restore the economy at the onset of the pandemic in early 2020) had the biggest impact on the market. During this time quarantine restrictions caused a large-scale economic crisis and a major drop in the real income of the population, reducing the solvency of potential homebuyers and the number of transactions. It endangered housing construction, which is a critical segment for the economy. To aid the construction industry, the government implemented the scheme dubbed ‘Preferential Mortgage’. Unlike the other three schemes, it was available to everyone and citizens were able to take up a mortgage at 6.5%. Initially planned to be valid until November 2020, it was extended first until July 2021, and then until end 2022, but with tightened conditions: the maximum possible loan amount was greatly reduced, and the loan rate was raised to 7%. The events in early 2022 led to macroeconomic instability and a sharp increase in the key rate of the Central Bank. The rate under the Preferential Mortgage program also rose to 12%, although by June 2022 it was reduced to 7% again. It also became possible to combine soft loans with mortgages on market terms, which greatly increased the maximum loan amount.
  • The latest state program to support the mortgage market has been the so-called ‘IT mortgage’ introduced in May 2022 for the employees of IT companies. It has become part of the large-scale measures to promote the development of IT industry in Russia and stop the brain drain.

The impact of subsidized mortgages on the housing market

In 2018-2019 the volumes of the mortgage market stagnated: the number of issued loans dropped (-8% in 2019 against 2018) and there was a minimal positive correction in the total number of transactions in the primary market (+1% in 2019).

The targeted schemes launched in 2018 helped certain categories of citizens to solve housing problems but did not have a huge impact on the whole primary market of multi-unit housing. But everything changed in 2020 with the Preferential Mortgage program available to everyone without exception. At end H1 2020, the number of transactions in the primary multi-unit housing market was 37% less than in 2019 due to quarantine measures and the general economic downturn after the start of the pandemic. However, the Preferential Mortgage program launched in Q2 2020 contributed to a sharp increase in demand, and in H2 2020 the number of transactions was already 33% higher than in H2 2019. In general, according to the results of 12 months of 2020, transactions slightly decreased, but the effect of the program in the second half of the year almost made up for the decline at the beginning of the year.

Continue reading How subsidized mortgages changed the Russian housing market

More cautious Hungarian construction industry

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.

Continue reading More cautious Hungarian construction industry

How Türkiye is handling the rental housing crisis under the effects of the large number of refugees

Written by Prof. Ali Türel, EECFA Türkiye

Türkiye’s high inflation (79.6% in July 2022 y-o-y), stemming from the Turkish lira’s continued devaluation and the economic consequences of Russia’s invasion of Ukraine, along with soaring energy prices are impacting construction. There is also a rental housing shortage aggravated by the 3,920 million refugees the country is hosting. To counterbalance the negative trends, in addition to the rent freeze law enacted in June, the Turkish Government has announced a big social housing project starting from mid-September.

Ankara, Türkiye. Photo by Ekrem Osmanoglu unsplash.com

Economy and housing market

The economy of Türkiye is facing new problems as the severity of the pandemic is easing. The unparalleled FX volatility since Q4 2021 has led to high inflation. The war between Russia and Ukraine has also contributed to the rise in inflation due to increased energy prices, affecting construction activities as well as the production of certain industrial and agricultural goods.

In June 2022, construction cost rose by 105,73% and residential construction cost by 100,87% yearly. The rates of change in Consumer Price and Domestic Producer Price Indices were by 78,62% and 138,31%, respectively.

Home prices have been growing at higher rates than construction costs. The latest statistics dated May 2022 of the Central Bank of Türkiye reports that the annual growth in the national average of home prices was 145,5%, being 44,63 percentage points above residential construction costs. Such a great difference between home prices and home construction cost may indicate a supply deficit in the housing market due to the high level of housing demand.

Building construction in general, and housing construction in particular, had positives rates of change in 2021; starts grew by about 30%, completions 4%. But occupancy permits issued 627 thousand dwelling units were less than the needed number of housing for 725,7 thousand newly formed households in 2021. In H1 2022, however, housing starts registered an 11% drop, and completions an 8% growth compared with the same 6 months of 2021. The falloff in residential building starts was less, the increase in completions was greater than all buildings’ average. The positive rates of change in completions can be related to big backlogs of buildings under construction fuelled by big rises in home prices.

Building materials

The Index composed by the Association of Construction Material Producers of Türkiye has had a negative trend since September 2021; it fell by 10% from 80,15 in in that month to 72,2 in July 2022 and the yearly rate of change was -9,5%, as shown in the July 2022 publication of the Index.

The Association indicates that because of the decline in demand and orders for their products from national and international markets, together with the appreciated risks and uncertainties about the economic environment, the trend may not be reversed in the short run.

Rental market

The rental property market was hammered most by the shortage of supply and sharp increases in rent prices. As a result, a rent freeze for homes was introduced in June 2022 (in effect until 1 July 2023), limiting rent increases by 25%.

The severity of the crisis in the rental market can also be related to the great number of refugees having accumulated since 2011. As per the UNHCR statistics, in August 2022 Türkiye hosts 3,920 million refugees (3,6 million Syrian and 320,000 from other countries) which may add up to as much as 1 million households. Because most refugees live in rental accommodation in cities, it appears that the additional amount of rental housing couldn’t be delivered in such a short period of time.

Social housing scheme

In mid-September 2022, the Turkish Government is going to launch a large-scale social housing project throughout the country. It will be undertaken by the Housing Development Administration (HDA), which is a central government organization that built about 1.1 million dwelling units during the last 24 years in all of the 81 provinces by developing publicly owned land after being transferred to the HDA. About 86% of homes built by the HDA were sold with mortgage loans of the HDA to moderate-to-lower income households not owning a home. Although the completion of construction will take some time, this project will stimulate demand for construction works and materials.

Construction forecast for Türkiye is available in the latest EECFA Forecast Report up to 2024 which can be purchased on eecfa.com.

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EECFA countries in the European Commission’s 2022 Macro Forecast

Prepared by Tünde Tancsics and Dóra Barát – ELTINGA-EECFA Research

Prior to the publication of our 2022 Summer EECFA Construction Forecast Report, the European Commission released its forecast for the economic prospects for EECFA countries. Here are the main changes in the prospects between Autumn 2021 and Spring 2022. And as a comparison, at the end of the post you can check how we have revised our forecast.

Economic outlook has deteriorated in almost all EECFA countries compared to autumn but remains positive in most. The only exception is Russia where the economy is expected to shrink instead of the previously anticipated growth due to the war and the related sanctions. The prolongation of the war could also lead to a further decline in the economic growth of all countries.

Link to this viz >>

Apart from Russia, the rest of the EECFA countries (plus Hungary, which is a Euroconstruct member) were expected to see high growth rates of over 3.8% in Autumn 2021. The slowdown of economic growth in Slovenia and Serbia is projected to be moderate, respective -0.5 and -0.7 percentage points in the Spring 2022 forecast for the period of 2022-2023. However, all other EECFA countries have larger projected declines in economic growth (ranging from -1.2% to -6.9%) compared to both the EU and the Eurozone. The forecasted economic growth fell most in Russia, Romania and Turkey (-6.9, -2.1 and -1.5 percentage points respectively). Russia is the only country that not only represents an economic contraction (-4.45%) but is also the only EECFA country to remain below the estimated GDP growth rate of the EU and Eurozone for Spring 2022. Thus, apart from Russia, the others still have the same or higher economic growth than the EU average.

In terms of gross fixed capital formation (investment), predicted growth has decreased in both EECFA countries and the Euroconstruct member Hungary, as well as in the EU. However, the extent of this decrease varies significantly among countries. Whilst in the EU and the Eurozone, projected GFCF growth fell moderately (-1.1% and -0.9%, respectively), all other countries are expected to see a decline of over 2 percentage points, Bulgaria excepted. This implies, for instance, stagnating GFCF in Bulgaria and a remarkably large negative growth in Russia (-11%), similar to the GDP growth indicator. There is also a notable falloff in Hungary and Romania (-4.9 and -4.6 percentage points, respectively), although the former started from an expected growth of more than 10% in autumn, while the latter from only 6%. It suggests that the estimated growth of the GFCF for 2022-2023 in Spring 2022 is just above 1% in Hungary. In other EECFA countries, the decline in GFCF growth varies between 2.2 and 3.1 percentage points.

Construction growth has been revised downward everywhere except for Bulgaria (0.4 percentage points). While in the EU and Eurozone the indicator declined by approximately 1 percentage point, in Slovenia, Romania and Hungary, construction growth is to fall by more than 5 percentage points in 2022-2023. However, growth remains positive for every country where data is available, with Bulgaria leading the prospects (6.6%).

So this above is the European Commission’s opinion. And here you can check how we, EECFA see the upcoming years for Eastern European construction markets. Croatia and Slovenia are on the top, while Russia and Serbia are on the bottom.

Link to this viz >>

Our approach is different from that of the Commission, as we provide forecast for each segment of construction. That is, we have a bottom-up approach, where forecast is computed separately for residential, office, retail, industrial buildings, roads, railways, utility etc. segments. Mail us if you are interested.

Or check our sample report and order on eecfa.com

EECFA 2022 Summer Construction Forecast – Military conflict edition

EECFA’s 2022 Summer Construction Forecast Report was released on 27 June. Full reports can be purchased. Discounts and sample reports: info@eecfa.com. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries.

Our earlier optimism over the Southeast European region of EECFA has gone. The current forecast is foreshadowing almost no growth until 2023 and contraction in 2024. The main reason behind is the worsening climate for construction due to the consequences of the Russian invasion of Ukraine. In the Eastern European region, we have turned pessimistic. The market of Russia and Turkey together is projected to stay below its 2021 level until 2024. We haven’t been able to provide our standard forecast for Ukraine in this summer round, but a status report has been compiled. We will resume providing forecast as soon as construction-related data collection of Ukrstat returns to normal.

Link to the viz >>

Forecast for Romania, the largest Southeast European construction market, has been revised downward. Instead of expansion, shrinkage is our current scenario. Serbia, which was the fastest growing market in the past 7 years, has an even more pessimistic outlook than in the previous forecast round. In Bulgaria, a whole different trajectory of spending EU funds is the reason behind the revision. We are negative on Russia all the way over the horizon and in Turkey the start of the recovery is expected to be postponed for yet another year.

Bulgaria. Owing to several external and domestic factors, outlook for Bulgaria’s economy to grow faster in 2022 has been reduced. And this year the construction market has entered a period of increasing unpredictability and heterogeneous performance. Residential construction has benefited from favourable financing conditions, and residential property has been used as a hedge against inflation. However, this will not last forever. EECFA is not optimistic in non-residential construction, while civil engineering could expand over the forecast horizon. Total construction output is prognosticated to be in the black with low, but positive growth rates in 2022-2024.

Croatia. The picture for Croatia’s construction sector is mixed, both from sector to sector and within sectors. Sector-to-sector, the output growth rates of Croatian construction sectors are decoupling, as some come close to completing the post-transition catch-up growth phase, while others are not nearly so far along. Within sectors, the strength of crucial output drivers, e.g., tourism season results, construction cost inflation, interest rate evolution, is uncertain and very dependent on events and policymakers’ reactions to them. Overall, the picture looks bright now, especially for residential construction, but the fight against inflation or a serious new COVID-19 outbreak could darken it rapidly and considerably.

Romania. As the short-term effects of the pandemic dissipate, the economy faces new challenges such as inflation and global trade disruptions. GDP is set to grow by 2.9% in 2022, in real terms, down from the previous prediction, but by 2023 (+4.4%) and 2024 (+4.8%) growth could accelerate (source: the National Forecasting Commission). Construction showed signs of recovery, so total construction output is to nominally grow, but slightly decrease in real terms this year. Material and energy prices have battered infrastructure projects hardest as seeking extra financing can be lengthy and difficult. Threats to construction growth in this forecast horizon are evidently increased costs of materials and energy, counter-inflationary policies, and the instability caused by the neighbouring war to regional and global trade networks. Countering these are the positive outlook for wages, employment, investment, and the overall economy. The availability of EU programs for co-financing, including the Recovery and Resilience Facility, could also help certain construction segments.

Serbia. In these challenging times, it will be a real endeavour to keep the pace and level of construction activity, even for a heated and growing Serbian economy. Unfortunately, economic and political developments in Europe are threatening to forcefully subdue the growing cycle in construction and the economy as a whole. So far, the economy is showing a relative resilience and construction activity has only slightly decreased compared to its expected performance in 2022, while permits are still keeping the good tempo. Nevertheless, the risks are still there, and a prolonged instability could produce a much deeper downturn and longer recovery. The strong performance of civil engineering and residential will assist this year’s output levels, but prospects for the rest of this forecast period are still quite conditioned by external factors. The ongoing economic crisis in the EU could easily escalate and produce further adjustments for 2023 and 2024 figures.    

Slovenia. Construction output increased fast in 2021 as the pandemic subsided. With rapid economic growth following in 2022, total construction output will likely exceed EUR 4 billion for the first time since 2008. Real growth will be slower, though, as construction cost index has also increased with the fastest pace in a decade, up by more than 10% in 2021 and 2022. Future growth is projected to be slower, especially if interest rates grow faster than expected due to high inflation rates. Still, several large civil engineering as well as residential construction projects are set to continue and prevent construction output from decreasing. 

Russia. Last year, the Russian economy showed strong recovery, partly on the back of construction whose growth turned out to be much better than expected (6,8% instead of 3,2% that EECFA had previously forecasted). The reasons behind were the active completion of non-residential projects that had been frozen in 2020, high demand in the housing market that supported construction activity in residential, and considerable state funding for various infrastructure projects that accelerated growth in civil engineering. However, the special military operation in Ukraine that began in February this year has neutralized all positive trends in construction and has led to a sharp worsening in the macroeconomic situation. Unprecedented economic sanctions imposed on Russia will inevitably affect the construction sector whose output is predicted to be negative throughout the forecast horizon: -2,7% in 2022 and from -1% to -1,4% in 2022-2024.

Türkiye. The Turkish economy is facing an unprecedented devaluation in Lira and soaring inflation, hammering wage earners. Manufacturing sectors relying on imported inputs, agriculture, and construction in particular, face difficulties in financing production and selling to customers with lower real incomes. But industrial production and exports are not much hit by the weakened Lira. Since the beginning of 2022, housing shortage, high dwelling prices and rents have been an issue. In the last 21 years fewer homes were built than the need, and the around 3,8 million Syrian refugees and illegal migrants appear to contribute to housing shortage. Due to the roughly 2,8 million dwelling units under construction, housing starts in Q1 2022 may continue to fall by the end of the year. The small decline in housing completion, however, because of declining demand under current macroeconomic conditions, may turn into a positive rate of change under the effects of interest rate subsidies for mortgage loans. Total construction output in Türkiye in 2022 is estimated to contract, so it would be the fourth consecutive year of decline. Mild recovery is expected to begin from next year on.

Ukraine. Since February 2022, Ukraine has been at war with Russia. As of June 2022, the Russians destroyed up to 30% of Ukraine’s infrastructure, damaged 2% of overpasses and more than 23,000 km of roads in Ukraine. About 20% of Ukraine’s territory is being occupied. Russia blocked the seaports through which imported goods were delivered to Ukraine. Building material factories and warehouses mostly remained in the occupied territory and most developers have frozen their projects for an indefinite period. Despite this, some positive signs are beginning to appear in the construction market, mainly in residential where the market is gradually reviving, adapting to the military situation (especially in the relatively safe western region). Little by little, critical infrastructure is being restored (destroyed bridges, roads, electricity and gas supply, communication lines). Under these conditions of major uncertainty, and before the end of the war, predicting future developments in the construction market of Ukraine is impossible. Therefore, Uvecon, EECFA’s Ukrainian member institute in Kiev, prepared a brief Status Report this time instead of the usual Forecast Report.

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Source of data: EECFA Construction Forecast Report, 2022 Summer

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

Q1 2022: new record in Hungarian construction

Press Release on EBI Construction Activity Report Q1 2022

The Hungarian construction industry started off this year with an exceptionally high Activity Start indicator: nearly HUF 1,300 billion worth construction works started in Q1 2022. The Activity Start of EBI Construction Activity Report in the first quarter is a new record (construction works have never started in such a high value in one quarter) and exceeded the level of Q2 2021 (the highest so far) by almost 37%. Yet, this spike is mainly thanks to the launch of two major projects: 1) the Soroksár-Kelebia section of the Budapest-Belgrade railway corridor and 2) the road section between Kecskemét and Szentkirály on M44.

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 Q1 2022 has been released and can be purchased at ebi@ibuild.info.

Stagnant building construction

The value of started building construction projects was slightly more than HUF 430 billion in the first 3 months of 2022; a good start to the year. The Activity Start of EBI Construction Activity Report was a bit below the value of the same period of the previous year but compared to the last two quarters of 2021, there has been no major change in the Activity Start of building construction. And the first 3 months of 2022 were considerably better than the period between April and December 2020.

Within building construction, the Activity Start of residential construction was modest: the value of started construction works stayed below HUF 90 billion. The Activity Start indicator of non-residential buildings was almost HUF 350 billion in Q1 2022, lower than the very strong first 2 quarters of 2021, but almost the same as the values of Q3 and Q4 2021.

The biggest started building projects in Q1 2022 included Kovács Katalin National Kayak-Canoe Sports Academy in Sukoró, eMAG logistics centre in Dunaharaszti, and ActiCity Event Center in Veszprém. In Budapest, the construction of BEM Center office building and Kimpton Hotel (District 2), as well as Phase 2 of Corvin 7 office building (District 8) entered construction phase.

Big numbers in civil engineering

Construction start on the Budapest-Belgrade railway line between Kelebia and Soroksár, and the section of M44 between Kecskemét and Szentkirály brought an outstanding Activity Start indicator for civil engineering. The total value of launched projects went up to an unprecedented HUF 850 billion between January and March 2022; twice the previous record value of Q1 2018. The Activity Start of civil engineering in the first 3 months of 2022 exceeded the full annual value of both 2020 and 2021.

The total value of road and railway construction works within civil engineering was almost HUF 800 billion thanks to these two large-scale projects. It is indeed the highest value of the last decade. But non-road and non-railway civil engineering projects, similarly to the last two quarters of 2021, started in a low value again.

In addition to these two big-volume projects, key civil engineering projects include the Phase 2 of main road 33 (Debrecen).

Continue reading Q1 2022: new record in Hungarian construction

Potential impact of the war in Ukraine on the Bulgarian construction market

Written by Yasen Georgiev, EPI, EECFA Bulgaria

Like elsewhere in the EECFA countries that are not directly impacted by the war in Ukraine, construction market in Bulgaria entered a period of an increasing unpredictability. What stands behind is an interplay between domestic and external factors.

The Bulgarian construction market entered 2022 with a mixed performance: booming residential construction, stagnating non-residential one and a rather heterogeneous civil engineering. Residential construction benefited from favourable financing conditions and fears for inflation that turned property investments into a safe haven. At the same time, non-residential construction was struggling to recover from the Covid-19 shock. Civil engineering was heavily impacted by the lack of clear future prospects and direction because of the political turmoil in 2021 with three rounds of parliamentary elections, and the absence of new EU funding (Bulgaria’s Recovery and Resilience Plan was approved by the European Commission in April 2022, while the EU’s Operational Programmes are still not finalized).

Sofia, Bulgaria. Source: pixabay.com

The war in Ukraine, however, increased the level of uncertainty throughout the entire construction market. Building material costs and shortage and/or equipment shortage were the fastest growing factors limiting the activity of construction enterprises in February-April 2022. Despite the slow pace, the number of clients with payment delays over the last months was also on the rise. As a result, the overall business climate in the construction sector started to deteriorate rapidly in April (Source: NSI, Business survey in construction).

Simultaneously, the headwind from the pre-war period in the residential segment continues. Compared to Q1 2021, permitted residential buildings increased by 20%, dwellings in them by 8%, and their total built-up area by 14%. However, signs of cooling are in sight: compared to the previous quarter, permitted residential buildings decreased by 3.1%, the number of dwellings in them by 23.4%, as well as their total built-up area by 17.1%. On quarterly basis, started residential buildings in Q1 2022 dropped by 4%, their total built-up area contracted by 10%, although dwellings in them went up by 5% (NSI, building permits issued for construction of new buildings).

Similar trends are to be seen elsewhere. In Q1 2022 permitted administrative buildings decreased both in number (by 45%), and in total built-up area (by 54%) compared to the previous quarter. Issued permits for construction of other types of buildings are less by 8%, and their total built-up area down by 28%. On an annual basis, there is a reduction of issued permits for construction of administrative buildings and their total area, respectively by 35% and 82%. Permits issued for construction of other buildings sank by 4%, as well as their total built-up area by 1.3%. Against the previous quarter, started administrative buildings and their total built-up area shrank by 21% and 51%, respectively. Started other types of buildings also decreased by 6%, as well as their total built-up area by 15%.

What becomes evident from the data above is that the construction market is most likely to keep a high level of volatility triggered by two opposing market forces:

  1. the need for investors to search for shelter from inflation and
  2. the necessity for developers to adjust to market conditions they are not used to (material shortages, constant upward changes in prices of materials and fuels, and labour costs).

In that puzzle, the situation in Ukraine will further affect the sector, surely not in a predictable way and most probably neither in a positive one. However, the government is yet to finally start investments within the Recovery and Resilience Facility in 2022, which, accompanied by unleashing the EU funding from other sources in the years to come, might secure a soft landing for the sector before its potential new take-off when the market regains momentum again.

EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries, including Bulgaria. The current reports were issued in December 2021 and the next reports will be issued on 27 June 2022. For orders and sample report: eecfa.com

Destruction of the built environment and consequences of the war in Ukraine

Written by Sergii Zapototskyi – UVECON, EECFA Ukraine

On 24 February, 2022, Russia, with the support of Belarus, started an open military attack on Ukraine. Since the first days of the full-scale invasion of Ukraine, civilians, ambulances, orphanages, hospitals and residential areas have come under shelling and airstrikes; a deliberate massive violation of international humanitarian law. As per the UN Human Rights Office (OHCHR), between the outbreak of hostilities and 2 May, 6469 civilian casualties were recorded (3153 killed and 3316 injured) in Ukraine and the territories controlled by the partially recognized republics of Donbass. Deceased civilians included 226 children, while the wounded comprised 319 children. In Donetsk and Luhansk regions there were 3241 casualties (1,638 killed and 1,603 injured), including 484 casualties (99 killed and 385 injured) on the territory controlled by the self-proclaimed republics. OHCHR believes that civilian casualties are likely to be ‘considerably higher’, though, especially in Mariupol, Popasnaya, Izium and Borodianka where intense fighting has taken place and is continuing.

All photos were made by Sergii Zapototskyi

Refugee crisis

The invasion has caused a major migration crisis: according to the UN, as of 26 April, 5.32 million refugees left Ukraine, mostly to Poland (2.848 million), Romania (0.764 million), Russia 0.563 million), Hungary (0.476 million), Moldova (0.429 million), Slovakia (0.346 million), and Belarus (0.024 million). As of 21 March, roughly 6.5 million people became internally displaced, mostly women with children and elderly people. According to UNICEF, more than half of the children in Ukraine have become refugees. At present, according to opinion polls, 73% of refugees seek to return home, but if the war drags on, and the scale of destruction caused by the shelling of peaceful cities by Russian troops increases, the vast majority of migrants will simply have nowhere to return.

Economic damage

The 9 most affected regions account for 30% of Ukraine’s GDP. GDP contraction in 2022 is forecasted to range from 10% to 35%-40% (provided that the occupied territories do not increase, and the active phase will last for several months). These figures correspond to a reduction in electricity consumption of around 35% (published by DTEK, the largest private investor in the energy industry in Ukraine). The sources of at least 70% of Ukrainian GDP remain more or less intact. Total losses of the Ukrainian economy (direct and indirect) due to the war range from USD 564 billion to USD 600 billion. Direct documented damage to infrastructure is estimated at USD 88 billion. In the last week of April, direct losses to the Ukrainian economy due to destruction and damage to civilian and military infrastructure grew by USD 3.1 billion.


Destruction to infrastructure, industry, residential buildings

The destruction of the Russian invasion is wide-scale, hammering infrastructure, industry and residential areas. As of today, at least 23000km of roads and 32000sqm of housing stock have been destroyed or seized. The housing stock was especially badly damaged where there were active battles and shelling by aircraft and artillery continued:
i) In Mariupol (Donetsk region): according to local authorities, 90% of buildings were torn down.
ii) In Irpen (Kyiv region): 50% of buildings were destroyed.
iii) In the administrative divisions of Kyiv oblast: 1875 objects were damaged (546 completely destroyed, 1329 partially ruined).
iv) In Kyiv region: 28 multi-storey buildings, 441 private houses, 8 educational institutions, 4 healthcare institutions, 8 cultural institutions and 2 sports institutions were wrecked.
v) In Kharkiv: heavily shelled by Russian artillery, more than 1300 residential multi-storey buildings, 70 schools, 54 kindergartens, 16 hospitals were badly damaged.
vi) In Kyiv city: more than 100 buildings were damaged, including 6 schools and 14 kindergartens. The load-bearing structures were damaged in 6 residential buildings, which cannot be restored, so they will need to be dismantled. All other buildings have to be restored.

Within the total direct documented damage, the biggest losses to infrastructure are the costs of housing stock and the assets of companies. 40% of the total number of damaged, destroyed or seized residential buildings and enterprises are in Donetsk region, 23% in Kharkiv region, 12% in Chernihiv region and 8% in Kyiv region.

In total, 535 kindergartens, 866 institutions of secondary and higher education, 231 medical institutions, 173 factories and enterprises, at least 75 administrative buildings, 277 bridges and bridge crossings, 11 military airfields, 11 airports and 2 ports are damaged or destroyed in Ukraine. There is not a single hospital in Luhansk region with no damage and in places of active hostilities there are military doctors and the wounded and seriously ill are evacuated to safe places. Also, as of the end of April, at least 95 religious and 130 other cultural buildings were damaged, destroyed or seized: 47 religious buildings, 9 museums, 28 historical buildings, 3 theaters, 12 monuments, 3 libraries and more.

Right now, there is a necessity to find resources for specific projects for the restoration of housing stock. And the post-war restoration of Ukraine’s infrastructure and economy will depend, among other things, on the return of Ukrainians from abroad (workers, business development, industry, etc). One area is the planning and expansion of the housing stock in the western regions of Ukraine where there are at least 5 million internally displaced people as during the war people might integrate into a new place and some might not return to their regions of origin. After the end of hostilities, it is also necessary to rethink and restart life. The experience of war confirms that new houses will have to be built with a fortified underground parking (like they do in Israel), using energy-saving technologies, for example.
 
In the framework of the program to relocate enterprises, up to 1500 industries can be transferred to 9 western regions (currently about 121 enterprises have moved). Losses of industrial assets amount to USD 6.7 billion (about 100 industrial enterprises were damaged or destroyed). Metallurgy lost at least 30% of assets with the biggest losses registered by Azovstal and MMK Ilyich respectively (the second and third largest plants).

Damage to export and agriculture

Export of goods from Ukraine is limited as Russian troops blocked Ukrainian ports in the Azov and Black Seas. Road and rail infrastructure can also transport limited volumes of goods due to the mass evacuation of Ukrainians by railway and roadblocks. By sea, Ukraine transported 62% of the total dollar value of goods, while by rail 12% and by road 23%.
 
Agriculture is a direct victim of the Russian aggression with the fighting often taking place on Ukrainian fields/farms. About 13% of the territory of Ukraine is covered with landmines plotted by Russians. There is a risk of a protracted war in Kharkiv, Luhansk, Donetsk, Zaporozhye and Kherson regions whose share of wheat production is 23%, corn is 3%, barley is 21% and sunflower seeds is 20%.

Post-war recovery

The main prerequisite for the post-war economic recovery is for Ukraine to receive reliable security guarantees that hostilities will not resume on her territory. In the absence of this, private investment will be reduced to zero, economic activity will be stifled, and security costs will have to be relied on business, raising the cost of economic activity and undermining competitiveness.

Key goals of the post-war economic recovery should be: i) real estates and infrastructure destroyed or damaged in the war should be restored; ii) economic activity should resume swiftly; iii) refugees and internally displaced persons should return and be involved in economic processes; and iv) foundations for a sustainable economic growth should be established.

In the long run, rebuilding and restoring Ukraine will cost at least USD 600 billion, including not only the restoration of infrastructure, but also the development of a new economy and new European institutions. Options for funding might comprise the frozen assets of the Russian Federation and the European and American funds for the restoration of Ukrainian infrastructure. The EU plans to create a solidarity trust fund to finance the post-war reconstruction of Ukraine (similarly to the Covid-19 recovery fund) and finance investments and reforms in agreement with the government of Ukraine. It is not yet clear how much will be provided through grants or loans as the war in Ukraine still rages on, but the EU told ambassadors that the figure would reach hundreds of billions of euros within decades. The Ukrainian diplomacy should focus on obtaining the EU candidate status and then obtaining full membership; so the program of post-war reconstruction should be harmonized with the tasks of EU membership and ensure the inclusion of Ukraine in the European pre-accession training programs.