There was no construction start indicator in Romania, so we have created an estimation for it.
This poster is a summary of our monthly findings. It shows how the total value of started construction works have changed over the same period last year. Besides, it presents which segments have the biggest start value in the current year. We call this indicator Activity-Start. And they are computed every month for 18 construction segments by aggregating real construction projects. The projects are from the iBuild database and ELTINGA and Buildecon found the way of creating indicators out of them.
If you need short-term foresight, you will like it.
Brief comment from Janos Gaspar, head of Buildecon:
Although it is still in the red, Activity-Start in building construction looks much better than in the previous round. This is mostly because of the non-residential submarket. More specifically the other non-residential segment where a huge military base project, commenced in Q1, was accounted. Activity-Start in the multi-unit residential submarket keeps going down in the meantime. The big minus in civil engineering is mostly because the base is very high; enormous projects started this time last year.
Every month this poster will be available here on our blog. If your interest is deeper, we have the EBI data visualization (with indicators for all the 18 segments of the construction market), updated monthly and we have the EBI Construction Activity Report Romania (with data and explanations), published quarterly in English and in Romanian. All these are packed into a yearly subscription. For the specifics, please contact us.
A budapesti Déli körvasút építésének megkezdése miatt a mélyépítés részpiac Aktivitás-Kezdése szépen néz ki, a tavalyi nagy visszaesés után pluszba fordult. A magasépítési projekteknél ez a fordulat még nem látszik. A megkezdett nem-lakás magasépítési projektek összértéke tovább csökkent. A társasházi lakásépítés Aktivitás-Kezdése folyó áron pedig kb. akkora mint a tavalyi első negyedévben.
A poszter a két nagy építési részpiac Aktivitás-Kezdés indikátorának időszak/időszak változását mutatja, valamint a szegmenseket amelyekben a legnagyobb értékben indultak kivitelezések. Ezt a posztert minden hónapban kitesszük ide a blogunkra. A teljes építési piacot részletesen bemutató EBI Építésaktivitási Adatvizualizációt (összesen 18 szegmens adataival) is havonta frissítjük, és negyedévente az EBI Építésaktivitási Jelentésben is elmondjuk, hogy mit látunk a piacon. Ha érdeklik a részletek akkor a contact oldalon írjon nekünk.
Due to the commencement of the Southern Rail-ring in Budapest, the Activity Start of the civil engineering submarket is looking good, after last year’s big decline, it turned positive. This turnaround is not yet visible on the building construction projects. The total value of the started non-residential construction projects continued to decrease. And the Activity Start of multi-unit residential buildings, measured at current price, is approx. as much as in the first quarter of last year.
The poster (above) shows the period/period changes of the Activity-Start indicator in the 2 main submarkets and the segments with the largest value of started works. This poster is published every month here in the blog. The EBI Construction Activity Data visualization with the details on the whole construction market (with altogether 18 segments) is also updated monthly and the EBI Construction Activity Report, summarizing what’s happening in the market, is published in each quarter. If your interest in construction markets is deeper, please contact us for the details.
Activity-Start, that is, the total value of started construction works, greatly increased (+64%) in 2023 across Romania compared to the previous year. It reached the highest level seen in the past decade, both as gross value and growth rate – according to the EBI Construction Activity Report. Even more impressive is the serendipity that as Activity-Start of building construction began to decline, civil engineering sprang up to cover the difference and more.
What is EBI Construction Activity Report? There was no construction start indicator in Romania, so we have created an estimation for it. It helps you understand what could happen on the market in the coming months. The indicators are based on project information from iBuild project database and are published monthly in the EBI data visualization (for all the 18 segments of the construction market). On top of this the EBI Construction Activity Report Romania is published quarterly with data and explanations. This research is a fruit of the cooperation among Eltinga, Buildecon and iBuild. And this is where the name EBI comes from.
Civil engineering in the spotlight
Residential multi-unit buildings seem to have peaked in 2021 in terms of the Activity-Start indicator. With construction costs rising in 2019, followed by high inflation and interest rates, it seems developers were less optimistic about the market’s short-term outlook and consequently, they started fewer projects.
When it comes to non-residential construction, 2023 saw a slight downturn after a very good performance in the previous year. The main factor was Bucharest where the current issues regarding urban planning, compounded with wavering demand, slowed down the development of new buildings across all non-residential segments, but mainly in the office sector.
With the spending deadline for funding from the EU 2013-2020 programs at the end of 2023, a surge in activity in civil engineering was to be expected, and this also explains why Q4 was milder than previous quarters in terms of the Activity-Start. The projects that had a reasonable chance to reach an advanced stage or to be phased into the new programs were prioritized and started in previous quarters.
Of all the projects that started construction in 2023, one stands out: the 37.4km section (Cornetu – Tigveni) of the A1 motorway will be one of the most complex and expensive road segments build so far in Romania since it crosses the Carpathian Mountains and will require 12km of bridges, tunnels and viaducts. It will also have the longest motorway tunnel built so far in the country (1.7km), nearly five times larger than the current record holder.
Several renewable energy projects were also started in Q4 2023: a 102MW wind energy park in Braila County and a 60MW solar plant in Alba County, signaling a renewed interest in green sources of electricity after the recent volatility in the prices of fossil fuels.
The third spot on the list of the largest projects that began in the last quarter of 2023 is taken by the 12,000-seat Sports Arena in Targoviste. The local football team there (FC Chindia – named after a tower built in the city by Vlad the Impaler) had to play its games on other cities’ stadiums in the four years it was in Romania’s First League as its local arena was considered inadequate.
Less glamorous, but equally important, work was also started in Q4 2023 on the water and sewer networks in Dambovita, Iasi and Brasov counties, part of the ongoing efforts at national level to improve the existing infrastructure and provide increased access to public utilities.
When it comes to building construction, all top projects started in the last quarter of 2023 were residential parks, three of which were in Bucharest (Theodor Pallady residential area, Nusco City Phase 2 and Cortina Elysium, totaling more than 1600 flats) and two more in Sibiu County (Magnolia Residence Phase 2 and a residential complex in Selimbar, adding nearly 1000 more flats).
Bucharest loses the first place in Activity-Start
2023 was an unusually even year regarding the regional distribution of the Activity-Start indicator. Previously, Bucharest-Ilfov took the largest piece of the pie and accounted for around one quarter of the value of construction works started in each year. In 2023, however, it lost its lead because other regions saw major increases in Activity-Start, while it and the Center underperformed compared to the previous couple of years and fell behind. The slowdown in Bucharest was visible across the board with drops in new projects, both in civil engineering and buildings. Infrastructure starts had previously peaked in 2022, and the focus switched to completion, while urban planning issues limit new developments for all segments.
The North East region had a boost moving from the third least active right to the top of the podium in terms of Activity-Start. Likewise, West shot up to the top half from the very last position that it held for four consecutive years.
North West region: steady as it goes
While other regions, as mentioned previously, saw major upward and downward changes in their share of the national started construction works, North West maintained the second place that it usually holds. Behind this veneer of stability, however, lies an uneven evolution of different construction types, the EBI Construction Activity Report suggests. Activity-Start indicator (deep orange on the chart) of the building construction submarket began strong, growing fast in Q1 and Q2, and then it plateaued, while civil engineering had a very different path, having a boom in activity in Q3.
Much of the growth can be attributed to the Cluj Napoca – Episcopia railway electrification (166 km), that in itself accounted for almost 1/3 of the value of all started construction works in North West in 2023. The fastest passenger train on this railway averaged 60km/h, with added delays at the Hungarian border and in Cluj caused by switching locomotives from electric to diesel and vice versa. The new electric line will remove this impediment and allow speeds up to 160km/h for passenger trains and the doubling of the lines will facilitate cargo transit as well.
Other major construction works started in 2023 in the North West include several sections of the much-delayed A3 motorway as well as airport terminals in Cluj, Satu Mare, Bihor and Maramures counties. The region attracted several manufacturing investments with the largest project in the building submarket being the Nokian Tyers factory that started construction in Q2 2023 in Oradea.
Healthcare and education buildings are a rising concern due to the aging stock and limited access to services. Thus, extensions of the emergency clinics in Oradea (5.500sqm) and Bistrita (9.750 sqm) also started in 2023. In the same year, work began on a new private school in Oradea (29 classrooms) and on renovating a university building in Cluj County (10.000 sqm).
Cluj Napoca gained notoriety for its tight residential market. Limited deliveries and high demand have pushed the prices here higher every year, and it’s now the most expensive city in the country for home buyers. Supply is slowly expanding with phases of larger projects like Elite City (279 flats) and The Nest (102 flats) starting construction in 2023. Several multi-unit projects were also completed here in 2023, including Liberty Residential (268 flats) and Seasons by Studium Green (150 flats).
Completions (light orange) in the North West were on an upward trend for the past couple of years with building construction overshadowing civil engineering. This is poised to change starting with 2024 as the expected completion of infrastructure projects started by 2023 could even out the field. However, road and railroad projects in Romania have had a long history of delays, cancelled contracts and legal woes, thus, some caution is in order when looking forward.
During 2023 nearly 30km of motorway on A3 were completed on two sections. However, one of them (Nusfalau – Suplacul de Baracu) is quite isolated, so its usage will be limited until it’s connected to the remainder of the network, in 2025 at earliest.
With good Activity-Start and completions, Output (blue) also had a favorable evolution in 2023 for both buildings and civil engineering. Enforcing the idea of steadiness of the North West, Output showed steady growth in each quarter of the last couple of years, at least at current prices.
The major challenges for the North West region in the upcoming years will be to find new avenues of growth, especially in the building segment, and to secure funding and manage ongoing works for infrastructure construction. To quote Lewis Carroll “[…] here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.”
With the latest governmental decision, the number of projects in designated rust belt action areas reached 53 in Hungary. Around 18 thousand homes are known to be under and before construction within these projects. The sole purpose of this post is to follow these projects and to see how they will or will not help the recovery of the new residential construction sub-market in Hungary.
The graphs were updated on 2 April 2024.
Brief background
Rust belt action areas (let me shorten them to rusty) are practically brownfield areas with special benefits. The owner of the site or the developer should initiate the process (with specific development plans) and there is a Committee to examine if the proposed site is entitled for the rusty status. Based on the opinion of the Committee, the final decision is made by the government. The decisions (about the exact sites) are announced in a decree and the special benefits coming with it are:
priority investment status, meaning e.g. faster permitting procedures1,
newly built homes can be sold at 5% VAT without limitation in time2,
By the current regulations, it means a min. 5% and a max. 27% price advantage over competitors developing on non-rusty area until 2028 (depending on when the permit was obtained) and a 27% price advantage from 2029 on.
Our focus
What we do is to turn the mentioned decree into information we need for forecasting. With the help of Eltinga Building Permit Monitor database and the iBuild project information database, actual projects are identified from the lot numbers specified in the decree. Among all the general project specifics, the number of dwellings (where it is known), are attached to these projects.
The map shows the stages of the housing projects that were given rusty status. Bluish dots are those before construction, neon yellow dots are those under construction and the dot disappears once the project is completed.
OK, it is very convenient to see projects on a map, but our focus is more on the chart under the map where the yellow is the number of homes under construction.
What we are curious about is if and when the right end of the yellow curve shows a strong upturn.
In other words, we are curious whether the regulation ignites a recovery or not. As of now, it is more common that the yellow line has increased because projects having started in the past were given the rusty status. (So they were just re-qualified, it did not mean that new project starts.) In parallel, it is less common that projects start after they were given the status. Just two extreme examples for these: Unipark Buda has been under construction since 2019 and it got the rusty status at the end of 2023, while Láng quarter was given the rusty status in 2021 and it is still before construction.
The charts will be updated monthly, so check back if you are also curious.
Another way we like to look at it is a list. Here we do not separate the projects to phases (like on the map) and it gives a quick understanding on how each rusty project moves ahead from 1 February 2024 on.
Data sources
The data mostly come from Eltinga Building Permit Monitor (in Hungarian: Építési Engedély Figyelő). This is a very detailed database on before construction multi-unit housing projects in Budapest. It is aiming primarily at developers who would like to understand the competition. For further information on this, please turn to Mr Zoltán Sápi, Eltinga, sapiz@eltinga.hu. Besides, we used the iBuild project information database.
Hungary’s construction sector failed to improve in the last quarter of last year; the total value of started construction works shrank against previous quarters. Overall, 2023 registered low numbers and the Activity-Start indicator of EBI Construction Activity Report did not reach HUF 2,500 billion. This means that the total value of projects entering construction phase dropped by a respective 19% and 34% compared to 2021 and 2022, and Activity-Start in 2023 was roughly the same as in 2019. But if we look at the rate of decrease at constant price, it is even more significant: 43%-44% over 2021-2022. The last time the value of Activity-Start at constant price was lower than last year was in 2015, but even 2013-2014 exceeded last year’s.
Building construction works declined in Q4 2023
Even at current prices, the subsector has not produced such a low quarterly Activity-Start as in October-December 2023. Thus, the lower numbers of the first 9 months did not improve, and for the whole year, building construction works started at less than HUF 1,750 billion: 19% down from 2021 and 23% down from 2022. At constant price, the Activity-Start indicator for 2023 was 44% and 34% lower than in the previous two years. Only 2015 witnessed a lower Activity-Start than 2023.
Within building constructions, Activity-Start decreased in multi-unit residential buildings and in non-residential ones, too. In the latter, Q4 lagged dramatically behind the quarterly numbers of previous years. Last time the value of non-residential buildings entering construction phase in a quarter at current price was lower than that was in 2016. For the whole year, the Activity-Start indicator of non-residential buildings sank by 17% and 22.5%, respectively, over 2021 and 2022. Filtering out the change in prices, the lag is even greater: the level of Activity-Start at constant price in 2023 was 42% and 33% lower than in the previous two years. It was only in 2015 when lower numbers were registered.
The biggest building construction projects launched in Q4 2023 were several logistic facilities and warehouses (HelloParks Páty PT3 logistics hall; Phases 1 and 2 of LG Magna manufacturing plant in Miskolc; ZF Chassis Modules Hungary vehicle assembly plant in Kecskemét; ZF Chassis Modules Hungary manufacturing plant and warehouse in Debrecen). In addition, the project of the Hódmezővásárhely Military Secondary School and Dormitory, the renovation works of the Chemistry building of the Faculty of Science of Debrecen University, as well as Phase 1 of the renovation works of buildings B1, B2 and C of the University of Veterinary Science in Budapest started.
Civil engineering stagnated at a low level
Although there was no further drop in civil engineering, its Activity-Start was very low in Q4 2023 with about the same value of started constructions as in Q3. Thus, Civil Engineering Activity-Start in 2023 massively dropped against 2022 (a year considered an outlier), but the value of the started works did not reach the 2021 level either; and it turned out to be somewhat lower than in 2020. In 2023, there was a 17% drop in the subsector against 2021, and a 50% shrinkage over 2022. The constant-price decrease was even greater: almost 60% over 2022 and more than 40% over 2021. Between 2013 and 2023, at constant price, only the Activity-Start of 2015 was lower than that of 2023.
Hardly any road and railway construction works started in Q4 2023, while much more other civil engineering works entered construction phase. In 2023, road construction works started at a higher value than in 2020-2022, but railway construction works fell greatly last year: here Activity-Start at current price was only lower in 2015. Thus, overall, during the year, the Activity-Start of road and railway constructions was around 19% lower than in 2021, while it was almost 60% less than in 2022 (a year considered outstanding).
The largest civil engineering projects in Q4 2023 were mostly related to water and sewerage in Tolna and Bács-Kiskun counties, in Adony and Ercs regions, in Tamási and vicinity, in Várpalota and vicinity, as well as in Csemő, Cibakháza, Nagykőrös, Tiszafüred, Jászszentandrás, Tápiószőlős and Kengyel.
Most project starts are still in Eastern Hungary
In the past four quarters the biggest share of construction projects started in Eastern Hungary with the region’s share in Activity-Start being 42%. Budapest accounted for 26% of the value of projects entering construction phase. After Budapest, Northern Great Plain had the second highest share, 25%, followed by Central Transdanubia and Pest County with 10% alike. In the last 4 quarters, 21.5% of construction works started in Western Hungary, and 36% in Central Hungary.
Sunk interest in building multi-unit homes
After the promising numbers of Q2 and Q3 last year, there was another decrease in the Activity-Start indicator of multi-unit residential buildings. During the whole 2023, the value of such started constructions did not reach HUF 300 billion (-28% against 2022 and -30% against 2021). If we look at the period of 2017-2022, it only exceeded the level of 2020, however, at constant prices, the value was lower in 2023 than in 2020 (a year when the pandemic hit and VAT on new residential units was set back to 27% from 5%). It was only in 2015 when the value of started multi-unit residential constructions was lower. Compared to 2022, at constant prices, the decrease was 38%, and compared to 2021, it was more than 50%, as per the latest EBI Construction Activity Report.
This year brought major changes in state subsidies for home purchases. From 1 January, in cities only those planning to have additional children can receive CSOK+. Those who do not have additional children are only eligible for the village CSOK in beneficiary settlements. The so-called Baby Loan, although it remains available for married couples having a child, have more stringent rules. The new CSOK+ does not include a direct non-refundable support at the time of purchase, a bigger discounted loan can be applied for, and non-refundable support can only be obtained upon the birth of the 2nd and 3rd children when part of the outstanding debt is released. The new system does not differentiate between the purchase of used and new homes, making the previous advantage of new homes disappear. In addition, in case of CSOK+, one can no longer use VAT refund when buying a new home.
On a positive note, the money to be claimed has been raised, so it can be of great help in case of higher-priced new homes. Also, this year interest rates on market loans have greatly decreased compared to the beginning of last year, and it is expected to continue, so demand may recover in the new market, which may also improve the prospects of developers, encouraging the start of more projects this year than last.
In 2023 the value of Activity-Completion indicator in multi-unit housing exceeded HUF 350 billion, representing an increase of almost 28% compared to 2022, and surpassing the level of 2021 by 23%. This year also expects to see high numbers.
Although the biggest share of such constructions still started in Budapest, the capital city’s share in Activity-Start in 2023 slightly dropped over 2022. In total, around 60% of constructions started in Central Hungary, slightly more than 15% in Eastern Hungary, while the share of Western Hungary was a bit over 24%.
Western Transdanubia
Last year around 6% of started construction works concentrated in the Western Transdanubia region, the same as in 2022. Although due to the declining Activity-Start countrywide this meant a much lower value of started constructions than the year before, the drop was 34%. In 2023 Activity-Start in the region was lower than in previous years (-34% compared to 2021 and almost -44% below the 2020 value). The previous peak in the region was in 2018 when several large-scale projects were launched: M85 highway, M8 highway, and the section of main road 76 between M7 highway and Keszthely, and a stretch of M15 highway between M1 and Rajka.
The value of started building constructions in Western Transdanubia shrank last year; over 2022 there was a 34% drop, while compared to 2021 the decrease was 41%. The projects launched in 2023 included warehouses and factories, for example, the Nestlé Purina pet food production plant and warehouse in Bük or the Velux GP4 production hall in Fertőszentmiklós.
Civil engineering works were also at a low level in 2023 (-32% against 2022, but only an 8% drop compared to 2021). In 2023, only one regional civil engineering project made it to the larger projects; Phase 3 of the Zalaegerszeg vehicle test track. The last time a hike was registered in civil engineering was in 2018 thanks to large road projects.
Recent years have seen a declining Activity-Start in building construction works in Western Transdanubia. At the same time, Activity-Completion has exhibited growth; for instance, 2023 was a record year for the value of completed building construction projects. Projects that reached completion last year comprised several plants of Nestlé Purina, the Water Adventure Park in Győr, Sirius Hotel in Keszthely, and Buildings A1, A2, A3 of VGP Park Győr Béta.
Original article: Tünde Tancsics, ELTINGA – English version: Eszter Falucskai, Buildecon
EECFA, which celebrates its 10th anniversary this year, released its 2023 winter construction forecast on 15 December 2023. The new reports can be purchased, and a sample report can be viewed at eecfa.com.
No clear direction in the Southeast European region of EECFA; 2024 is foreseen to experience a decline, but a comeback is our current scenario for 2025. Expansion is projected to prevail all the way until the end of the forecast horizon in the East European region.
Romania is expected to contribute most negatively to the shrinkage of the SEE region in 2024. The rest of our countries is forecast to perform better. Bulgaria, Croatia and Serbia could end up at higher level in 2025 than what was experienced in 2023. Upswing in Türkiye is envisaged to pull the EE region up and we still believe that shrinkage in Russia is about to come. Not a particularly strong, but recovery is projected in Ukraine.
Construction outlook up to 2025 in Southeast Europe
Bulgaria’s economy is expected to lose momentum in 2023 that will translate to a lower, yet positive growth in 2024. Against this backdrop, construction output is to follow this trend with heterogeneous performance on segment level. While in the forecast period till 2025 civil engineering and non-residential construction will likely contribute with positive growth figures, after several strong years, residential construction is predicted to witness a new normal with negligible annual growth rates from 2024 onwards if any.
Croatia’s construction output will continue to grow, rapidly in 2023 and less robustly in 2024 and 2025. Civil Engineering construction is poised to become the brightest star in the country’s construction firmament with Buildings showing considerable sector to sector variation, but overall not performing as strongly as in the past.
Romania’s construction is expected to shrink in 2023 in real terms. Economic growth is slowing down under sticky inflation and high financing costs. Further slowdown might come in 2024 as multiple elections, political pressure to lower budget deficit, high social spending and the transition to the new EU programming period would make it challenging to focus on public projects. The outlook doesn’t look better on the private investment side with tight labour market and sluggish consumption growth expected for 2024. By 2025, return to growth is postulated as most of these obstacles may dissipate.
During 2023, Serbia has been performing better than initially expected with the economy picking up in the second half of the year and construction outputs registering another record high. While the construction of buildings is consolidating in a moderate manner, civil engineering surged with a double-digit growth rate. The easing of inflationary pressures is also helping market stabilization, while high interest rates remain a major impediment for growth in short-term.
Slovenia’s construction industry in late 2023 faces economic challenges exacerbated by unprecedented floods in August, causing EUR 10 billion in damages. Despite workforce shortages leading to increased construction costs and inflation, the sector is expected to see a significant rise in output with civil engineering projects, including flood repairs and infrastructure initiatives, driving growth. However, concerns arise over the potential deceleration in growth in 2024 and 2025, mostly in residential and non-residential construction even as reconstruction efforts in civil engineering gain traction.
What to expect in the Eastern European construction markets of EECFA
In Russia, stable government support, a relatively favourable macroeconomic environment, and the general resilience of the industry to external challenges ensured positive dynamics in construction in 2023, making the forecast more optimistic for this year. The industry’s development strategy prioritizes housing construction as well as transport- and energy-related projects. The positive momentum is not predicted to last long, though, and in the 2024-2025 horizon we might observe contraction in construction market volume, mainly due to the expected decline in the residential market which might outweigh the positive dynamics in other subsectors.
Türkiye’s economy has been impacted by two developments with one being the reconstruction of collapsed buildings and infrastructure in recent earthquakes where most tax revenues went, causing large monthly budget deficits. The other one is increasing interest rates. Although the Central Bank increased the base rate from an 8.5 base point level to 40 in six successive months, it couldn’t curb inflation and there are exchange rate rises along with inflation. The construction sector grew at higher rates than the GDP as the national average on the back of building construction in earthquake-hit provinces. Growing interest rates reversed most of the problems caused by the low-interest rate policy, but it also led to an increase in construction cost and hit the affordability of purchasing homes.
Ukraine’s construction market has been struck by the ongoing war. According to official data alone, almost a million flats, tens of thousands of non-residential buildings, thousands of kilometres of roads, railways, bridges and other infrastructural facilities were either destroyed or damaged. The construction industry partially lost its raw material base and production as most metallurgical enterprises located in the south and east were destroyed or occupied. The main construction segments that can predictably develop even during the war are the restoration of damaged housing and social infrastructure, civil engineering, construction and modernization of industrial production.
Looking at the last 4 quarters, the largest number of projects was related to the Northern Great Plains region whose share in the national Activity-Start was 30% (after a slight decrease). Budapest came second where 26% of construction works started, so its share grew. And Pest County came third with a 12% share. South Transdanubia had the smallest share in the value of started construction works (only 4% of the national value in the last 4 quarters). Overall, the biggest part of the national Activity-Start was still connected to Eastern Hungary (45%), less than 38% to Central Hungary, while the share of Western Hungary did not reach 17.5%.
Countrywide, Q3 2023 saw the value of started construction works in Hungary slightly drop over Q1-Q2 2023. Between July and September, the Activity-Start indicator of EBI Construction Activity Report accounted for a little less than HUF 600bln. This also means that the first 9 months of this year were quite modest. Activity-Start did not reach HUF 2000bln and fell short of the value of the first 9 months of 2021 and 2022. The difference compared to 2021 was 11%, while compared to 2022 there was a 35% decline. The decrease at constant prices was even greater in the first 3 quarters of 2023: compared to the first 9 months of 2021 almost 40% lower, while compared to the first 9 months of 2022 nearly 46% lower value of construction works started between January and September 2023.
Building construction
In Q3, somewhat more construction works started in building construction than in Q2, but overall, all 3 quarters brought a very similar Activity-Start. In the first 9 months of the year, the value of started building construction works totalled HUF 1400bln, less than in the same period of 2021 and 2022 (the drop compared to the former was 11%, compared to the latter it was almost 18%). At constant prices, the decrease was even bigger: the Activity-Start indicator of EBI Construction Activity Report was 40% and 31% lower between January and September 2023 than in the respective periods of 2021 and 2022. The last time we saw a value of started building construction works lower than this was in 2015.
In case of multi-unit housing construction works, the value of construction starts in Q3 was roughly at the level of Q2, but more modest than in previous years. In case of non-residential construction works there was a minimal increase in Q3 compared to Q2, but the first 9 months still saw a lower Activity-Start than in 2022 and 2021. The decrease at current price was 8% compared to the two years prior, and 15.6% compared to the same period last year. But the decline at constant price was much bigger (37% and 29% respectively). After filtering out the change in prices, the last time we saw lower numbers was in 2016.
The largest building construction projects launched in Q3 this year included several offices such as BudaPart Corso, Central and Harbor office buildings, Zugló City Center Offices 5 and 6, the reconstructions of the Ministry of Agriculture and the Palace of Justice, but also phases 1 to 4 of the Buildings A and B of the Technical Faculty of the University of Debrecen, and phase 1 of the renovation of the MTA (Hungarian Academy of Sciences) Headquarters and Library. Several industrial and warehouse projects entered construction: AN1 logistics hall of HelloParks in Alsónémedi, the production and storage hall of Leier, phase 2 of the half-shaft and cardan shaft manufacturing plant of GKN Automotive, phase 1 of Horváth Rudolf Intertransport Logistics Center, and Velux GP4’s industrial hall.
Civil engineering
After the first two successful quarters this year, Q3 brought one of the lowest Activity-Starts in civil engineering in recent years. Overall, in the first 9 months, the value of started works for the period of 2017-2022, except for 2020, fell short of the Activity-Start at current price for the first 9 months of each year. At constant prices, it barely exceeded the value of works launched in January-September 2015, while in the following period it was considered exceptionally low.
The weak third quarter was mainly owing to the drop in road construction, while some growth was recorded in non-road and railway. In the first 9 months of 2023 road and railway constructions started at much lower than the 2022 record. It exceeded the like-for-like Activity-Start of 2020 and 2021 but did not reach the value of projects started between January and September 2017 and 2019. At constant price, every year after 2015, Activity-Start surpassed 2023 in the first 9 months of the year.
Few civil engineering projects made it to the biggest construction projects. The highest-value one was the reconstruction of the Biatorbágy-Szárliget main railway line followed by several projects related to water and sewerage systems.
Pest county
When looking at the past 4 quarters, Pest county’s share of construction starts was the third highest. It was so despite the fact that in the first 9 months of 2023 there was a decline in the Activity-Start of EBI Construction Activity Report here, and based on recent years, construction works started in the county in the lowest value. In the first 9 months of this year the largest non-residential projects included the construction of CECZ E-commerce Industrial and Logistics Park and that of the logistics halls of HelloParks (Páty PT2 and Alsónémedi AN1).
The decline was attributable to the shrinkage in building construction. In the first 9 months of 2023, in Pest County construction starts were almost 40% lower than in the same period of the previous year and 17.5% lower than in the first 9 months of 2021.
Civil engineering works continued to be at a very low level in the county. Among the biggest such projects that started in the first 9 months of 2023 were the renovation of the previously mentioned Biatorbágy-Szárliget main railway line and several water and sewerage system-related ones.
Multi-unit housing
Multi-unit housing construction works continue to be lower than in previous years, and Q3 brought a slight decrease after the promising Q2 figures. Thus, overall, in the first 9 months of this year, the value of multi-unit home construction starts fell short of 2021-2022, and Activity-Start of EBI Construction Activity Report here dropped back to the 2020 level. Between January and September 2023, the value of started construction works was about 29% lower than in 2022 and 26% lower than in 2021. At constant price, the difference is much bigger (against two years ago almost 50%, while against last year a bit more than 40%). After 2015, 2023 has seen the lowest Activity-Start at constant price for the first 9 months of the year.
On 1 January 2024 a major change will be effective. In cities, the existing CSOK (the family housing allowance program) will cease. Conditions for the CSOK loan will also change: it will remain available to couples planning to have another child, but CSOK+ will provide a much higher preferential loan than previously. The higher loan can be a great help to those planning to buy a new home, but due to tight conditions, the new preferential loan will be unavailable to a massive number of customers who have been eligible until now. Another disadvantage is that so far only those claiming CSOK could benefit from the tax discount and the possibility to reclaim VAT as well.
For the multi-unit housing market, a key factor may still be the return of affordable loans, which can start purchases again, including projects. Loan interest rates decreased, but for the time being, they are still considered very high. The other question in terms of market development is the strategy of investors as they represent a serious group of buyers in the market for new homes (current high yields on government bonds are a good alternative for them compared to the housing market). Hence, no wonder that developers are careful with project launches. And even though larger investors did start some new projects, there were examples of scrapped ones.
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). EBI Construction Activity Report Q3 2023 has been published and can be purchased at ebi@ibuild.info.
In Q3 2023 the value of completed multi-unit buildings exceeded the like-for-like figures for 2021 and 2022. A big number of projects is expected to be completed yet this year, so this year’s value may exceed last year’s completion value if these projects are indeed completed as scheduled despite the delays.
Budapest continued to see the biggest share of multi-unit housing works start. When looking at the previous 4 quarters, the share of Central Hungary was almost two-thirds in Activity-Start. The share of Western Hungary rose over the previous quarter to over 20%, while only less than 14% of multi-unit housing construction works were connected to Eastern Hungary.
Original article: Tünde Tancsics, ELTINGA – English version: Eszter Falucskai, Buildecon
Press Release on EBI Construction Activity Report Hungary Q2 2023
Q2 brought an improvement over Q1 in the Activity-Start of EBI Construction Activity Report: between April and June construction works started in the value of HUF 754 billion in Hungary, a more than 30% increase over Q1. It was an expansion compared to H2 2022 as well. The rise against the previous quarter was visible even at constant price, although Activity-Start was still behind the quarterly figures of 2021 and H1 2022.
The value of started building constructions keeps registering a drop
In Q2, construction works started in building construction at an even lower value than in Q1, so Activity-Start has been decreasing for the third consecutive quarter. The value of started works was barely more than HUF 400 billion; it fell by 16% in Q2 over Q1. The lag is even bigger compared to the outstanding second quarters of 2021 and 2022. At constant price, the value of building construction works started in one quarter has not been this low since 2015.
The decrease at current price was typical for non-residential constructions. Multi-unit housing recorded a minimal improvement in Activity-Start, although the indicator here stayed very low. In non-residential, the total value of works started was nearly 20% lower in Q2 than in Q1. At constant price, it was in Q3 2016 when Activity-Start was lower than this value.
The biggest projects launched in Q2 this year were the Correctional Facility in Csenger, Inpark metalworking plant in Debrecen, Boysen electric car battery plant in Nyíregyháza, HelloParks Logistics Hall in Páty, the next building of Weerts Logistics Center, and several larger multi-unit residential projects.
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). EBI Construction Activity Report Q2 2023 has been published and can be purchased at ebi@ibuild.info.
Civil Engineering Activity-Start sees a considerable expansion
The Q2 2023 Civil Engineering Activity-Start of EBI Construction Activity Report posted a more than 30% growth against the corresponding period a year earlier. And compared to Q3 and Q4 2022, as well as Q1 2023, the increase was exceptional. The last time Activity-Start in the segment was higher than this was in Q1 2022. In April-June 2023, the value was close to HUF 350 billion and the increase was noticeable even at constant price: in comparison with Q1 2023, the value of started construction works nearly quadrupled. But compared to previous years, this Activity-Start at constant price cannot be called an outlier.
Written by Tünde Tancsics and Dóra Barát – ELTINGA-EECFA Research
The European Commission’s 2023 Spring economic forecast for EECFA countries was showing some changes in outlook in comparison with Autumn 2022.Economic growth prospects improved in most countries in Spring 2023, excluding Serbia where growth expectations slightly fell against Autumn 2022. The EU and the Euro area growth prospects were outperformed in all countries surveyed – apart from Russia.
Projected economic growth in 2023-2024 was positive in all countries, although to varying degrees. It was over 3% in Türkiye and Romania (3.75% and 3.35%, respectively), but also above 2% in Serbia (2.45%) despite the downturn in expectations since Autumn 2022. GDP growth in other EECFA countries and Hungary (which is a Euroconstruct member) was projected to be between 1.5% and 2%, above both the EU and the Euro area averages of 1.35%. In Russia, growth forecast turned from negative to positive, but it was still close to zero: at just 0.2%.
Gross fixed capital formation data shows that growth projections for 2023-2024 were rather mixed, both in terms of direction and in the magnitude of change. Expected GFCF growth in Spring 2023 was by far the highest in Romania (7.5%), while in the Euroconstruct member Hungary, it was anticipated to decrease by 0.7%; a larger decline than the 0.2% contraction estimated in Autumn 2022. In Russia, a 0.4% growth was forecasted in Spring 2023, instead of the drop projected in Autumn 2022. In case of Türkiye, Slovenia, Croatia, and Bulgaria, expected GFCF growth was around 3%-4%. It doubled in Türkiye and quadrupled in Slovenia, while in Bulgaria it fell by less than half. In Serbia, GFCF prospects were similar to those of the EU and the Euro area, but slightly higher (1.7%).
In Slovenia, predicted construction growth rate almost doubled to close to 6% from Autumn 2022 to Spring 2023. For Romania and Croatia, projections were 6.55% and 3.05%, respectably. In Bulgaria and Hungary, the outlook significantly deteriorated. The same was true for the EU and the Euro area where expected GFCF into construction growth was barely above zero. Thus, the surveyed EU member countries outperformed the projected construction growth in both the EU and the Euro area. Hungary was the only exception where a decline was anticipated.
This above is the European Commission’s opinion. EECFA’s opinion, on Eastern European construction markets and forecast on submarket and segment level can be found in the latest EECFA reports. Sample report and order: eecfa.com. Türkiye and Croatia could be top performer, Romania, Russia and Serbia are foreseen to shrink.
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.
In Southeast Europe the forecast is mixed across the board. For this year, EECFA expects expansion in all but one of its five small countries’ construction markets (Romania). For next year, Serbia will also likely join by turning into negative territory, while in 2025 Croatia is forecasted to be the only country to register a drop, albeit a modest one.
In the Eastern European region of EECFA, construction forecast up to 2025 is positive for Türkiye and Ukraine, while in Russia it seems gloomy all the way. In Türkiye, the reconstruction after the February quakes is the key driver, while in Ukraine, a lot will depend on how fast and how soon the reconstruction of the damaged stock can be carried out. EECFA has attempted to make its first forecast for Ukrainian construction since the war began.
Construction up to 2025 in Southeast Europe
In Bulgaria, the new coalition government can mitigate the expected economic slowdown in 2023 by speeding the absorption of EU programs and the implementation of Bulgaria’s Recovery and Resilience Plan. Total construction output is estimated to achieve real growth in 2023. Factors in favor of this forecast are the strong tailwind in residential construction, a slight growth in non-residential and expectation for an improved performance in civil engineering.
Neither inflation nor population decline could stop Croatian construction output’s growth in 2022, and 2023 looks likely to follow suit. Figures for some Buildings sectors, e.g., Retail and wholesale and Residential, contain surprises. Performance of certain Civil engineering sectors was unexpectedly strong due to events that may be one-off or instead portend a trend.
High construction cost is a major factor behind the expected downturn in Romanian construction this year and next, but the market should recover by 2025. EU funding from the 2013-2020 programs has a spending deadline of 31 December 2023, and with the new 2021-2027 programs still in early phases of implementation, a gap is expected in output while the switch takes place. Also, 2024 is a quadruple election year for Romania (local, parliamentary, presidential, European parliament), bringing new challenges for construction as power transition can bring new priorities and strategies.
Serbia is feeling the consequences of the economic slowdown in the European Union, but so far it seems it will avoid recession in the short term. Construction outputs are also showing a mixed picture with building construction suffering contraction in volumes, while civil engineering will likely break new record highs in 2023. And even though there is a lot of uncertainty, the high level of investments is still maintaining positive economic growth and strong employment figures.
The Slovenian construction industry continues to exhibit resilience amidst a thriving economy. While challenges such as inflation and higher interest rates pose hurdles for the residential construction subsector, non-residential and civil engineering are benefiting from increased public investment. By capitalizing on these opportunities, the industry is well-positioned to contribute to the country’s ongoing economic growth and development.
Outlook in the Eastern European construction markets of EECFA
Last year the Russian economy showed relatively high resilience to the negative effects of sanctions. One growth point was construction that showed much better-than-expected dynamics. Russia’s ‘Turn to the East’ notion in the new external political-economic conditions requires intensive construction of infrastructure objects, which fueled growth in construction in 2022. Going forward, the market will likely show decline driven by negative trends in residential and some downturn in civil engineering on the back of a high base in 2022.
After the elections held on 14 and 28 May 2023 in Türkiye, the value of Lira has been falling, creating financing difficulties for contracted construction projects using imported materials. In Q1, the economy accelerated annually owing to strong domestic demand and low interest rates, while construction continued to regain senses. The two earthquakes in February in 11 provinces caused massive human casualties and damages to over 300 000 buildings and infrastructural facilities. As the Government must restore buildings and infrastructure, growth in construction will speed up in the years to come.
If hostilities end in 2023 and Ukraine’s territorial integrity is preserved, post-war reconstruction will cost several hundreds of billions of US dollars according to various recovery plans. About 3 million Ukrainians saw their homes destroyed and about a third of the infrastructure is damaged. The war caused widespread damage to the construction sector and full recovery is only expected after the war ends. Now there is a partial construction of destroyed or damaged residential, non-residential, and critical infrastructure facilities in relatively safe areas with the help of compensation programs at state and local levels and mortgage programs. A key challenge though is the acute shortage of building materials (glass, cement, asbestos, and gypsum, among others). Resumption in construction will improve the country’s post-war economy, provide jobs, increase the production of materials and open new enterprises.
The EECFA 2023 Summer Construction Forecast Reports up to 2025 have been released and can be purchased on eecfa.com where a sample report can also be viewed.
