As all Q2 figures are available, our visualizations with the 8 EECFA countries are updated.
In the Balkans, 4 out of five countries are peaking in housing permits. Especially Bulgaria, Romania and Serbia are at outstanding levels. In the meantime, Turkey has touched further lows in Q2; the quarterly permit figure is hardly higher than that of Ukraine.
Ukraine and Romania are also close to their recent peaks in non-residential permits; the level of these in terms of sqm is not exceptional, though. Serbia has the big story in non-residential. Around 2.6 million sqm of permitted space (in the latest 4 quarters together) is huge, 2.5 times higher than back in 2008.
Emergency Government Ordinance no. 114/2018 (EGO 114)
Residential construction was quite active in 2018, and our previous analysis indicated that despite significant growth in the past years, the market could be considered relatively stable. This has changed dramatically due to government intervention at the end of the year through Emergency Government Ordinance no. 114/2018 (EGO 114).
There are a number of features of this legislative paper directly and indirectly impacting residential construction: changing the minimum wage for construction workers, tax breaks for construction companies, changing the taxation of telecom and energy companies, and a new tax on bank assets.
Starting with 1st January 2019, the minimum wage for construction workers has been raised to RON 3000, up from RON 1900 previously, and higher than the RON 2080 value for the rest of the economy. The government also included in the Ordinance a tax break for these wages, exempt from income and health taxes, yielding a much better net to gross ratio for employees. However, the total impact on salary costs for companies remains significant. According to Continue reading Mixed Feelings on the Romanian residential market
Rises in employment and income in Bulgaria, combined with low interest rates both on deposits and housing loans, are pushing residential construction as well as the property market upwards. The rise in profit margin increasingly attracts investors in the sector. However, aging multi-family buildings and the growing number of uninhabited properties remain as major challenges ahead of the housing stock in the country.
Written by Yasen Georgiev and Dragomir Belchev, EPI – EECFA Bulgaria
Residential construction and the real estate market in Bulgaria continue to be in the focus of investors and developers. The turning point was in 2016 when the sector registered a growth of 31.1% and it is expected to increase in double-digit terms in the period up to 2019. These developments have a direct correlation with improved living conditions as in 2017 the Bulgarian GDP grew by 3.6%. According to European Commission forecasts, there are no signs for pessimism as they prognosticate a further growth of 3.8% in 2018 and 3.7% in 2019.
The economic development is accompanied by low rates of unemployment and an increased disposable income. Major cities in Bulgaria such as Sofia, Plovdiv, Varna and Burgas are getting more and more attractive, which leads to the concentration of the population and creates a strong demand in the residential sector. Consumer preferences are also changing in favour of quality properties (larger ones and with better location) that are lacking in the market. At the moment supply is still lagging behind, unable to catch up with demand. In H1 2018 completed newly-built residential buildings were 9.1% more than in the same period in 2017. In terms of dwellings, there is a drop of 10.3%, which is a proof of the completion of bigger-scale projects.
As the housing market in Romania is seeing a rapid expansion, this rings the bell to some experts: there is a growing concern that the 2008 turmoil might repeat itself. Can the 2008 crunch be back in the Romanian housing market? This article is looking at the probabilities of this to happen.
Written by Dr. Sebastian Sipos-Gug – Ebuild srl, EECFA Romania
For almost a year now, concerns have risen regarding the Romanian residential market. Any instabilities in this field would have major implications across the whole construction sector, since residential construction accounted for approximately 1/3 of the yearly construction output of Romania in 2016.
Opinions emerged regarding the similarities between the 2007 and 2017 market dynamics, and reports by the National Bank (BNR), National Statistics Institute (NSI) and real estate agencies indicated unusually high growth rates of residential prices.
So, how likely is a correction event?
To answer this, we must look at the idiosyncrasies of the Romanian construction market, the similarities and differences between the collapse in 2008 and the current status.
The residential construction market in Romania is a mix between large projects, run by speculative developers, small projects contracted to construction companies and projects built by the owner.
Romanians are generally home owners, with 96% living in a house they own. They are also very fond of building homes themselves, mainly in the rural areas. This trend of self-development, mainly in the rural areas, is relatively untouched by macro-economic phenomena. Any disposable income is invested into construction materials that are used to build up or expand the home, leading to very low construction costs.
The main source of instability, however, is that of speculative urban (or suburban) development. With profit margins boosted by the real estate price increases and high demand, investments into residential construction are attractive. This has been evident in the years leading to 2008, as the number of homes in multi-unit buildings completed in 2008 was nearly three times that of the previous year, and the number of permits for this building type doubled yearly between 2006 and 2008.
While in the EECFA Forecast Report Russia we estimate/forecast residential output, this article is looking at another angle of predicting housing market developments: demand potential in the Russian housing market (the number of households able to buy housing) as the main indicator of further market dynamics. Positive macroeconomic indicators in Russia currently are suggesting growth in real incomes and an increase in the population’s solvency, which in the near-term future is set to raise the number of households able to buy housing. This growth in demand potential will have a positive impact on residential output, yet, this is not something that will happen overnight: the Russian housing market is predicted to continue to slump for the time being. Nevertheless, the predicted growth in demand potential will play a major role in halting this drop, leading to an expansion in the housing market in 2019.
Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia
Having the largest share in total construction both in value and volume terms, the housing market is the engine of the whole Russian construction market. Any change – decline or growth – in the housing subsector may have a decisive effect on the Russian construction industry as a whole; as it was the case, in particular, during the crisis of the Russian economy in 2015-2016. In this period, the housing sector enjoyed an unprecedented level of state support (more details in the current/previous EECFA reports), which prevented the entire construction industry from collapsing.
The state of the housing market primarily depends on the ability of the population to purchase housing. Other market factors, such as the volume of supply in the market, the level of competition or the cost of housing are secondary. It is the ability of citizens to buy housing that ultimately determines the total volume of effective demand, which in turn regulates development activity and price trends in the local housing market. At the same time, the indicators of the population’s need for housing are also secondary in terms of the dynamics of the market situation; they are of an abstract nature and cannot be used to predict the situation in the market. The need for housing is a conditional market potential, which, without the ability to buy housing is never realized. The ability of the population to purchase housing is the real market potential, which – in most cases – is realized in transactions. The level of housing provision (need) affects only the nature of demand: investment purchase, purchase of a first home, improvement of housing conditions, among others. Continue reading Housing market in Russia: Demand potential shaping future market dynamics
In Q2 2016 the number of permits issued in the latest 4 quarters for residential homes increased by 14% in the Balkan EECFA countries together, compared to the same period last year. Turkey registered a 10% growth in this term, while Ukraine’s Q1 2016 (latest available) figures are almost 30% up.
In case of non-residential buildings, permitted floor area remained at the same level in the Balkan as recorded a year ago, while Turkey saw a drop of 1% in Q2 2016, and Ukraine ended up 20% positive in Q4 2015 (latest available).
In Russia, residential completion of the latest 4 quarters decreased by 2% in Q2 2016 and non-residential completion stood at 1% in comparison with a year ago. (Russia-wide permit data is not available)
The updated interactive permit-completion graphs of EECFA countries are available here:
On the residential graphs, the number of dwellings is displayed, and you can choose the countries and the data type. Besides these options, on non-residential graphs you can also choose the indicator type (floor area or number of buildings)
As we regularly issue forecasts, for us the most important question of this compilation is whether the newly incoming data are in line with our latest (short-term) forecast or not. So below we have highlighted some countries and tried to put the figures into this perspective.
Residential permit– Biggest growth rates: Serbia
Almost 13 thousand permitted dwellings in the Q2 2015 – Q2 2016 period translate to a 44% growth on comparable basis. This is supporting our view that completion could start increasing this year.
Residential permit– Biggest growth rates: Ukraine
Permit reached an estimated 178 thousand in the last 4 reported quarters together, which is a 29% increase, while completion was above 110 thousand. It does not contradict our view that completion in 2016 will remain at around its 2015 level.
Residential completion – Biggest markets: Russia
In the Q2 2015 – Q2 2016 period 1 170 thousand dwellings were completed, a 2% drop on comparable basis. Data so far are in line with our expectations.
Residential permit – Biggest markets: Turkey
Almost 960 thousand dwellings were permitted in the last 4 quarters including Q2 2016, meaning a 10% increase compared to a year ago. Completion stood at around 725 thousand, 3% more than in Q2 2015. These are in line with our predictions.
Non-residential permit – Biggest growth rates: Serbia
In Q2 2015 – Q2 2016, surpassing well its 2007-2008 level, 1.5 million m2 non-residential floor area was permitted, meaning an almost 100% jump from a year ago. This is supporting our optimistic outlook.
Slovenia is coming back from very low levels, in the Q2 2015 – Q2 2016 period altogether 735 thousand m2 non-residential floor area got permit, an increase of almost 60% over a year earlier. This is also in line with our positive outlook.
Non-residential permit – Biggest markets: Turkey
Permits for around 48 million m2 of non-residential floor area were issued in the latest 4 quarters until Q2 2016, which is virtually the same level than a year ago. This does not contradict with our soft-landing scenario. Completion is 11% in the positive territory in the Q2 2015 – Q2 2016 period against the corresponding period a year ago, but in case of non-residential sub-sector, the connection between output and completion is not as strong as in case of residential.
Non-residential completion – Biggest markets: Russia
Coming down very slightly from the peak, in Q2 2015 – Q2 2016 around 30 million m2 non-residential floor areas were competed. Investment into non-residential construction has been shrinking recently, so this does not contradict our pessimistic outlook.
The interactive graphs are updated half-yearly, in between 2 report issuance. If you would like to have the row data in xls, feel free to contact us.
Data are from national statistical offices: NSI, Crostat, KSH, Insse, Rosstat, SURS, SORS, Tuik, Ukrstat
As almost all Q4 figures were published, we have updated our interactive graphs containing quarterly development of permit and completion in the countries we cover. Beside the residential market, now we have put together a similar one about non-residential buildings. The same 3 data types are provided and you can choose from floor area and number of buildings.
Looking at non-residential permits, a substantial growth is experienced on the Balkan. The only exception is Romania, but, for example in Serbia the permitted floor area is almost 100% above its 2014 level. The biggest countries of EECFA region suffer through, and all this is pretty much supporting the scenarios we have foreshadowed in our reports.
The interactive permit – completion graphs are available here:
While putting together the non-residential figures, I became curious about how the levels are comparable to other European countries. Although some exact matchings have been found, the aim was rather to put the country level market sizes into another context (since we usually contrast them in money terms). The basis of the compilation is permitted non-residential floor area.
UK is not mentioned in this list, but it is most probable (based on the value of new non-residential construction) that its market in terms of floor area is bigger than that of France. However, permit data is not available in UK. The same is true to Russia, so completion is shown here instead. And one final note to the table is that permit generally refers to newly created spaces and rarely accounts information about renovation-like activity.