Updated on 14 September 2023 (with Ukraine Q2 permit and completion)
4 out of the 6 smaller countries turned pessimistic in building construction. Bulgaria, Hungary, Romania, and Slovenia are currently below their latest peak. The downward move is mostly attributed to residential permits. The biggest drop in this submarket was registered in Hungary and in Romania. You may use the dropdown for selecting either the residential or the non-residential submarket, or both. Serbia and Croatia are peaking, non-residential permit in Croatia has almost doubled since 2020.
Q2 permit data in Türkiye, the first after the big earthquakes, brought good figures. This has been the best 2nd quarter since 2019. And it is true to both the residential and the non-residential submarkets. These figures, however, are still below the peak, please check the Country-by-country sheet of the viz for long series. Q2 data in Ukraine was published as well. Good to see that the permit figures stopped falling, a sign that the worst could be over.
In the full visualization, not only permit but completion data can be followed.
Türkiye’s high inflation so far has continued to rise in the course of this year, given May’s election-fuelled wage increases and the state transfers to rebuild facilities in the aftermath of the February quakes. The new administration is exercising a conventional economic policy, but post-disaster reconstruction is estimated to cost EUR 100 billion and will require huge money allocations from the state this year and next.
Macroeconomic developments
Türkiye has seen a change in economic policy after the re-election of President Erdoğan on 28 May 2023. Mehmet Şimşek, the new Minister of Treasury and Finance, and Dr. Hafize Gaye Erkan, the new Governor of the Central Bank of Türkiye (CBT) adopted a return to conventional economic policies. The CBT stopped reducing the base rate, and in 3 successive months, it raised it from 8.5 base point level to 25. Bank interest rates for deposit accounts and credits grew, though they still have high real negative rates.
The Government’s lucrative policies in minimum wage and early retirement continued after the election with high pay rises for public sector employees. The enormously destructive earthquakes on 6 February 2023 in 11 provinces also raised the government’s financing obligations. These increases in money supply, coupled with the big rises in the exchange rate of foreign currencies against the Turkish Lira in 3 months after the election (36% in Euro) have led to an upward trend in the inflation rate. The yearly rise in the Consumer Price Index was 47.83%, monthly 9.49%, and in the Domestic Producer Price Index was 44.50% and 8.23%, respectively, at end July. The CBT revised its inflation forecast to about 59.5% by the end of 2023.
Building developments
The construction sector is responding to these macroeconomic developments differently in starts and completions. In Q2 2023, building construction permits rose by 43.83% quarterly and 25.6% yearly in total floor area, while completions declined by 16.6% quarterly and 28.6% yearly. House building had a similar trend in Q2 2023; construction permit-issued housing grew by 44.3% quarterly to 188,7 thousand and 43.8% yearly to 741,7 thousand dwelling units, whereas occupancy permits fell by 15.3% quarterly to 106,9 thousand and 16.6% yearly for 570,3 thousand dwelling units. The social housing project to produce about 253 thousand dwelling units by the Housing Development Administration (HDA) announced in Q4 2022 did not lead to that much increase in the start statistics.
Low-cost social housing (produced by the HDA and sold to households not owning a house with affordable mortgage loans) and a commercial housing project by a private developer under construction in Ankara. Photo by Prof. Ali Türel, EECFA Türkiye
Among building types other than housing, construction permits for hotels, offices and industrial buildings had a quarterly and yearly positive rate of change. Occupancy permits were negative, only hotel buildings’ quarterly change and industrial buildings’ yearly change saw positive trends.
Due to high real estate prices under the effect of negative real interest rates, there seems to be a tendency to start building development, but builders may be unsure about the marketing prospects and profitability of their projects as real incomes have been dropping owing to continued inflation since 2018.
Forecast for the Turkish construction market is available in the EECFA Forecast Report. EECFA conducts research on the construction markets of 8 Eastern-European countries. Orders and sample report: eecfa.com.
Housing prices, construction cost, housing transactions
This June Housing Price Index for new buildings went up by 95.8% yearly as the national average (it was 90% in Istanbul, 102.3% in Ankara and 99% in İzmir). Since residential construction costs rose by 51.8% in June 2023 like-for-like, it implies a 44-percentage point difference between housing price and construction cost. Such a great spread between housing prices and construction costs should indicate a housing deficit, augmented by the 4,9 million registered refugees mainly from Syria and many unregistered migrants from other countries. The fewer completions than starts (when the profit margin is high) can be explained by the affordability problem under inflationary conditions.
Housing transactions between January and July 2023 were 17.7% less than in the same 7 months of 2022. Mortgaged sales were 20.2% in January-July 2023, dropping by 28.2% like-for-like. Affordability for mortgage loan repayments significantly decreased when mortgage interest rates rose to 35%/year. State-owned banks provide mortgage loans at between 0.69-0.99% monthly rates to people who are not homeowners, but the total number of these loans did not greatly affect the share of mortgaged transactions.
Rebuilding earthquake-damaged buildings and infrastructure
The quakes this February in the southeast regions must be dealt with under the Law on Natural Disasters, which defines precautionary measures, government obligations for post-disaster recovery, mitigation activities and rebuilding damaged buildings. With the organizations established for this purpose, the Government has been undertaking activities in the earthquake-hit 11 provinces since the quakes occurred. The Law requires the reconstruction of collapsed and heavily damaged buildings, both housing and workplaces, with financial commitments by the Government. The money spent becomes an interest-free loan, and owners of rebuilt properties begin to repay 2 years after they move in and in 20 years. Because of prolonged high inflation, interest-free loans serve as an important real gain for those people.
As per Mehmet Özhaseki, the Minister of Environment, Urbanisation and Climate Change (the organization responsible for rebuilding collapsed and pulled down heavily damaged buildings), as of 7 July 2023 in 11 provinces 311 thousand buildings with 872 thousand independent units collapsed or were pulled down. The total number of urban and rural housing to be rebuilt is 680 thousand. They planned to rebuild 518 thousand dwelling units in urban settlements and 162 thousand housing in rural areas with stables. About 180 thousand dwelling units and 6 thousand workplaces are currently under construction. They expect to complete the construction of 319 thousand dwelling units within one year. They also offer financial assistance rather than building a home, comprised of a 500.000 TL (17.241 Euro at 19 TL/Euro exchange rate) grant and 500.000 TL interest-free credit to the eligible people for state support, to be repaid in 10 years. Similar offers are also made to all workplaces.
Tentative estimates for the reconstruction are EUR 100 billion. With the existing 253 thousand social housing under construction, there will be big financial requirements from the national budget for public projects this year and next. Demand for construction materials and qualified labour will be high if we add the construction of all types of commercial buildings to state housing projects.
Written by Dr Aleš Pustovrh – Bogatin, EECFA Slovenia
Residential construction boom in Slovenia continues and is set to peak this year. Nevertheless, with increasing interest rates on mortgage loans, residential construction will be facing significantly lower demand in the second half of 2023.
Slovenia continued to see strong economic growth in 2022, up by 5.4%, beating the expectations at the start of the year. But this growth greatly slowed down in late 2022 and early 2023 as increasing interest rates and high inflation started to impact disposable income. This has not resulted in slower construction growth; both civil engineering and non-residential construction greatly expanded in 2022 in nominal terms. The level of construction activity in these two subsectors was still quite close to the 2015 average (even slightly below that average in non-residential construction). But most of the nominal growth was the result of higher inflation and thus, higher construction costs.
In residential construction, the situation is completely different. The level of residential construction was 3.3 times higher in 2021 than in 2015 in real terms (and 4 times higher in nominal terms). And in 2022 it was a staggering 5.35 times higher in real terms than in 2015 (7.8 times higher in nominal terms). At the beginning of 2023 it continued to grow by 46% annually, which is unsustainable.
Vurnikova hisa, Miklosiceva cesta, Ljubljana by Pavol Svantner unsplash.com
While demand for dwellings has likely exceeded demand in the post-COVID boom of 2021 and 2022, supply has been catching up lately and more and more dwellings have been completed. The total value of sold real estate in 2015 was estimated at EUR 1.8 billion, while in 2021 at EUR 2.8 billion[1]. Approximately 10000 dwellings are sold in Slovenia on average every year, with around 3000 in Ljubljana. At least that many are estimated to be currently under construction in Ljubljana alone. These will enter the market in 2023 and 2024, but potential customers for these dwellings are facing elevated interest rates on mortgage loans. As per recent calculations, monthly loan repayment for a EUR 200,000 loan in Slovenia has increased by EUR 400-500, making potential customers think twice before even applying for a loan. This is already evident in the real estate prices in Ljubljana that peaked in Q1 2022 and have not increased since[2], even though the overall inflation rate was almost 10% in 2022.
Forecast for the Slovenian construction market is available in the EECFA Forecast Report. EECFA conducts research on the construction markets of 8 Eastern-European countries. Orders and sample report: eecfa.com.
That means that skyrocketing housing construction in Slovenia, especially in its capital city, will be facing significantly lower demand than it was expected when construction started in 2021 and 2022. And even though residential construction growth rate is still very high, by most estimations, demand will considerably decline in the second half of 2023. If residential construction stays at the same level as in 2022, a lot will depend on public schemes for non-profit dwellings starting to contribute to total residential construction output. Private housing construction will most likely complete the projects that were started but will be reluctant to start new ones. In Q1 2023, 12% fewer building permits were issued for dwellings than a year ago[3].
Residential construction is set to reach its peak output in the first half of 2023. This will impact overall construction too, because this segment is more important than non-residential or civil engineering. It seems that residential construction boom in Slovenia will reach its peak in 2023, but the real question is how fast it will decrease in the future.
Written by Dejan Krajinović, Beobuild Core d.o.o., EECFA Serbia
High inflation and rising interest rates seem to have bitten in overall consumption. And although Serbia is likely to avoid recession in the short run, its real GDP growth is estimated to be a moderate 2%-4% this year and next with a downside risk being the looming recession in the EU. The rental housing market has been supported by the Russian and Ukrainian citizens settling down in Serbia, keeping rent rates high. Housing construction is still strong and although the volumes in building construction are already consolidating, big infrastructure projects could sustain civil engineering on all-high levels in mid-term.
Property market developments
Macroeconomic conditions in Serbia have been under significant stress for a while now, and continuously strong inflation has already produced a major drop in overall consumption. The real estate market was expected to start cooling down in 2022, but instead, there was another record year in both volume and the number of transactions. Unlike real estate markets in a number of European countries, where under the influence of interest rates there was a considerable slowdown and drop in prices, the level of real estate prices in Serbia recorded a strong growth during 2022. With lot of uncertainty on the horizon, home permits have already started pulling back in 2023, but this is still not visible in property prices. Demand stayed stronger than supply, and monetary policies of the ECB and the National Bank of Serbia have had little effect on the market so far.
Photo – Beobuild Core d.o.o.
During the last twelve months the National Bank of Serbia significantly tightened its monetary policy by increasing reference interest rates from 1.5% to 6%, as of April 2023. Since inflation in Serbia is in large part imported through energy and food costs, rising interest rates could start suffocating the economy, so the National Bank will have to consider diversifying its means of fighting the inflation. At the same time, Euro-indexed home loans also reached similar interest rate levels of around 6% in Q1 2023. While the total number of transactions grew in 2022, the share of mortgages decreased from 13% in 2021 to just 11% of all property transactions in 2022. Home market has a bit higher exposure to loans, making some 20% of all transactions supported by mortgages, but interest rate hikes barely affected overall numbers. During the Q1 2023 similar trends continued, where prices continued to grow and the scale of transactions only fell slightly in number, but not in value.
Beside strong tourism figures, there has been some 200.000 residence and working permits issued for citizens of Russia and Ukraine since the conflict started – an unexpected support for the home market and accommodation. In March 2023, 10.000 residence permits and 5.000 working permits were issued: a monthly record so far. The newly arrived have certainly been felt in the renting part of the market as monthly rents hit the roof during H2 2022. The situation stabilized during Q1 2023, but the small renting capacity will keep prices high for the time being. Those who decide to stay and build a life in Serbia will eventually enter the buyer market, and the majority is highly educated and employed.
Expectations in economy and construction
Although employment still stands strong in Serbia, as in many other European countries, it will inevitably feel the economic shift and face challenges in due course. Particularly if current international conditions and trading relations stay severe or even worsen in the coming period. So far, it seems that Serbia will most probably avoid recession in short term, but real GDP growth will relatively be weak, ranging between 2%-4% in 2023 and 2024. Employment continued to grow in 2022 and Q1 2023, so the situation is still stable, but new challenges could emerge in H2 2023 and later in 2024. The worsening economic situation and looming recession in the EU is the main risk for the Serbian economy, as the EU is an important source of investments and a prime export destination.
In order to mitigate the expected lower investment activity of the private sector, the Serbian government will certainly push for the realization of public investments. The ongoing campaign of large-scale infrastructure projects should continue in most civil engineering segments, including roads, railroads and utilities, so this should sustain civil construction on record levels in mid-term. The construction of buildings and its volume will be challenged far more, but the good news is that FDI inflow to real estate continues to be very strong in segments like industrial and storage, office or residential. The volumes in building construction are already consolidating, but the picture is still mixed in different segments. The residential market is still not showing weakness and construction activity here remains strong. Also, the Serbian market has very low vacancies in commercial and office segments as a healthy parameter and strong foundation in the current economic environment.
At the moment there are still significant risks related to the scenarios of a prolonged and escalating economic crisis, but there is still hope the worst can be avoided.
Forecast for the Serbian construction market is available in the EECFA Forecast Report. EECFA conducts research on the construction markets of 8 Eastern-European countries. For orders and sample report, go to eecfa.com.
Written by Michael Glazer (SEE Regional Advisors) and Tatjana Halapija (Nada Projekt), EECFA’s Croatia members
The composition of Croatia’s construction output is changing. While the residential segment may soon experience a slowdown, health-related construction – public and private renovations and new builds alike – is seeing a considerable boom.
Photo by Hajnalka Hurta
Construction continues strong in Croatia. The country’s State Bureau of Statistics announced earlier this month that construction permits issued in January 2023 were up 19.1% in number and 40.5% in value compared to January 2022. While permitting in Croatia can vary significantly from month to month, these data certainly suggest that the sector remains vibrant. So do the Bureau’s statistics for 2022 construction volume versus that for 2021. According to the Bureau, the value of completed construction work carried out by business entities in Croatia with 20 or more employees increased by 12.9% in 2022 compared to 2021, while the value of new orders increased by 27.1%.
But while construction as a whole remains robust, a number of sectors are weakening as changes in the composition of construction volume continue. Where once the tide of construction activity raised all sector’s boats, airport and highway construction has now given way to rail on the civil engineering side. On the buildings side, construction of residences may at last be cooling down from its white-hot heat of the last few years. The Statistics Bureau’s recent announcement of a 9.8% decline between January 2022 and January 2023 in the number of apartments for which permit applications were submitted suggests this.
Current forecast for Croatia is available in the EECFA Construction Forecast Report. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries. For orders and sample report:eecfa.com
So, paradoxically, does the 20.2% rise in the average price of new apartments between 2021 and 2022. Inflation clearly accounts for a substantial part of this increase. And supply may have shifted to higher priced units. But it nonetheless appears that a significant increase in real prices for equivalent apartments has likely occurred. In this regard, the Governor of the Croatian National Bank recently pointed out that the volume of residential property sales is decreasing, something that he notes usually precedes a fall in prices. Tighter mortgage conditions and higher interest rates also likely played a role.
On the other hand, a type of construction is that is booming but not getting the attention that it deserves is construction of healthcare facilities. Both public and private facilities have been and are being built in unprecedented numbers. The subsector’s strength has come from both public and private projects and from both renovations and new builds. This despite a push, so far not highly successful, on the part of the Croatian government to, in the name of efficiency, consolidate a number of healthcare facilities that now exist in low population localities.
On the public side, significant construction has been ongoing for some time now. Among the larger projects have been the consolidation and expansion of the Rijeka Clinical Hospital Center, a multi-year, more-than-hundred-fifty-million euro project that is now in its third phase. This project includes the Hospital for Mother and Child, a new facility to consolidate gynecology, obstetrics and pediatric facilities previously housed in outdated facilities in two different towns. In Zagreb, projects completed or already underway include the total reconstruction of the city’s Clinic for Infectious Diseases and the renovation of the Zagreb Clinical Hospital Center’s Jordanovac, Rebro and Petrova facilities, the Sisters of Mercy Clinical Hospital Center, the Merkur Clinical Hospital and the Children’s Hospital. Elsewhere, a new, 100-million-euro General Hospital was built in Pula, and various smaller, regional facilities were upgraded, including in Bjelovar and Varazdin.
While a good deal of Croatia’s public medical facility construction has been completed, much still remains to be undertaken. In addition to further upgrades to current facilities nationwide and the possible construction of a National Children’s Hospital in Zagreb, considerable work remains to be done to repair the damage caused by the two earthquakes that struck Croatia in 2020, including significant reconstruction at Zagreb’s Faculty of Medicine. The government is also pushing health tourism, with a minimum of EUR 61 million to be invested in public and private projects in this field.
Private healthcare construction projects are also proliferating. Among those recently built are Akromion’s 10,000 m2 hospital for orthopedics and trauma and Sveta Katarina’s 4,000 m2 facility, both in Zagreb. A variety of other facilities are in the planning stages, although their exact characteristics, e.g., as to size and in some cases even nature, remain either confidential or as yet undecided. The government’s increased focus on and funding of healthcare tourism is likely to significantly increase activity in the healthcare subsector.
As the Croatian economy evolves, particularly as it responds to Croatia’s entry into the Schengen Area and the Eurozone, more changes in the composition of construction volume must be expected. As an example, it is claimed that already one in three Croatian residences is bought by a foreigner. And the country seems to at last be being discovered as a manufacturing location, with Jabil, a major US-based manufacturer, building a large facility in Osijek. The consequences of these changes for total volume are hard to predict, but are certain to occur.
Written by Dr. Sebastian Sipos-Gug – Ebuild srl, EECFA Romania
This question is quite often asked both by those looking to buy a home and by those building homes. The former are hoping for prices to come down, while the latter are worried that prices will come down. Whereas a definitive answer cannot be given, Dr. Sebastian Sipos-Gug, EECFA’s researcher on Romania, has looked at several factors that might tip the balance of the residential market, one way or the other.
For a more in-depth analysis and forecast you can purchase the latest EECFA Romania Construction Forecast Report at www.eecfa.com. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries, including Romania.
Where we are now
Despite a rocky start, real estate sales in 2022 were comparable to those of 2021 (+0.2%, source: ANCPI) and so, at least from this point of view, the market seems to be relatively stable, and could tip either way. In a regional view, the northern half of the country was more likely to see a drop in transactions, and Bucharest remains the most active market, with 1 in 5 real estate sales registered in Romania in 2022 taking place in the capital city.
Real estate sales in 2022 as a percentage of the 2021 volumes (Source: ANCPI)
Looking at the longer-term trends, the number of sales in 2022 were 29% higher than those of 2019, but still below the peaks of 2015 (-21%) and 2008 (-31%), and thus it would seem like we are approaching another turning point in the market cycle.
From a house price perspective, there are some signals that asking prices started to go down, however, as of Q3 2022, this didn’t translate in a decrease in official transaction prices. Instead, prices kept rising, albeit their growth rate has somewhat slowed down.
Quarterly indices of Inflation, Rent costs and House prices (Source: Eurostat)
Residential real estate as an investment vehicle
While no official data is available, anecdotally a significant share of newly built homes have been purchased as an investment asset, rather than to be lived in by the owner. Between 2015 and 2019 the increase in prices outperformed inflation and rent growth. Coupled with a low reference interest rate, which made loans cheap and made savings offer lower returns than inflation rate, many retail investors turned to real-estate, with residential being the most accessible market.
As inflation soared in 2022 (+13.8% yearly average), residential prices failed to follow. With inflation expected to remain high in 2023 and 2024 (+10.8% and +5.7%, according to the CNP forecasts, or +9.7% and +5.5% according to the EC forecast), the appeal of investing in residential properties would diminish, pushing down demand, transactions and prices and thus potentially leading to a negative feedback loop. Since real-estate has traditionally been held as an inflation hedge, prices would have to drop quite significantly to trigger this type of loop, a scenario that many feel unlikely at the moment.
Home affordability
Most home purchasers are looking for a place to live, and for them affordability is a very important factor. A useful estimation is that of comparing average prices to the average income, an indicator we looked at in previous blog posts (here, and here) as well. While in 2007 the average monthly wage could buy you 0.20sqm in an average sized two-room flat, this steadily grew to around 0.50sqm in 2020. However, it declined to 0.45sqm in 2022, making homes slightly less affordable for the average worker.
Home affordability – what useful area in an average two-room apartment would the average monthly wage buy you? (Source: own calculations based on data from NSI and imobiliare.ro)
To add to this, rising interest rates for mortgage loans make it even harder to buy a home. In 2022 there were 8 hikes to the National Bank’s reference interest rate, that climbed to 6.75% in December, up from 2% in January 2022. This translated into a near doubling (+82%) of interest rates for new housing loans, and they will remain high as long as the National Bank keeps reference rates up. As inflation subsides, cheaper loans might be on the horizon with a positive impact on demand for residential real-estate for both housing and investment purposes.
Press Release on EBI Construction Activity Report Hungary Q4 2022
The latest EBI Construction Activity Report has found that after the weak Q3 2022, Q4 2022 saw a slight nominal expansion in Activity-Start in Hungarian construction. Nonetheless, the value of started construction works was still very low; between October and December 2022 they totalled roughly HUF 650 billion.
This time, though, for better comparability, the analysts of EBI Construction Activity Report also looked at the development of Activity-Start in Q4 2022 at constant prices. This shows that Q4 witnessed a considerably lower construction value, a bit more than Q3 (the negative record in recent years). Yet, whole-year-figures were high thanks to the higher Activity-Start in the first two quarters of 2022 and projects entered construction on more than HUF 3600 billion. Although it was a new record at current prices, it did not approach the highest values of 2017 and 2018 at constant prices and was at the level of 2019 and 2021. Annual change compared to 2021 at current prices was about +21%, while at constant prices it meant a drop of 0.6%.
EBI Construction Activity Report Hungary analyses the construction industry on a quarterly basis, including the volume of newly started construction works and the value of projects completed in each quarter in aggregate and by segment as well. It is prepared by Buildecon, Eltinga (creation of indicators and development of algorithms for aggregation) and iBuild (project research and project database). The EBI Construction Activity Report Q4 2022 can be purchased at ebi@ibuild.info.
Expansion in value of started building construction works
The modest rise in Activity-Start at current prices was mostly coming from the expansion of building construction with the value of started construction works being HUF 500 billion in Q4 2022. Overall, the entire 2022 brought high numbers. Projects worth more than HUF 2000 billion entered implementation – the highest ever registered.
In Q4 the improvement over Q3 was evident in building construction even at constant prices. But the value of started works, except for 2020, was lower than the quarterly values of the past years. At constant prices, the Activity-Start indicator dropped during 2022 (-16.8%) and was roughly at the level of 2019. The better last three months were also typical for multi-unit housing and non-residential buildings, whether we look at current or constant prices.
In 2022, non-residential construction works were launched at a value of more than HUF 1800 billion, the highest amount so far. Thanks to the good first half of the year, even at constant prices, last year was considered a strong year: constant-price Activity Start of EBI Construction Activity Report was the third highest after 2018 and 2021.
Building construction projects launched in Q4 2022 included the CATL battery factory, the BMW plant, and the EcoPro BM electric battery cathode manufacturing plant in Debrecen. Construction also began on the CTP warehouses in Szigetszentmiklós, the University of Veterinary Medicine and the Siemens Energy M2B gas and steam turbine parts manufacturing plant in Budapest, as well as the logistics hall of HelloParks in Fót.
In terms of permit, there has been no sign of pessimism so far in the SEE countries. Right the opposite. Croatia, Serbia, and Slovenia are all expanding. Bulgaria peaked with 9 million permitted residential plus non-residential sqm in Q3 before correcting downward in Q4 and Serbia is beyond 7 million sqm. The biggest country, Romania, stayed close to its peak in the meantime.
Permit recovery in Turkey has stalled, and continuous growth in non-residential cannot compensate the pessimism in the residential submarket. The current level of around 140 million sqm is still less than half of the all-time high reached in 2017. Ukraine’s stat office managed to publish permit and completion figures for the whole 2022. The non-residential permit figs are about 60% less, while residential is 50% less than in 2021. (You may go to Country-by-country sheet from completion and choose quarterly from the observed period dropdown. By default you will see the latest 4 quarters together data)
In the coming months the rest of the countries will publish their Q4 data and we will update the chart, so please check back.
The Permit-Completion visualization contains data on 8 EECFA (Bulgaria, Croatia, Romania, Russia, Serbia, Slovenia, Turkey, Ukraine) + 1 Euroconstruct country (Hungary).
EECFA’s 2022 Winter Construction Forecast Report was released on 5 December. 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.
Yet another downward revision characterizes the forecast for both regions. Southeast Europe could see shrinkage on the horizon. This, however, comes after a great period of construction in between 2016 and 2021, so the market is foreseen to come down from a peak level. In this respect, the 3% decline until 2024 is no drama, in EECFA’s view. The drama is in East Europe where the peak was reached in 2018 and the market was around 10% below that peak level even before the Ukraine war began. Since then, EECFA has paused issuing forecasts in Ukraine and a status report has been prepared. Without Ukraine, the region is expected to reach its bottom in 2023.
In Southeast Europe, almost all countries have been revised downward. Three out of them, however, could see expansion until 2024. The foreseen contraction in Romania and Serbia pulls down the region to negative. Romania is quite pessimistic; the market could shrink by almost 10% by 2024. Serbia is expected to witness a sizeable drop, too, before growth returns in 2024. As the region saw much construction in 2016-2021, the market will likely decline from the peak, making the 3% drop on the forecast horizon not-so-drastic.
Bulgaria:
Under the projected economic slowdown, construction will increasingly be affected by the ongoing political instability that is likely to undermine reforms within the Recovery and Resilience Plan, and delay implementation of the EU’s operational programmes.
Тotal construction output is estimated to have grown in 2022.
For 2023-2024 civil engineering is forecasted to increase at a more accelerated pace.
Croatia:
Residential construction output held up in 2022, impervious to war and disease. But it’s likely residential’s rapid growth will over time succumb to rising prices and a falling population.
Rail construction output will rise as more rail projects come online. Some new high-cost road projects may yet be undertaken for political reasons.
Energy prices will fuel building of oil/gas port facilities, pipelines and storage in 2022-2023, construction that the EU’s green-energy push may quench in favor of renewable energy and power grid projects.
Romania:
The Romanian construction market is set to shrink slightly in 2023 and 2024 as internal and external factors conspire to make building materials more costly.
Inflation-induced lower purchasing power and growing mortgage interest rates are making loans more expensive, and few people can afford to buy a home in cash.
On the one hand, Romania could benefit from the current global instability and attract more foreign investment to grow its economy. On the other, increased energy costs translate to higher operating and construction costs and discourage investment.
Serbia:
The challenging economic situation will undoubtedly have negative effects on construction outputs. But how negative is the question of external factors and the coming events.
The domestic market is strong, with high public and foreign investments, as well as record employment. The highest economic risk comes from inflation and the expected recession in the EU.
The current economic slowdown could deepen the contraction in case of a prolonged crisis.
Slovenia:
Slovenia has experienced expansion in construction output on the back of the strong overall economic growth.
However, risks for the future include high inflation, large construction cost increases, and overheating economic growth. And increased interest rates will depress residential output in the future.
Supply chain constraints might jeopardize the completion of large civil engineering projects.
In East Europe, 2022 could be the 4th consecutive year of drop in Türkiye, and no quick recovery is foreseen on the horizon. We have turned somewhat optimistic in Russia, but only from 2024 on. Without Ukraine, the region will likely hit bottom in 2023. The region reached its peak in 2018 and just before the war in Ukraine started, the market was around 10% below this 2018 level. Owing to the war, Uvecon, the Ukrainian member institute of EECFA, has prepared a status report for the second time instead of the forecast report.
Russia:
Direct and indirect effects of sanctions hammered the construction market that declined faster in 2022 than previously expected.
Forced acceleration of projects in transport and energy, in response to export and import structure changes due to sanctions, will spur growth in civil engineering.
Many targeted programs and national projects will support the construction sector throughout the forecast horizon.
Türkiye:
The construction industry has been trying to deal with high inflation that has led to 120% yearly rise in construction cost and 189% increase in housing prices.
There has been some deficit between produced and needed home numbers since 2000, augmented by the influx of refugees from Syria and neighbouring countries (3,920 million registered; unknown unregistered).
The low-cost housing project of the government as of September is expected to stop the current slump in the construction sector.
Ukraine:
Prospects for construction depend on the existing situation on the market as a result of the destruction of residential, non-residential and engineering infrastructure, and the end of hostilities with the possible economic recovery.
Total area of damaged or destroyed housing is 74.1 million sqm (7.3% of the total area of Ukraine’s housing stock), a number which, unfortunately, grows every day. Restoring the housing stock will become a key issue for Ukraine after the war ends.
Energy infrastructure remains the top priority for recovery, as nearly 40% of the energy system has been destroyed.
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.
