Q1 2020 sees rush to complete ongoing projects in Romania

Written by Dr. Sebastian Sipos-Gug – Ebuild, EECFA Romania

The first quarter of the year 2020, mostly starting with mid-February, was marked by ominous economic forecasts. Thus, some decline in construction activity was to be expected, and indeed newly started construction projects dropped to just over EUR 1.3bln in Q1 2020. This amounts to a 14% decrease compared to the equivalent period of 2019, according to the latest edition of the EBI Construction Activity Report for Romania.

At the same time, the amount spent on construction increased by 25%. Coupled with the record amount of completed construction works (nearly double that of the first quarters in each of the previous 5 years), lends us to the conclusion that investment was increased in order to rush and complete the (at the time) ongoing projects, before the anticipated negative economic impact of Covid-19 took place.

Covid-19 changes in reporting frequency

In light of the Covid-19 pandemic and the accompanying economic impact, the data visualization for EBI Construction Activity Report is currently updated on a monthly basis, rather than quarterly.

Renovation activity increases in building construction

Building constructions started for the first quarter of 2020 dropped by 3% over the same period of 2019. However, the amount of new building construction for Q1 2020 is actually higher than in the first quarters of 2014-2018, and thus this small drop is more due to the good performance in 2019 than a clear sign of decline for 2020.

Looking at renovation figures, however, we can notice a somewhat new trend: that of increased renovation activity. While new building construction can, and in some cases was, pushed back due to uncertainty regarding the economic conditions, renovation works are less prone to this effect since they are more urgent in nature. Furthermore, as government measures started to be implemented in March, individuals and businesses alike needed to make adjustments to their living and working conditions: spaces were converted to quarantine centres, offices and industry alike had to adapt to new conditions and started to ensure layouts that allow more social distancing, hospital wings were relocated and so on.

Civil engineering output exceeds expectations, but low activity starts caution about future

The first quarter of 2020 saw an estimated expenditure of EUR 804mln on civil engineering projects, exceeding any single quarter since data aggregation started in 2014. The high level of output achieved came with the completion of many ongoing works and comes with a significant caveat: the quarter was also markedly worse than the previous year in terms of Activity Starts, with a 38% drop over Q1 2019. The most notable drops in new projects were in the segments of road and public utilities. Both reportedly had quite an increase in output over the same period, and thus the focus here seemed to be completion, rather than starting new projects.

Regional disparities in new construction activity

Despite the national-level decline in new activity, a large level of regional disparity can be noticed. The Center, South and West regions are showing an actual increase in construction starts compared to Q1 2019 in several segments, moving against the overall trend of the country. This could be an indicator of the higher level of resilience of local construction markets and a higher investor confidence in local economies. These regions might also be tardier in their response to the anticipated crisis, but it’s something to keep an eye on in the future and more data will show how resilient they are.  

EBI Construction Activity Report

The EBI Construction Activity Report is a quarterly publication that relies on the project information database of iBuild and is prepared by Buildecon and Eltinga. It comprises an analysis of projects based upon several object types: multi-unit residential construction, non-residential (further split into 9 segments) and civil engineering (split into 8 segments). The report offers information about the number and value of projects started or completed, and an estimate of the total amount spent on each segment in that quarter. If you would like to receive a data visualization for the EBI Construction Activity Report free of charge, please write to us at the ebi@ibuild.info e-mail address.

Serbia C-19 situation in construction (status on 05 May 2020)

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

Physical restrictions

Since the introduction of the state of emergency and quarantine measures some seven weeks ago, there has been a visible negative effect in almost all spheres of the economy. Of course, some sectors have felt it more than others, particularly service sectors like transport and tourism suffered most of all. Some of the restrictions were partially relieved in late April and early May, but the state of emergency in Serbia was suspended on 6 May, so things should start returning to normalcy. It will take some time for the economy to recharge, but it is not expected for negative effects to extend beyond Q2 2020.

Construction works

In light of this, it could be said that the construction industry has been one of the less affected sectors, with only smaller decrease recorded in production volumes and logistical capacity. This was caused by the stringent movement restrictions during the quarantine, but luckily operations never halted and the expected damage should be minimal. Nevertheless, delays will be visible in the realization of some projects, as some construction sites relied on foreign workforce and encountered problems during this period.With the country borders closed, foreign workers were unable to travel and arrive on time, so this could be a factor affecting some of the deadlines.

We are planning to issue the new EECFA Serbia Construction Forecast Report on 29 June 2020. Sample report and order

Factors limiting the construction sector’s performance

The immediate effect of the restrictions was also felt in the residential subsector, where the quarantine interrupted the regular market flow, particularly on the demand side. Some price slashing was visible, but with strong market conditions this crisis won’t seriously affect its prospects. As a matter a fact, all internal driving forces are still booming, so this can only slightly dent its double-digit growth in 2020. In the retail segment almost all large pipeline projects are already underway, and with possible smaller delays in opening dates, outputs will likely remain strong this year. It seems tourism could suffer prolonged effects of COVID-19, since it’s expected for travel restrictions and special procedures to continue for few more weeks.

Booming construction outputs were also in large part supported by big infrastructure projects which will be one of the factors providing resilience. The largest infrastructure projects in most cases continued realization unabated, with special transport and separate accommodation for workers helping mitigate effects of the quarantine restrictions. So far, there are no requests by contractors for deadline extension on major projects, at least not the ones attributed to the COVID-19 situation. For projects being in realization for several years, one month of interruption is bearable and is often anticipated.

It is clear that the immediate effects on the construction industry and construction outputs in general will be limited. Maybe the future could hold more uncertainties since the affected service sector and parts of the real economy are yet to feel the full consequences of this disruption. The greatest dangers for Serbia are external factors, a possible drop in investments and capital flow, the extended crisis in major export markets or a bigger destabilization of the financial system. As it looks now, most European countries already started easing restrictions, and this could be the light at the end of tunnel. It is too early to celebrate, but it seems the worst is over, and a more elaborate assessment of the effects and consequences will be possible.           

Romania C-19 situation in construction (status on 30 April 2020)

Written by Dr. Sebastian Sipos-Gug – Ebuild, EECFA Romania

UPDATE ON 7 MAY 2020: from May 15 on a “state of alert” will take over the “state of emergency”. People will be allowed to move freely within localities without having to declare their destination, but only in groups no bigger than 3 people. Movement restrictions in towns under quarantine will remain in force.

Timeline

  • 26 February: the first confirmed case reported in Romania
  • 11 March: schools closed
  • 16 March: the Romanian president issued a state of emergency, granting the government enhanced emergency powers to cope with the pandemic. At the time Romania had 168 confirmed cases and no deaths.
  • 17 March: restaurants closed, and all public gatherings and events suspended
  • 21 March: shopping malls closed
  • 22 March: first death attributed to Covid-19 reported
  • On 24 March a state of lockdown was announced via military order and the population was restricted from moving freely outside of home, with several exceptions (work that cannot be done remotely, essential shopping, assisting the elderly, medical emergencies, walking pets, personal exercise in the proximity of the home, volunteering, agriculture). A proof for the valid reason for leaving home is required, with citizens asked to produce a personal statement prepared before leaving the home and/or to have a proof of employment. Elderly citizens (65+) were further restricted, being allowed to leave the home only for 2 hours per day (11:00-13:00). However, retailers were instructed to provide preferential service to them during this interval.
  • On 15th May, the State of Emergency is up for revision. However, even in the event of it being lifted, some restrictions are to remain in place, like the interdiction on festivals and large gatherings and the mandatory use of face masks in public spaces and on means of public transport.

Construction Works

  • While the lockdown significantly reduced the mobility of persons, it provided little restrictions in the range of work activities that could be done (dental work, non-emergency medical interventions, hospitality and in-house food service).
  • As of the writing of this article, there have only been a few major construction works delayed and, anecdotally, some projects are in fact moving faster than scheduled, such as bridge and road construction, taking advantage of reduced traffic. DIY works are also reported to be ongoing, with furloughed workers from other industries taking advantage of the time at home to engage in renovation works, with a noted increase in online sales of DIY retailers.

The new EECFA Romania Construction Forecast Report is planned to be issued on 29 June 2020. Sample report and order

Factors limiting the construction sector’s performance

The direct impact on the ongoing construction activity has been minimal since no restrictions were in place specifically targeting construction works. Recommendations regarding social distancing were given, but not mandated. Several indirect factors, however, were expected to limit the amount of construction activity:

  • Initial concerns over construction material availability have been raised. However, as of yet, no major shortages have been reported. Some manufacturers noticed a reduction in direct sales to individuals, however, B2B material sales have continued at comparable levels and online sales have increased.
  • Occasional worker shortages have been reported, as some workers have taken medical leave or used vacation days, especially in the early stages of the lockdown. Fortunately, no major shortages have been reported due to the infection.
  • At the same time, other companies have had to let employees go, with 37.750 work contracts in construction having been terminated from the start of the emergency period as of 29th April.
  • Lack of interest in investment is expected, especially in the hotel and restaurant segments, which will likely reduce demand in the current year. With slim changes of reopening for the summer season, tourism related construction is expected to be postponed.
  • Trends in office construction are also expected to change, with working from home on the rise and open office plans under scrutiny.
  • Lack of public funding could have a major negative impact on construction activity once the initial blow of the pandemic passes. Many county governments and city halls have used a large portion of their investment funds for measures aimed at reducing the spread of the virus, and thus there remains little for projects like infrastructure development or renovation. On national level, according to several governmental agencies, public deficit is set to reach 6.7-7.3% of GDP in 2020 and economic growth is to be stunted, with a decline of at least 1.9-4.7% of GDP.
  • Lack of private funding is also a major concern, with many companies losing significant resources and burning through their savings and credit lines.
  • At the same time, more than 1 million Romanians have had their work contracts suspended and 270 thousand lost their jobs since the state of emergency was instated (as of 29th April) and thus their spending power would have been significantly diminished.
  • Real estate transactions are showing signs of slowing down, with March 2020 seeing 4.6% fewer houses and 11.7% fewer apartments traded compared to the previous month. The market remained 8.5% more active than March 2019, however.

Anticovid measures in construction

There are no specific measures announced, as of the time of writing this article, aimed to supporting construction. However, there are some measures that could, indirectly, help:

  • The government is providing the resources to pay 75% of the initial wage for those with suspended contracts, helping public consumption remain afloat, with a positive impact on companies trying to retain qualified workers and maintain their cash-flow.
  • A RON 15bln program to support small and medium enterprises (“IMM Invest”) was launched on 28th April, providing state-backed loans for investment and working capital.
  • EUR 750mln have been allotted from EU funding for Romania for supporting small and medium enterprises, with a further EUR 300mln for assisting workers with suspended contracts.
  • The government’s economic recovery plan takes into account using infrastructure construction to boost the economy (which would increase the deficit even further). However, as of the writing of this article, no plan has been approved, and so the impact it would have cannot be assessed.
  • The government backing of mortgage loans for first time home owners is expected to continue into 2021, rebranded as “One family, one home” (Romanian: “O familie, o casa”), which should help counter some of the negative effects on the residential market. Its impact on the market diminished in 2019, with regular loans becoming almost as affordable, but it comprises a large portion of the segment nonetheless, since the programme covered 45% of all ongoing mortgage loans in March 2019.