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.

Slovenia C-19 situation in construction (status on 26 April 2020)

Written by Dr. Ales Pustovrh – Bogatin, EECFA Slovenia

The COVID-19 pandemic has reached the Slovenian construction industry in a good shape. New construction contracts strengthened in H2 2019, resulting in some of the fastest growth of construction in early 2020 in the whole EU. The activity continued into March 2020 even though the lockdown measures were already implemented.

However, a decline is expected as halting construction works are affecting the entire sector:

  • There are some disruptions in the supply of materials as some manufacturers have stopped production and others have reduced production.
  • Construction work is being done less intensively mainly because of measures to protect workers.
  • Some foreign contractors have problems mainly with the logistics of their workers on projects in Slovenia.

Yet, the construction industry has been relatively less affected than some other industries (like tourism) as most large projects continue even during the lockdown measures. The concern is the absence of real estate contracts as the risk of making long-term investment decisions has also increased.

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

Economic damage to construction segments will crucially depend on the duration of the crisis and the uncertainty it brings. According to some estimates, the short-term crisis is expected to result in a 5% drop in GDP. First indications that the return to normal operation of the Slovenian economy is near were the announcements that several lockdown measures were to be relaxed by the end of April 2020. Nevertheless, the actual fall of the economic activity will depend on the effectiveness of the state’s actions, where Slovenian politicians have promised one of the largest stimulus packages in the EU (estimated at more than 6% of its GDP) but they will have to be implemented in an effective way.

Ukraine C-19 situation in construction (status on 23 April 2020)

Written by Sergii Zapototskyi – UVECON, EECFA Ukraine

Physical restrictions

  • On 12 March, the Cabinet of Ministers officially quarantined the entire territory of Ukraine for three weeks due to COVID-19, with a number of restrictive measures, mainly for educational institutions and some on air traffic and border crossing at most checkpoints in Ukraine.
  • On April 6, in order to combat the spread of COVID-19, the government introduced additional restrictions prohibiting being in public places without a face mask, going out without identification documents, being outside in groups of more than two persons, visiting parks, squares, recreation areas (except for walking pets for one person), going out to sports grounds and playgrounds, visiting social security institutions and the like; catering, shopping and entertainment centres, fitness centres, and cultural institutions. The quarantine introduced by the government was to expire on April 24 but owing to the sharp increase recorded in the number of COVID-19 cases (especially after the Easter holidays) the quarantine has been extended until 11 May 2020.

Construction works

  • Even though there is no direct ban on construction, there are several restrictions. According to the recommendations of the Ministry of Health and WHO, as well as according to the orders of the Cabinet of Ministers, main restrictions refer to the recommended number of people per square meter of area at construction sites, and the requirement to provide workers with personal protective equipment and antiseptics. Traditionally, employees are instructed on these requirements.
  • Of course, not all construction work can be carried out in full with these significant quarantine restrictions, but developers try to meet the deadlines for delivering their projects.
  • There is a difficulty in the supply of building materials and the delivery of construction crews.

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

Anticovid measures in construction

There are no direct measures to support the construction sector, but indirect protectionist measures include a moratorium on conducting tax audits, postponement of filing declarations, and the prohibition for commercial banks to raise interest rates under the loan agreements for the duration of the quarantine.

Factors limiting the construction sector’s performance

  • Construction has not yet been hit hard as it is a long-term business, but if the situation drags on until June, the market might stagnate.
  • The construction market in Ukraine faces two key challenges: 1) economic deterioration that derives from the inefficient management (and not from COVID-19) but is aggravating the already difficult economic situation associated with the virus; 2) the instability associated with a pandemic. As now no one can predict how long the quarantine will last, most participants in the real estate market are on standby. Investors do not spend, except for primary needs, until the situation becomes clear. In addition, there is the uncertainty of what will happen to the global economy which may continue to decline even after overcoming the pandemic.
  • As the active construction season usually begins in April, developers, to the extent of their financial resources and available materials, are trying to continue construction by isolating construction sites and taking security measures. This applies to both building residential and commercial real estate.
  • Companies interviewed by LIGA.net (leaders in the construction market such as Integral-Bud, Kievgorstroy, KAN Development, SAGA Development, Perfect Group, UDP) assure that they have enough finances to continue working at all facilities. However, this is not the case for medium and small construction companies. The latter need working capital and the possibility of obtaining preferential loans. If the pandemic drags on for a long time, this will hit housing construction in the first place because in Ukraine it is largely financed by buyers of future apartments. Residential complexes under construction that are queuing can freeze the construction of subsequent ones with only current ones being completed.
  • Commercial real estate is built as a long-term investment by developers and is based on longer-term financial models, making it less vulnerable to the temporary restrictive measures. But it is more dependent on global economic changes that affect the financial condition of investors. Also, much more imported materials are used in commercial real estates than in housing construction, so the restoration of production in Europe and the world will influence the continued construction of office and shopping centers in Ukraine. The appreciation of the US dollar has already led to an increase in the price of imported materials, and thus we should expect a price rise in domestic ones. Metal suppliers are already raising prices, for example. European building material producers are expected to increase prices after the end of quarantine measures in their countries. Construction companies need money to pay off their current obligations before starting to work again. Therefore, many developers in Ukraine are already looking for the possibility of borrowing at a subsidized 5%-7% interest rate for the entire construction period – 1.5-2 years.
  • Civil engineering had grandiose plans for the current year, but they are becoming increasingly unrealistic due to a significant lack of funds for financing.

Croatia C-19 situation in construction (status on 23 April 2020)

Written by Michael Glazer (SEE Regional Advisors) and Tatjana Halapija (Nada Projekt) – EECFA Croatia

UPDATE ON 30 APRIL 2020: During the first phase of Croatia’s response to COVID-19, the country’s construction industry was not as tightly locked down as some others (e.g., the hospitality sector). While construction firms were not as free to operate as, say, grocery stores and food processing plants, projects of national significance, some projects considered important by municipalities and other sub-national governments and some private-sector projects continued to move forward. Construction companies were also called on to assist with the cleanup effort following the March 22 Zagreb earthquake. This provided some liquidity to the sector, or at least to those lucky firms involved in the projects on which work continued. Now that the Croatian government is lifting the strictest limitations on business, including those on construction work, construction activity is likely to increase considerably.

This, though, may be a double-edged sword. Social distancing is difficult to enforce on construction projects even with the best will in the world, and anecdotal evidence suggests that in many cases there is not even an effort to do so. For example, groups of workers have been seen traveling to and from construction sites seated close to one another in vehicles with enclosed cabins, and of course there are the frequent “supervisory meetings” where several workers gather to monitor the one working. If one or more construction workers causes an outbreak at some point, the sector as a whole could suffer real consequences.

Physical restrictions

On March 20, the Croatian government imposed stringent restrictions on movement and business activity in order to combat COVID-19.

  • They included prohibitions on travel outside one’s place of residence or across international borders unless for trips defined as necessary (e.g., to transport goods to stores that remained open or internationally), closure of educational institutions and nurseries, cultural and sports facilities, prohibition on the operation of all but essential businesses and limitations on the size of gatherings (initially no more than 5 people, ultimately no more than 2)
  • Work-from-home requirements were imposed
  • Public transport was suspended

Mid-April, the Croatian government permitted travel within counties, while on April 20 restrictions were extended to May 5 but their strictness was reduced.

On March 22, a 5.5 (Richter)/5.3 (MW)/VII (MMI) earthquake struck Zagreb.

  • It damaged 26,197 buildings of which 1,900 were rendered unusable. A number of hospitals, museums, churches, schools, government offices, historic buildings and other culturally important structures (including graves) were badly damaged
  • No specific regulatory measures were immediately promulgated other than that many sidewalks were closed due to the risk of debris falling from roofs and facades

Construction works

No strict ban was imposed specifically on construction, but the industry was restricted by the broad limitation, from which it was not excepted, to working from home.

  • That said, it appears that work continued on a number of construction projects, including those of the City of Zagreb and politically connected private firms and the Pelješac Bridge, either in violation of this limitation or pursuant to special exemptions
  • Also, after the Zagreb earthquake a number of firms with the appropriate equipment were permitted to clear debris and blow things up

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

Anticovid measures in construction

  • We are not aware of any construction-sector-focused anti-COVID-19 measures
  • Construction firms are benefiting, though, from general measures that the Croatian government took to limit the economic consequences of COVID-19
  • These measures include relief from taxes and governmental contributions (primarily payment deferrals for three months but some forgiveness), payroll support payments (minimum net wage of EUR533 for three months), loan payment moratoria (three to six months), debt enforcement moratoria (during the period of extraordinary measures), liquidity loans, sector-oriented loans (for the tourism and other export sectors) and credit lines for MSMEs in the tourism and hospitality sectors (although the minimum loan amount is EUR100k, which makes them ill-suited for micro and even small businesses)

Factors limiting the construction sector’s performance

  • There is no lack of construction materials, particularly in view of the fact that most building has ceased
  • Most tourism-related construction for the coming season has been completed, since that season is at hand
  • But other construction projects are not moving forward except for those considered essential. (“Essential” can have a variety of definitions, depending on the government responsible for defining the term. Some politically connected private projects are proceeding.)
  • Croatia’s heavy dependence on tourism, and the likelihood that tourism will not recover for years, means that construction, and the Croatian economy in general, will be very negatively affected for a significant period of time

Any other

Croatia’s handling of the COVID-19 crisis has been unexpectedly, indeed startlingly, good. It flattened the curve rapidly and has already achieved an R0 of less than 1. Much is due to the chance replacement of an ethically tainted Minister of Health by a highly competent appointee shortly before the crisis broke. But much is also due to the professionalism of Croatia’s public health services and medical personnel.

It remains to be seen if Croatia can continue its stellar performance. There are signs that segments of the populace are beginning to ignore social distancing measures. But the government seems alert to the possibility of R0 rising and willing to act rapidly to bring it down again.

It is clear, though, that Croatia’s quick and effective response to COVID-19 will lessen the severity of the economic effects of the crisis.

Croatia will be hit by a reduction in remittances from its citizens abroad. There may also be political consequences, since many Croatian ex pats are returning, and their political views may have been affected by their time abroad.

It is possible, but by no means certain, that the weaknesses in Croatia’s healthcare infrastructure, and possibly increased EU funding for healthcare infrastructure generally, will lead to significantly greater hospital and healthcare facility construction. That said, healthcare tourism, and so private healthcare construction is likely to be badly damaged long-term by COVID-19.

Construction in Zagreb, though, looks likely to increase dramatically in volume for years to come as reconstruction work of a minimum value of EUR6G will be needed.

Russia C-19 situation in construction (status on 16 April 2020)

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

Physical restrictions

  • The first case of COVID-19 was registered in Russia on March 2. Since then, the situation has developed quite rapidly and on April 16, the country has 27.9 thousand cases. There is no official quarantine or emergency throughout the country to date. The government declared a «non-working days regime» from March 30 to April 30. During this period only vital organizations and areas of activity continue to operate (continuous production; medical organizations; organizations providing the population with food and essential goods; banks and financial organizations and some others). Other companies must temporarily suspend business (while maintaining wages to employees), or, if they have an opportunity, they can switch to remote work.
  • Also, on March 30, a self-isolation regime was announced on a national scale. This regime implies that citizens should not go outside without urgent need and should limit contact with other people. At the same time, the regime of self-isolation is not a quarantine, but an easier form of restrictions, whose violation entails only administrative responsibility, and not criminal, like violation of quarantine.
  • However, in different regions the situation with incidence is developing in different ways and in order to contain the spread of the virus in some regions full quarantine or additional restrictive measures have been introduced with a complete ban on moving around the city and region without special permits. Such an enhanced regime with more stringent restrictions on movement is temporarily in effect in 26 out of 85 regions of the Russian Federation. In Krasnodar region too.

Construction works

  • The construction sector is ranked by the government as a continuous production, therefore, currently there is no complete or partial ban on construction work, however, the situation will depend on the incidence rate and the dynamics of the spread of the virus. Of all the Russian regions, temporary restrictions on construction work have been introduced only in Moscow and the Moscow region (locations with the most COVID cases). Here the construction of all objects, except medical and transport ones, has temporarily been suspended. In other regions of Russia, a construction stop was discussed, but not undertaken.

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

Anticovid measures in construction

  • Although construction has not stopped anywhere, except for the capital’s region, the industry is already ranked among those that will be most affected by the crisis. The final package of measures to support the construction industry is still under discussion, but it is already clear that these measures will extend mainly to the biggest segment of the construction industry in Russia – residential construction. The anti-crisis program, currently being developed by the Ministry of Construction, includes subsidizing interest rates on mortgage loans to support demand, as well as credit and tax moratorium for developers and reducing the cost of project financing (lower lending rates).
  • Another possible direction of support may be the purchase of unsold apartments from developers by state-owned companies. Purchased apartments can be used for social rentals or sold later on the open market.
  • In addition, until January 1, 2021 housing developers will not be fined or otherwise punished for the improper fulfillment of obligations under contracts in shared construction participation (for the delays in the completion of residential buildings).
  • In non-residential and civil engineering segments, as support measures, it is planned to increase a number of government contracts and lift advances on those contracts from 30% to 50%.

Factors limiting the construction sector’s performance

  • The current situation in the Russian construction industry is determined by the macroeconomic background which depends not only on the negative effects of the coronavirus, but also on the consequences of the “price war” with Saudi Arabia in the oil market and the OPEC + deal, which was disrupted in early March, followed by a collapse in prices for oil and the rapid devaluation of the national currency. Many experts talk about the “perfect storm” in which the Russian economy is now. All this will directly affect the income level of citizens, which will also inevitably affect the construction industry, especially housing construction.
  • At the same time, the effectiveness of supporting demand with the planned subsidization of mortgage rates is most likely to only slow down its decline, but not prevent it. Banks will not significantly increase mortgage rates, but the share of approved applications for borrowers from the most affected sectors of the Russian economy may decrease: tourism, hospitality, air travel, advertising, catering, non-food retail, etc. Tighter requirements for borrowers and a drop in real income will inevitably lead to a reduction in the number of transactions in the market.
  • The ruble exchange rate is highly dependent on the dynamics of oil prices, which, despite OPEC + new agreements, are expected to be at low levels at least until the autumn or until the end of the year. Accordingly, the ruble exchange rate against world currencies should remain at the current low level, contributing to the rapid rise in price of imported building materials, the price of many of which is tied to the dollar.
  • Limited workforce is also a direct consequence of the pandemic and will also adversely affect the construction industry. Traditionally, a large number of guest workers from neighboring countries are employed in the Russian construction industry. Closing borders with these countries is expected to result in a shortage of cheap labor.

Bulgaria C-19 situation in construction (status on 15 April 2020)

Written by Yasen Georgiev and Dragomir Belchev, EPI – EECFA Bulgaria

Physical restrictions

There is no curfew or full lockdown, but there are some physical restrictions most important of which are:

  • Foreign nationals are not allowed to enter Bulgaria (with some exceptions);
  • Introduction of checkpoints at the entry and exit roads of the largest cities (regional centers);
  • All places for public access for gathering of people are closed (restaurants, malls, kindergartens, schools, parks, etc.);
  • 14-day quarantine for all Bulgarians arriving from abroad is mandatory.
  • All employers, depending on the specifics and capabilities, should introduce a remote work for their employees. If it is not possible, employers organize enhanced anti-epidemic measures on the workplace.

The state of emergency, firstly announced on March 13, along with restrictive measures regarding COVID 19, were extended to May 13, 2020.

Construction works

According to the Association of Construction Entrepreneurs, there are no frozen residential construction sites, but it is hard to imagine that the work is going to continue with the same volumes. Additionally, obtaining construction permits is becoming increasingly difficult despite the effort of municipalities to introduce e-services.

Construction works of largest infrastructure projects continue at present, but with slower pace since there are difficulties in deliveries of construction materials. Delays are expected on the Bulgarian part of ‘TurkStream’ due to the obligatory 14-day quarantine for foreign workers who are employed on the site.

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

Anticovid measures in construction

There are no specific anticovid measures regarding the construction sector. Most important current economic measures implemented by the government include:

  • The government will support companies with proven impact from the epidemic by covering 60% of the employees’ wages for up to three months. The initial aid package has been set at approximately €2.3bln, a sum which Prime Minister Boyko Borissov predicts may be insufficient. The list of eligible sectors was firstly narrowed to tourism and catering, later on extended to manufacturing industries. However, this scheme is not meant for companies that cannot prove direct COVID implications.
  • The deadline for annual financial statements and payment of corporate taxes is postponed from end-March to end-June (estimated effect of BGN 800mn/EUR 400mn within the year).
  • Possibility for companies and individuals to postpone loan and interest payments for 6 months.
  • Interest-free loans granted by the state-owned Bulgarian Development Bank directed to individuals, which are in difficult financial situation as a result of the COVID 19 restrictions.
  • Interest-free loans are also planned for companies, but conditions are not clear yet.

Q4 2019 Permit-completion results of EECFA countries

Of the 8 EECFA countries, the highest growth of permitted m2 of buildings in 2019 was recorded in Ukraine. Both the multi-unit residential segment and non-residential buildings witnessed much higher permitted floor area than a year ago; almost 40% and 60%, respectively.

In the meantime, Turkey experienced a further massive drop. After permit halved in 2018, it halved again in 2019.

On the Balkans, Croatia and Serbia have the highest growth with both countries having registered an around 15% expansion driven by the residential segment.

Some countries like Bulgaria and Slovenia recorded a shrinkage, but both countries’ permitted m2 of buildings in 2019 was beyond the 2015-2019 average.

Which sub-market would you like to see?
Interactive graphs for 8 EECFA + 1 Euroconstruct countries:



Prepared by Janos Gaspar, Head of Research (EECFA, Buildecon)

Slovenian public housing scheme kicks off

A boom in residential construction is underway in Ljubljana, Slovenia, having a knock-on effect on real-estate prices in the whole country. It will still not be enough to change the trend of rising residential real estate prices and rents. To offset the unaffordable luxury apartments, there is a national policy to build public housing.

Written by Dr. Ales Pustovrh – Bogatin, EECFA Slovenia

 

Residential boom in Ljubljana, Slovenia – but can people afford luxury apartments?

After almost a decade of the worst crisis in residential construction in the history of Slovenia, residential construction has turned the corner. Most of it is due to very ambitious plans for constructing new multi-dwelling units in the capital city of Ljubljana. Several smaller developments of luxury residential properties commenced in 2018 and 2019, but their prices are usually too high to impact the price level and availability of housing in the whole city. While a total of almost 1500 new residential units are in planning phase or under construction currently in Ljubljana, only 500 will be completed before the end of 2020 – and most of them will be prized in the luxury range of EUR 4500 – 6000 per square meter, and thus, inaccessible for the majority of the population.

Even so, demand is likely higher. Before the crisis, an average of 1500 units was sold annually in Ljubljana. With the much-improved economic situation in Slovenia, full employment and easily accessible credit, demand for apartments, in Ljubljana in particular, has very likely returned to that level. Reasonably priced apartments for young families are especially in short supply due to lack of new construction.

The latest EECFA Slovenia Construction Forecast Report with analysis and forecast on the housing market up to 2021 can be ordered on EECFA’s website

Public housing scheme – is it viable?  

For that reason, both the local municipality and the national government decided to significantly increase the construction of public housing. They have started the construction of 672 new dwellings at the Novo Brdo neighbourhood that will be completed in 2 years. The National Housing Fund of the Republic of Slovenia, which is building 498 of them, has obtained a loan of EUR 50 million from the Council of Europe Development Bank (CEB) for the construction of more than 800 dwellings across Slovenia, most of them in the Novo Brdo development in the western part of Ljubljana. The local municipality of Ljubljana will construct another 174 dwellings. All of them will be available for rent with rental prices of EUR 6-8 per sqm. The size of the dwellings will be between 30 and 80 sqm. The total value of this construction investment will be EUR 56.8 million.

There are plans to add thousands more dwellings in the next few years – 10000 new dwellings available for rent to young families by 2025 according to the national housing policy. If the policy proves to be successful, it will increase the supply of dwellings in Ljubljana by almost 10%. This would certainly have a major effect on real estate prices in Ljubljana. As Ljubljana represents more than half of the residential market in Slovenia, it also acts as an anchor for residential prices and rents – so a higher supply and lower prices of dwellings in Ljubljana would lower demand for dwellings in the rest of Slovenia as well.

However, this might be impossible. The national housing policy Continue reading Slovenian public housing scheme kicks off