Turkish construction is in crisis in more fronts. High interest rates due to high inflation cloud the situation of construction players. As well as this, high negative real housing price changes with real construction costs being in positive numbers are creating adverse market conditions for housebuilders. Construction companies active in civil engineering have decreasing workloads due to the October 2018 presidential decree not to tender new projects except for priority ones and due to the reduced available central and local budgets for projects this year. The construction sector in Turkey is seeking ways to come out of this crunch.
How it all started
The colossal devaluation of the Turkish Lira, having started in November 2016, shook Turkey’s construction industry in August 2018. Even though construction costs and interest rates increased against the backdrop of rising exchange rates in 2017, there were exceptional historical peaks in construction and occupancy permits that year. The crisis hit in 2018 with construction permits in floor areas being almost half of the permits of 2017. Occupancy permits went up by 5% in floor areas though, due to the large backlogs of construction in almost every sector. Housing sales also climbed 5% and amounted to 1,409 million by end 2018.
Trends similar to 2018 in building construction and occupancy permits in floor areas continued in the first quarter of 2019 with a 37.7% shrinkage in construction permits and a 29.4% rise in occupancy permits. Annual rate of change in the Building Construction Cost Index decreased from 28.11% in January 2019 to 25.45% in May 2019. Since rates of change in Consumer Price Index were 20.35% and 18.71%, respectively, real rises in building construction cost in the same two months were a respective 6.4% and 5.7%.
Civil engineering projects have been battered by the presidential decree issued in October 2018 requiring all ministries not to tender new projects except for priority ones, on the one hand, and by the lower allocated budget for projects to central and local governments in 2019 than in the previous year, on the other. TUIK, the Turkish Statistical Institute, calculated a 10.9% drop in construction sector in the Gross Domestic Product (GDP) in the Chain Linked Volume Index in the first quarter of 2019 against the same period of 2018.
Feeling the pinch
Construction industry in Turkey is much concerned with the changes in housing prices and sales since about three quarters of building permits in Turkey are for house building. National average of the annual change in the Housing Price Index accounted for 3.60% in January 2019 and 1.57% in May 2019, implying that real annual changes in housing prices in these months were -13,9% and -14,4%, respectively. High negative real housing price changes when real construction costs are in positive numbers are unfavourable market conditions for housebuilders. Furthermore, decreasing housing sales, by 21.7% in the first 6 months of 2019 and 48.6% in June 2019 compared to the same time periods of 2018, create additional strains in the housing market.
24 June 2019, the 2019 Summer EECFA Construction Forecast Report up to 2021 was
published. Full reports can be purchased, and a sample report can be viewed at www.eecfa.com. EECFA (Eastern European
Construction Forecasting Association) conducts research on the construction
markets of 8 Eastern-European countries.
Good years are predicted to continue in the construction markets of Eastern and Western Balkan countries of EECFA. Altogether around 15% cumulated real growth is foreseen for the region as a whole in 2019-2021. The annual pace of growth, however, is gradually decelerating on the forecast horizon. In this upcoming period civil engineering is expected to outperform building construction in all countries, except for Romania.
Bulgaria’s construction output remains on a growth path since both building construction and civil engineering continue to expand. Residential construction is still an attractive investment due to increasing profitability on the back of a positive change in disposable income and low interest rates. Growth in non-residential construction is backed by the acceleration in office segment and a stable performance in manufacturing and warehousing. Civil engineering is to be driven by road and public utility segments, while major projects in railway construction are struggling to start. Construction output is projected to grow by 5% in 2019 and 4% in 2020. The end of the EU programming period of 2014-2020 will likely give and additional boost of 7% in 2021.
Construction in Croatia is at a crossroads. Some sectors that have shown strong catch-up growth will soon slow. Others, so far less favored, will soon benefit from such growth. The country is also at a crossroads in another sense. An aging population, continued emigration, rising construction costs and increased international competition for tourists will threaten a number of construction sectors unless wise political choices are made. All in all, though, while the forecast for the Croatian construction industry as a whole is not as sunny as it once was and while patches of cloud have begun to appear in some places, other areas are expected to enjoy significantly more favorable conditions than in the past.
Romania’s construction is set to grow by 6% in 2019. Residential construction, after a remarkable growth between 2016 and 2018, might be hindered by legal and policy changes. Despite some concerns over the contrary, residential activity is still predicted to remain one of the main drivers of the Romanian construction market, at least until 2020. Demand remains high for most types of non-residential construction as well. But talent shortages and higher operating costs would, likewise, limit the growth of the segment. Of notable interest is the expected growth in civil engineering segments which considerably dropped after 2015 but are to return to a positive trend with renewed interest due to availability of national and EU funding and increased public interest in the election years.
In Serbia the booming cycle is now encompassing practically all construction segments, with strong performance in both buildings and civil engineering. While residential and non-residential buildings were leading the growth in the previous period, civil engineering is expected to again take charge in 2019. With increased spending in road construction and major large-scale projects now underway in energy and railroad, there is a strong expansion of outputs in this forecast horizon. Although extensive growth in previous years already doubled outputs in many segments, particularly in buildings, there is yet more to come. Total construction output in 2021 will likely at least double the volumes from 2015.
Construction industry in Slovenia continues to grow fast, recording a second consecutive year of double-digit growth. Based on strong economic growth, easy access to credit and strong demand for residential housing, its foundation would remain strong also in 2020 unless a major external shock reversed the current optimism on the market. Even in such case, there are several large civil engineering projects, especially the construction of a new railway towards Port Koper that began in early 2019, that will induce growth in construction output for several years.
The East-European countries EECFA covers show a completely different picture from that of the Balkan. The cumulated growth expectation of the region is -1% for 2019-2021. Turkey’s construction market is in such trouble as previously predicted, and this drags down the whole region’s performance. On country level, only Turkey sees negative cumulated growth until 2021, while Russia is prognosticated to be moderately positive. And Ukraine can reach the highest growth rates. In each country civil engineering is forecast to perform better (less worse in case of Turkey) than building construction until 2021.
In 2018 Russia’s construction output registered a higher-than-expected growth of 2.4%, thanks to the partial revision of construction statistics and the completion of major infrastructure projects related to the FIFA World Cup. In 2019, though, with the disappearance of these two growth factors, construction output is set to be near zero. Forecast for 2020-2021 is more optimistic (2.8%-3.3% per year) as economic growth is expected to accelerate and state funding for the industry will likely have a major push. Civil engineering and housing construction will enjoy most state funding directed to new road and railway projects, energy infrastructure and residential real estate developers.
In August 2018 the economy of Turkey trembled owing to the massive depreciation of Lira that greatly hit many sectors, especially construction. Building permits also dropped sharply last year, after historical peaks a year earlier, but completion of buildings in terms of floor area rose by 5%. This trend continues in 2019, but housing sales declined by 20% in the first five months, together with large decreases in real housing prices.Further, building material output registered a more than 20% drop within a year until May 2019. Construction companies experience a hard time and those active in civil engineering have decreasing workloads due to the presidential decree (issued in October 2018) not to tender new projects except for priority ones. Plus, the budget to central and local governments for projects this year is less than last year. Against this backdrop, recovery in the construction sector can only begin in 2021.
The Ukrainian construction industry has all the conditions for a sustainable growth in the future by an estimated 6.8% rise this year, a 3.6% increase in 2020 and a 7.2% growth in 2021. A positive trend is the systemic state support for the industry, including more transparent and clear rules of the game in the construction market, simplification of permits, and powerful investment support, especially in civil engineering. Hindering construction industry, and the economy as a whole, though, is the lack of financing. The slight drop in residential construction is offset by the growth of non-residential and civil engineering subsectors.
of data: EECFA Construction
Forecast Report, 2019 Summer
A posztot és a tableau viz-t összeállította: Gáspár János, Buildecon
Korábban írtunk már ezen a blogon is az EBI Építésaktivitási Jelentésről, amikor bemutattuk ezen kutatásunk első eredményeit. A kutatás lényege, hogy egyedi építési projektek adataiból olyan aggregátumokat alakítsunk ki amelyek új, naprakész információt hordoznak az építési piac szegmenseinek aktuális alakulásáról. Most egy következő szintre léptünk.
Röviden a legfontosabbak:
A vizualizációval a három mutatószámunkat, (1) Aktivitás-Kezdés, (2) Teljesítmény, (3) Aktivitás-Befejezés, összefüggéseiben mutatjuk meg.
Az Aktivitás-Kezdés, hasonlóan az építési engedélyhez, un. előidejű mutatószám, azaz rövidtávú előrejelző képessége van. Az Aktivitás-Kezdés alakulása meghatározza, hogyan fog a Teljesítmény és az Aktivitás-Befejezés alakulni.
Az építési piac minden szegmensére látható, hogy milyen értékben indultak el kivitelezési munkák, hogy ez milyen Teljesítmény és milyen befejezési értéket eredményez. A legürdülő menük segítségével több részpiac, illetve több szegmens egyszerre is vizsgálható.
2018 3. negyedévről készült jelentés mögötti adatokat jelenítettük meg. Az azóta eltelt negyedévekről folyamatosan frissítettük a vizualizációt. Ha érdekli a legfrissebb, 2019 1. negyedéve, vagy bármilyen kérdése van, kérem írjon nekünk: email@example.com.
Az alapadatok, vagyis az egyedi építési projektek forrása az ibuild.info, a mutatókat és az aggregálás módszertanát az ELTINGA és a Buildecon közösen dolgozta ki.
Emergency Government Ordinance no. 114/2018 (EGO 114)
Residential construction was quite active in 2018, and our previous analysis indicated that despite significant growth in the past years, the market could be considered relatively stable. This has changed dramatically due to government intervention at the end of the year through Emergency Government Ordinance no. 114/2018 (EGO 114).
There are a number of features of this legislative paper directly and indirectly impacting residential construction: changing the minimum wage for construction workers, tax breaks for construction companies, changing the taxation of telecom and energy companies, and a new tax on bank assets.
Starting with 1st January 2019, the minimum wage for construction workers has been raised to RON 3000, up from RON 1900 previously, and higher than the RON 2080 value for the rest of the economy. The government also included in the Ordinance a tax break for these wages, exempt from income and health taxes, yielding a much better net to gross ratio for employees. However, the total impact on salary costs for companies remains significant. According to Continue reading Mixed Feelings on the Romanian residential market
EECFA (Eastern European Construction Forecasting Association), conducting research on the construction markets of 8 Eastern-European countries, released its 2018 Winter Construction Forecast Reports on 5 December 2018. Key findings are summarized below. Full reports can be purchased, and a sample report can be viewed at www.eecfa.com.
In many previous forecast rounds we have argued for a soft-landing scenario in Turkey. However, the dramatic fashion of the currency depreciation in summer 2018 unearthed many structural problems of the construction industry and made us revise our forecast to an even more pessimistic one. Unlike the stop-and-go like reactions to previous crises, we tend to believe in a stop-and-stay scenario this time. In Russia, we are less pessimistic thanks to a recently announced governmental program expected to affect the market positively.
Optimism still prevails in the Eastern and Western Balkan countries of EECFA. For the region as a whole the new forecast sees just a little downward revision. However, on country level, the stories are different. Less optimism in Croatia and more optimism in Serbia and Slovenia compared to the previous forecast round. In Romania, the largest construction market of this region, the outlook of the building construction submarket has been adjusted downward.
Bulgaria. Construction output in Bulgaria is speeding up with an expected growth of 7.4% in 2018. Residential construction continues to expand on the back of increases in economic activity and real disposable income, and historically low interest rates on housing loans. Additionally, the non-residential segment is also predicted to grow driven mainly by office and industrial constructions. Civil engineering construction has continued its recovery path in 2018, Continue reading EECFA 2018 Winter Construction Forecast
As the housing market in Romania is seeing a rapid expansion, this rings the bell to some experts: there is a growing concern that the 2008 turmoil might repeat itself. Can the 2008 crunch be back in the Romanian housing market? This article is looking at the probabilities of this to happen.
Written by Dr. Sebastian Sipos-Gug – Ebuild srl, EECFA Romania
For almost a year now, concerns have risen regarding the Romanian residential market. Any instabilities in this field would have major implications across the whole construction sector, since residential construction accounted for approximately 1/3 of the yearly construction output of Romania in 2016.
Opinions emerged regarding the similarities between the 2007 and 2017 market dynamics, and reports by the National Bank (BNR), National Statistics Institute (NSI) and real estate agencies indicated unusually high growth rates of residential prices.
So, how likely is a correction event?
To answer this, we must look at the idiosyncrasies of the Romanian construction market, the similarities and differences between the collapse in 2008 and the current status.
The residential construction market in Romania is a mix between large projects, run by speculative developers, small projects contracted to construction companies and projects built by the owner.
Romanians are generally home owners, with 96% living in a house they own. They are also very fond of building homes themselves, mainly in the rural areas. This trend of self-development, mainly in the rural areas, is relatively untouched by macro-economic phenomena. Any disposable income is invested into construction materials that are used to build up or expand the home, leading to very low construction costs.
The main source of instability, however, is that of speculative urban (or suburban) development. With profit margins boosted by the real estate price increases and high demand, investments into residential construction are attractive. This has been evident in the years leading to 2008, as the number of homes in multi-unit buildings completed in 2008 was nearly three times that of the previous year, and the number of permits for this building type doubled yearly between 2006 and 2008.
EECFA (Eastern European Construction Forecasting Association) – the forecasting association conducting research on the construction markets of 8 Eastern-European countries – published its 2017 Winter Construction Forecast Reports on 4 December. A concise summary on the main findings is outlined in this article. Please consider that foreseen development stories are rather different for the 3 submarkets (residential, non-residential, civil engineering) of construction in the countries we cover. In Russia, for example, civil engineering is expected to drive the total market back to expansion. Unless you need only an impression about the total market, we kindly suggest consulting with our reports.
Construction outlook up to 2019 in South East Europe: the countries EECFA dubs ‘South East Europe-5’ are Bulgaria, Croatia, Romania, Serbia and Slovenia. The overall picture is still very optimistic, but the expansion rate of the total construction market has been revised a bit downward, mostly due to the worsened expectation in EU fund absorption on the forecast horizon. This affects largely the civil engineering submarket, where 9% cumulated growth is foreseen for 2018-2019 for the region as a whole. In a very favorable macro environment where money is cheap, building construction is set to continue to recover; with a 17% cumulated market growth predicted for the upcoming 2 years. Shortage of skilled labour in construction is a major constraint of a more rapid growth, though.
Bulgaria: the country is facing a 7% growth in total construction output in 2017 as EU funds of the new cycle are fuelling civil engineering construction which dragged down the whole sector in 2016. Thus, total construction output comes from a very low level; in 2016 it nosedived by 35.2% (compared to the forecasted 31.1%). In 2018, the construction sector is set to register a 5.6% increase (as opposed to the 6.4% forecasted earlier), while 2019 should bring a 5.7% rise (up from the +4.5% predicted formerly).
Croatia: the good news for construction growth in Croatia is the country’s increasing capacity to obtain EU funds, at which the current government seems to be getting better and better. Continued strong growth in GDP, private consumption, retail turnover and industrial production should also benefit construction. Total construction output growth is estimated to be 6.3% for 2017, which has been revised down from the 11.2% growth expected in summer due primarily to caution shown by buyers, bankers and developers in the residential segment and to delays in some government-led, civil-engineering projects. Continue reading EECFA 2017 Winter Construction Forecast and Revision
Serbia’s retail segment is enjoying a robust growth in the number of permitted buildings due to the permit reform introduced in 2015. With the first phase of the reform having commenced in 2015, and the second phase having been set out in 2016, the application procedure for permits has been made fully electronic in order to have full transparency. Consequently, not only did Serbia gain a better position in The World Bank’s 2016 Doing Business list, but is now seeing a new investment cycle of the construction of high-volume international-type shopping malls. The start of such several big-league projects should sustain this growth cycle and give a boost to construction volumes in the years to come.
Written by Dejan Krajinović, Beobuild Core D.O.O, EECFA Serbia
In an effort to improve investment climate, permit procedures in Serbia were marked as a one of the main regulatory obstacles to development, with a long line of inefficient procedures and corrupt instances suffocating the economy. Before the reform was introduced, in some cases, it took almost a year to acquire a building permit, even if all legal conditions were met. During 2015, the government presented a multi-phase reform, which would include a total overhaul of the procedures, resulting in far cheaper and much faster permit procedures. Its implementation started in late 2015 and so far, it has been a resounding success, with building permit applications now being processed in just a few days. Furthermore, the second phase of the reform implementation started in January 2016, with building permit applications now a fully electronic system in Serbia. With electronic and centralized applications, the reform aims to lower the number of instances and the possibility of corruption and hush money in the process. This significant regulatory reform helped Serbia swiftly boost its ranks in the World Bank’s ‘Doing Business’ list, and from 91st in 2015 it reached 47th position in 2016, making it one of the most improving economies of the world in 2016.
With some anticipation of investors, new permit procedures resulted in a strong spike of permit numbers across the board. Practically all construction segments have seen their share of growth, but with almost two years into implementation of the new permit laws, some construction sectors are leading the way. It seems that the retail segment forwards as main beneficiary in building construction, with a very potent investment cycle carrying almost 1 million permitted square meters in just over two years. Coming from a very low post-crisis level, this several-fold increase of permitted retail buildings created a real sector’s boom. The reasons behind such a strong reaction of investors lay in a very opportunistic market, open for development of big city malls and retail parks. It is worth Continue reading Serbia’s retail – primed for take off
While in the EECFA Forecast Report Russia we estimate/forecast residential output, this article is looking at another angle of predicting housing market developments: demand potential in the Russian housing market (the number of households able to buy housing) as the main indicator of further market dynamics. Positive macroeconomic indicators in Russia currently are suggesting growth in real incomes and an increase in the population’s solvency, which in the near-term future is set to raise the number of households able to buy housing. This growth in demand potential will have a positive impact on residential output, yet, this is not something that will happen overnight: the Russian housing market is predicted to continue to slump for the time being. Nevertheless, the predicted growth in demand potential will play a major role in halting this drop, leading to an expansion in the housing market in 2019.
Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia
Having the largest share in total construction both in value and volume terms, the housing market is the engine of the whole Russian construction market. Any change – decline or growth – in the housing subsector may have a decisive effect on the Russian construction industry as a whole; as it was the case, in particular, during the crisis of the Russian economy in 2015-2016. In this period, the housing sector enjoyed an unprecedented level of state support (more details in the current/previous EECFA reports), which prevented the entire construction industry from collapsing.
The state of the housing market primarily depends on the ability of the population to purchase housing. Other market factors, such as the volume of supply in the market, the level of competition or the cost of housing are secondary. It is the ability of citizens to buy housing that ultimately determines the total volume of effective demand, which in turn regulates development activity and price trends in the local housing market. At the same time, the indicators of the population’s need for housing are also secondary in terms of the dynamics of the market situation; they are of an abstract nature and cannot be used to predict the situation in the market. The need for housing is a conditional market potential, which, without the ability to buy housing is never realized. The ability of the population to purchase housing is the real market potential, which – in most cases – is realized in transactions. The level of housing provision (need) affects only the nature of demand: investment purchase, purchase of a first home, improvement of housing conditions, among others. Continue reading Housing market in Russia: Demand potential shaping future market dynamics
The World Bank has prepared its first Subnational Doing Business report on Bulgaria, Hungary and Romania entitled Doing Business in the European Union 2017: Bulgaria, Hungary and Romania. The report is based on the surveys conducted last year by involving respondents from 6 cities in Bulgaria, 7 cities in Hungary and 9 cities in Romania, measuring 5 indicators: starting a business, dealing with construction permits, getting electricity, registering property and enforcing contracts.
In this subnational research in Hungary, Ebuild Hungary (the parent company of Ebuild Romania, EECFA’ s Romanian member) was responsible for choosing the respondents from the private sector in Hungary on 2 of the 5 Doing Business indicators: dealing with construction permits and getting electricity. EECFA Research, Buildecon, was responsible for coordinating the project on these 2 indicators in the private sector in Hungary. Buildecon also completes the World Bank’s National Doing Business survey on dealing with construction permits in Hungary every year; a survey regarded as a benchmark for investors.
Here we are going to take a look at the key findings on the dealing with construction permits indicator* in Bulgaria, Hungary and Romania, what regional variations are, how the processes could be improved according to the report, why Germany is so efficient in getting building permits and how Hungary is trying to follow suit.
Key findings on getting construction permits
It has been concluded that overall, it is in Hungary where it is the easiest to obtain a construction permit for a warehouse (18 procedures) compared to Bulgaria (19 procedures) and Romania (26 procedures). However, all countries are lagging behind the EU average of 13 procedures.
In terms of the length of the permitting process, it is in Bulgaria where the process is the quickest: on average 141 days, and it is in Romania where it takes the longest time: 256 days. In Hungary it is 164 days, though it is better than the relative EU average of 169 days. There are 2 EU member states, the Slovak Republic and Cyprus, where the process is very long – 286 days and 507 days, respectively.
As far as costs of the construction permit are concerned, it is in Hungary where it is the cheapest to get a permit (0.5% of the warehouse value) and it is in Romania where it is the most expensive (3.4%). Bulgaria is only slightly cheaper (3.2%). By comparison, the EU average is 2.0%.
All three countries have been found to make building regulations available online and clearly specify the requirements for a building permit. Also, it has been concluded that all three countries have strong building quality control mechanisms and strict qualification requirements for professionals responsible for permitting approvals.