Due to its coastal geography, Croatia is exposed to the effects of climate change such as rises in sea level and serious wave and storm threats. In the near future, the country will need to take action which will involve increased civil engineering construction on the coast.
Written by Michael Glazer (SEE Regional Advisors) and Tatjana Halapija (Nada Projekt), EECFA’s Croatian members
Croatia’s building boom is continuing, but some of the engines currently driving it will likely run out of steam in a few years: Coastal hospitality-related construction will decline in importance as current renovation and greenfield projects complete and opportunities for new projects become more limited. Educational, health and other construction spending fueled by EU post-accession funds will decline as those funds dry up.
All of this is several years off, and inland hospitality construction and renewed office and residential building will take up some of the slack, so there’s no need to panic. But, it’s still worth asking: what will be the next big thing in the Croatian construction market?
Rises in employment and income in Bulgaria, combined with low interest rates both on deposits and housing loans, are pushing residential construction as well as the property market upwards. The rise in profit margin increasingly attracts investors in the sector. However, aging multi-family buildings and the growing number of uninhabited properties remain as major challenges ahead of the housing stock in the country.
Written by Yasen Georgiev and Dragomir Belchev, EPI – EECFA Bulgaria
Residential construction and the real estate market in Bulgaria continue to be in the focus of investors and developers. The turning point was in 2016 when the sector registered a growth of 31.1% and it is expected to increase in double-digit terms in the period up to 2019. These developments have a direct correlation with improved living conditions as in 2017 the Bulgarian GDP grew by 3.6%. According to European Commission forecasts, there are no signs for pessimism as they prognosticate a further growth of 3.8% in 2018 and 3.7% in 2019.
The economic development is accompanied by low rates of unemployment and an increased disposable income. Major cities in Bulgaria such as Sofia, Plovdiv, Varna and Burgas are getting more and more attractive, which leads to the concentration of the population and creates a strong demand in the residential sector. Consumer preferences are also changing in favour of quality properties (larger ones and with better location) that are lacking in the market. At the moment supply is still lagging behind, unable to catch up with demand. In H1 2018 completed newly-built residential buildings were 9.1% more than in the same period in 2017. In terms of dwellings, there is a drop of 10.3%, which is a proof of the completion of bigger-scale projects.
Before the publication of the 2018 Summer EECFA Forecast Report, the European Commission released its spring forecast, revealing the prospects for almost all EECFA member countries. Let us highlight the main changes in the prospects over the past half year.
Written by Aron Horvath, PhD, EECFA Research, ELTINGA
Chart 1 shows that GDP growth is higher in the region than in the EU, so the economic outlook is still better in the Eastern region. Looking at the individual level, the only exception is Russia, where economic growth is set to remain under 2 percent according to the Commission. As for the rest of the countries in the region, the expected growth is between 2.75 and 5.5 percent. Turkey and Romania lead the group with an over 5 percent forecasted economic growth.
The Eastern European Construction Forecasting Association (EECFA) – the forecasting association conducting research on the construction markets of 8 Eastern European countries – has released its 2018 Summer Construction Forecast Reports up to 2020. The main findings of the reports are summarized below. The full reports can be purchased, and a sample report can be viewed at eecfa.com
Construction up to 2020 in ‘South-East Europe-5’ (Bulgaria, Croatia, Romania, Serbia, Slovenia)
The region is posting a strong economic growth which is fuelling building construction. Some of the region’s housing markets are seeing record-breaking results, so the first voices for overheating appeared. We think these markets are far from it, though. At the same time, construction labour shortage, due to economic migration from these countries to Western Europe, is one factor giving cause for concern in the future. With accelerating absorption of EU funds, civil engineering is expected to contribute positively to growth all the way on the forecast horizon.
Construction output in Bulgaria continues its recovery and is expected to reach an 8.8% growth in 2018. The star performer is the residential construction segment, benefitting from improved employment and real disposable income, as well as the ongoing process of the concentration of population in big cities. Additionally, the steady economic development will increase investments in non-residential projects. Civil engineering construction is forecasted to contribute strongly in the next few years after EU fund absorption started catching up. Therefore, estimations for 2019 and 2020 are for an additional growth of 7.1% and 6.0%, respectively.
Croatia’s construction output is likely to grow at a respectable rate until 2020 (by an estimated 2.2% in 2017 and a forecast 11.6%, 6.2% and 4.0% in 2018, 2019 and 2020, respectively). Particularly well performing sectors include hotel construction, education and health and certain civil engineering subsectors, especially railways. A global trade war, fallout from the Agrokor crisis and rapidly rising construction costs are threats to Croatia’s construction industry. And all are now significantly more likely to occur than they were at the time of EECFA’s 2017 Winter Report. But fortunately, none yet constitutes an imminent danger. In 2021 or soon thereafter growth will probably begin to tail off in a number of important sectors as Croatia’s catch-up phase gradually comes to an end, but exactly when and how this will occur is not yet clear.
The housing and non-residential segments are set to continue their excellent performance in 2018, and, in spite of an underwhelming performance in the civil engineering segment, the total growth of the construction sector in 2018 is forecasted to reach 7.1% (up from +6.8% in Winter 2017). As projects co-funded by the EU are starting to be implemented, Continue reading EECFA 2018 Summer Construction Forecast
Ukraine used to have an acute housing problem owing to the lack of effective social policy in the housing sector, aggravated by the low level of housing provision in Ukraine and its relatively high cost. During the past few years, the growth in the volume of housing construction, mainly in large cities and in their suburbs, has made significant adjustments to the market, though. Given the historically high need for housing and a number of existing conditions for growth in this market, there has been significant progress in the development of the housing sector.
Written by Sergii Zapototskyi – UVECON, EECFA Ukraine
Housing market situation
Since 2015, the market has grown quite significantly for a number of reasons. First of all, due to the sharp devaluation of the national currency when the best option not to lose one’s money was to purchase a residential real estate. This process accelerated the crisis of the banking system. The lion’s share of the money that Ukrainians paid to developers was taken into banks where they were on deposits with fairly high interest rates. Another problem was providing housing for internal migrants, soldiers and their families, and the like. Customers tended to choose dwellings in new buildings where, when buying, the prices were more acceptable, and when selling, they could stick to their positions. Under such conditions, the housing market began to grow, including the primary one.
In fact, this growth was driven primarily by the increase in large cities and their suburbs. In Kiev, the year 2013 registered about 130 newly constructed buildings, while in 2015 around 220 residential buildings were built. In 2016, already 290 such buildings were built, whereas at the beginning of 2018 there are more than 330. Within the Kiev region, the figures are somewhat smaller, though the trends are very close. Although five years ago Lviv lacked sufficient new residential buildings and there were only few construction sites, today there are approximately two hundred sites. The situation is similar in Odessa, where there are now almost one hundred and fifty new residential buildings. In Kharkov, there are approximately a hundred new buildings, almost 70 in Dnieper.
Thus, we can observe a growth in construction volumes, and consequently, a rise in the commissioning of housing in these regions. Kiev region remains a leader in housing put into use, accounting for 35% of all housing put into use in this region. This attracts investors due to lower housing prices and the fast transport access to the capital city Kiev. In 2017, the share in Kiev region is 18%, and in Kiev city, another 17%. In the capital city in 2017, only holding company Kyivmiskbud commissioned more than 300 thousand square meters of housing. In 2018, the company plans to put into use at least seven new facilities on around 450 thousand square meters.
Real estate prices in Slovenia have been increasing at a furious pace
Ljubljana, the capital city of Slovenia, has strongly rebounded from the recession. Since the bottom of the recession in 2015 till 2017, the average real estate price has increased by 15%. However, the price growth accelerated in 2018, making Ljubljana one of the hottest real estate markets in the world.
Written by Dr. Ales Pustovrh – Bogatin, EECFA Slovenia
Following the peak in 2008, the Slovenian construction and real estate markets experienced a catastrophic slump. Total construction output decreased from EUR 4.6bln in 2008 to EUR 2.3bln in 2016 according to EECFA. The average real estate price in Ljubljana dropped by 25% between 2008 and 2015 (although the average price hides significant differences in price trends in different neighbourhoods and real-estate segments).
However, on the back of the strong economic growth in the last few years, prices started growing again. In Ljubljana, they increased by 15% between 2015 and 2017 according to GURS, the national database. In 2017, KnightFrank’s Global Residential Cities Index estimates that residential real-estate in Ljubljana has increased by another 4.4 %.
This paper is to elaborate on the paradoxical situation Turkey is facing: while building construction cost has risen by 22.8 per cent in nominal, 9.8 per cent in real prices, real housing prices have decreased by up to 7 percent.
Written by Prof. Dr. Ali Türel, Çankaya University, Department of City and Regional Planning, Ankara, Turkey
In terms of total floor area, Turkey is the leading producer of housing in Europe. Annual starts are around 1 million dwelling units with about 150 million m2 of total gross floor areas, and completions are 750 thousand on average having between 110-120 million m2 of gross floor area. The number of newly formed households in recent years has been between 500 and 550 thousand, and when renewal of risky housing against natural disasters is added, annual housing need can be estimated as 650 to 700 thousand dwelling units. Housing starts between 2010 and 2016 were about twice, and housing completions about 50 per cent greater than the number of newly formed households. Syrian refugees may also have created additional housing demand, by as much as 500 thousand dwelling units since the beginning of the war in Syria.
High levels of housing production occur without much state intervention to the housing market, as most of the conventional housing policies of the welfare state have not been introduced in Turkey. The supply side is favoured more than demand side in state policies, as evidenced by incentives recently provided to builders. Some additional construction rights beyond that determined by Floor Area Ratio (FAR) for each parcel were granted to builders by a By-law in 2013. Such additions, most of which can be made at the basement of buildings, were limited by 30 per cent of FAR in 2017 due to reactions of professional organizations. Another incentive of the 2013 By-law is reducing rear garden distance that enables builders to produce housing on parcels that had insufficient depth according to the former By-law. Otherwise, housing markets operate under a highly competitive environment without much state intervention. Primary support to moderate-to-lower income people in housing acquisition is producing housing on publicly owned land by the Housing Development Administration (HDA), a Department attached to the Prime Ministry selling at affordable conditions. Continue reading Housing Production and Housing Price Relationship in Turkey
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