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.