Double-figure year-on-year growth in housing completion in the Baltics in 2014

More information on this topic is presented in the PMR report:

The construction industry in the Baltics has been constantly improving in the last few years. According to preliminary data presented by Eurostat, Lithuanian construction output rose by 17% in 2014, the second most substantial increase among the EU countries. Furthermore, the healthy performance recorded in the country in 2014 follows a robust increase of 11.3% achieved a year before.

 

 

In the last few years the Latvian construction industry has also continued to improve, though at a more moderate pace than in 2011-2012. Last year, Latvian construction output grew by “only” 8% in year on year terms, after the same figure recorded a year earlier and a few years with growth rates of at least 12%.

In contrast, Estonian construction output has exhibited a negative rate of growth in the last few years, with a 2.6% reduction last year, after the flat rate of growth (-0.1%) observed in 2013. It is worthy of note that the negative results recorded in Estonia in the last few years have largely reflected the very high base effect established in 2011-2012, when Estonian construction output rose by 27% year on year in 2011 and, again, by almost 17% in 2012. The key factors which recently contributed to the upsurge in construction activity in the Baltics included an improvement in economic growth, with the GDP growth rate in all three countries exceeding the 2% threshold in 2014, with the economy expanding by 2.9% in Lithuania, 2.4% in Latvia and 2.1% in Estonia. Even more substantial GDP growth rates were recorded a year before: +4.2% in Latvia and +3.3% in Lithuania.

 

 

The major driver behind the on-going steady upward trend in construction activity in the Baltics has been the revival of residential construction activity in all three countries. The region’s improving macroeconomic conditions, mirrored by a more dynamic increase in individual purchasing power and the burgeoning financial and property markets, have been primarily responsible for the robust recovery of the residential construction market in the last few years. In Lithuania, the region’s largest country, which is responsible for between 35% and 40% of the construction output in the region every year, the total floor area of new residential buildings for which building permits were granted rose by almost 19% year on year in 2013, following a 24.5% rise in 2012. In Latvia and Estonia, this indicator improved by 13.3% and 10.7% respectively in 2013. The remarkable increases in the total floor area of new residential buildings for which building permits were granted in 2012 and 2013 have provided substantial support for the region’s construction industry in the last few years, as a large proportion of the work carried out in accordance with these permits also took place in 2014. However, in Latvia the total residential space associated with building permits granted last year was 27% short of the figure recorded in 2013, whereas in Lithuania the contraction was less dramatic: only 7.4%. The slowdown primarily reflected the negative external economic shock from developments in Russia. This year, the residential market in the region is also expected to be overshadowed by the fallout from the economic turbulence in Russia, which constrains residential construction activity, particularly in Latvia. In contrast, Estonian residential construction has been less vulnerable to the economic turmoil in Russia. The floor area of new residential buildings for which building permits were granted in Estonia last year was 16.4% in excess of the 2013 result and almost 29% more than the figure recorded in 2012.

 

 

The total floor space of residences listed in official records in Lithuania in 2014 rose by 27% year on year to 909.900 m². In Estonia, almost 17% more residential space was commissioned in 2014 than the amount a year earlier, whereas in Latvia the expansion rate exceeded 13%. It is worthy of note that 2014’s housing completion results reflected the best performances in five years in all three countries. However, in Lithuania the amount of space activated last year is still 22% less than the result set in 2008, with the gaps for Latvia and Estonia being even worse: 58% and 36%, respectively.

In the first quarter of 2015, the level of willingness of individuals in the Baltics to carry out home improvements or to purchase or build a home has risen visibly, according to a quarterly Eurostat consumer survey. The improving investment climate is particularly evident with regard to purchasing or building a home, whereas the disposition to carry out home improvements has looked less obvious during recent quarters. However, these levels are significantly lower than the 2006-2007 period, when many Estonians, Lithuanians and Latvians found it advantageous to own a new home or repair existing properties. In the first quarter of 2015, the level of enthusiasm of Lithuanians with regard to purchasing or building a home was at its strongest since Q1 2008, and the same applies to Estonians since Q3 2008. A slightly different trend was noticed in Latvia, where the level of willingness of individuals to purchase or build a home surpassed even the 2007 peak levels in mid-2014, but since then it has been steadily declining.

 


More information on this topic is presented in the PMR report:
Construction sector in the Baltic states 2015: Estonia, Latvia, Lithuania . Development forecasts for 2015-2021