Ukraine’s business confidence index in construction at multi-year high in Q2 2016

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

Between 2008 and 2015, the Ukrainian construction industry expanded year on year in real terms only once, in 2011. Furthermore, double-figure market reduction was recorded in each year between 2013 and 2015. Nevertheless, the construction activity in Ukraine rebounded notably in H1 2016, and is estimated to have expanded by 9% year on year, after a 26% contraction recorded in the same period a year earlier.

 

Despite the sharp economic contraction in Ukraine in 2014 and 2015, the prospects for the Ukrainian construction industry remain relatively good in the medium to long term, considering that most of the country's production facilities are in need of reconstruction or extensive modernisation, and that the same may be said for transport infrastructure. The construction industry in Ukraine is set to resume growth in 2016, though it is unlikely to expand by more than 5% year on year in real terms. The positive trend will largely resume because of a very low statistical base effect, after a nose-dive setback between 2013 and 2015, when the construction industry boasted double-figure reductions each year.

 

 

 

Improving economic growth figures have decisively contributed to the rise in the construction confidence indicator in Ukraine. In Q2 2016, the industry's business confidence index improved substantially in comparison with the figure published in the previous quarter, rising to the highest level in more than two years. Moreover, the difference between the proportion of companies which predicted an increase in the number of employees in the short term and those foreseeing reduction was at the highest level in more than eight years.

The producers of most building materials are observing higher demand for their products, primarily because of the growing demand from infrastructure development projects. Sizeable support has been also provided by the reviving private sector, which has been encouraged to roll out new construction projects thanks to the improving economic environment and consumer purchasing power. In the first half of 2016, production of cement increased by 11% in comparison with the volume manufactured during the equivalent period a year earlier. Higher numbers were also recorded for the production of dry building mixtures (+7.2%) and ready-mixed concrete (a 20.8% increase).

In the first half of 2016, the encouraging increase in total construction output was fuelled by the solid performance of the non-residential subgroup, which surged year on year by 11.2%. The boost in non-residential construction activity was complemented by a 10.7% expansion in residential construction and a 7% recovery in civil engineering output.

Despite the sharp economic contraction in Ukraine in the last couple of years, the number of new homes commissioned in 2015 increased by 14.4% year on year to 120,300, the most substantial annual housing registration result ever recorded in Ukraine. The total floor space of residences officially activated in 2015 surged by 13.4% to 11 million m², again the highest figure ever recorded in Ukraine. It is worth noting that the previous highest yearly housing completion figure ever recorded in Ukraine was that of 2008 (10 million m²). The increase recorded in 2015 follows a 2.1% reduction logged a year earlier, a shy 1.8% increase achieved in 2013 and an impressive surge (12.5%) achieved in 2012. However, it should be remembered that of the total floor space commissioned since 2010, a substantial proportion has been registered in accordance with the Temporary Order, which made it possible to register residential buildings completed since August 1992 without a building permit in place. This means that without the Order in force, the amount of housing floor space completed would have come lower.

 

 

In 2014, 2.1% of the 9.74 million m² of all floor space put into use was registered in accordance with the Temporary Order. If only new completed space in 2014 had been considered, it would have accounted for about 9.54 million m², which is 27% more than the amount of residential space completed in 2013. The substantial increase in the number of newly completed properties recorded in 2014 largely reflected the fact that many delayed projects were finally completed in 2014, with encouraging signs of economic recovery seen in 2011 and 2012 motivating decisively developers to speed up residential construction activity.

In 2015, 16.5% (1.82 million m²) of all newly registered housing space was based on the Temporary Order and the remaining, 9.23 million m², was accounted for by properties completed in late 2014 and 2015. The new supply in 2015 contracted by 3.3% in year-on-year terms, although the total space registered in 2015 increased 13.4% year on year.

At fewer than 25 m², Ukraine’s per capita housing stock is significantly smaller than in most European countries, where this parameter exceeds 30 m². This difference supports the long-term growth potential of the residential construction market in Ukraine.

 


More information on this topic is presented in the PMR report:
Construction sector in Ukraine 2016. Market analysis and development forecasts for 2016-2021