Ukraine’s business confidence index in construction at multi-year high in Q2 2017

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 2016, expanding by 17% year on year, following a cumulative decline of 42% during 2012-2015.

From a year-on-year perspective, the upsurge in construction activity in 2016 partly reflected the low base established between 2012 and 2015 and partly some signs of the overall economic recovery and in real disposable personal income. In 2016 the construction industry increased in all construction subgroups. Furthermore, this trend is likely to last in 2017, when an increase in construction activity is expected to continue in all subgroups. Improving macroeconomic figures and very low base effect are expected to propel further the rebound of Ukraine’s construction industry.

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.

Improving economic growth figures have decisively contributed to the rise in the construction confidence indicator in Ukraine. In Q2 2017, the industry's business confidence index improved in comparison with the figure published in the previous quarter, rising to the highest level in more than three 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 nine 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 four months of 2017, production of ceramic tiles surged by 33% in comparison with the volume manufactured during the equivalent period a year earlier. Markedly higher numbers were also recorded for the production of materials in rolls made from bitumen (65% increase), of asphalt (73% upsurge) and ready-mixed concrete (+17%).

In January-April 2017, the impressive increase in total construction output was fuelled by the solid performance of the non-residential subgroup, which surged year on year by almost 21%. The boost in non-residential construction activity was complemented by a 17% expansion both in residential construction and in civil engineering output.

Between 2010 and 2016, the dynamics in housing registration in Ukraine was fuelled, in part, by the fact that many properties were registered after the government’s issuing of a Temporary Order (Government Decree No. 1,035 of 9 September 2009) which made it possible to register residential buildings completed between August 1992 and March 2011 without a building permit in place. According to preliminary results, the number of new homes commissioned throughout the country in 2016 decreased by 6.4% year on year to 112,600, the second most substantial annual housing registration result ever recorded in Ukraine. The total floor space of residences officially activated in 2016 decreased by 15.2% to 9.37 million m², which is only the seventh highest figure ever recorded in Ukraine. The reduction recorded in 2016 follows a 13.4% increase logged a year earlier and a shy 2.1% contraction achieved in 2014. It is worth noting that the highest yearly housing completion figure ever recorded in Ukraine was that of 2015 (11.1 million m²).

However, it should be remembered that of the total floor space commissioned since 2010, every year substantial proportions have been registered in accordance with the Temporary Order, which means that without the Order in force, the amount of housing floor space completed would have come to 9.12 million m², i.e. only 1.1% below the 2015 figure. For instance, 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 2017. Market analysis and development forecasts for 2017-2022