Construction activity in the Balkans to accelerate in 2018

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

PMR’s latest report, entitled “Construction Industry in the Balkans 2017: Serbia, Croatia, Bosnia and Herzegovina, Slovenia and Macedonia. Development forecasts for 2017-2022”, suggests that, with an average construction growth rate of 15.1% between 2014 and 2016, Macedonias’s construction output expansion exceeded that of other four countries analysed in the report.

According to PMR, Serbia’s construction output increased by 4.4% in 2016, the second most substantial increase among the five countries analysed in the report. Furthermore, the positive performance recorded in the country in 2016 follows a more impressive increase of 20.8% achieved a year before.

In 2016, the Croatian construction industry resumed growth, after seven years of consecutive reductions, though still at a lower pace than that in Serbia. Last year, Croatian construction output rebounded by almost 3% in year-on-year terms, after a drop of less than 1% recorded a year earlier.

By contrast, Slovenian construction output exhibited a negative rate of growth in 2016, with a 17.7% reduction last year, after an 8.2% drop observed in 2015. It is worthy of note that the negative result recorded in Slovenia in 2015 largely reflected the very high base effect established a year before, with Slovenian construction output surging almost 20% in 2014. PMR suggests that among the key factors which recently contributed to the sharp reduction in construction activity in Slovenia include the difficulties in the local banking sector and a reduction in the amount of EU funds disbursed in accordance with the 2014-2020 financial strategy, caused largely by the gap between the two funding periods.

Construction activity in the Balkans is expected to accelerate in 2018, as EU funding picks up next year and higher GDP growth rates are anticipated practically for all countries.

According to PMR, in the last couple of years the highest growth rates in construction activity in the Balkans have been recorded in residential construction. The region’s improving macroeconomic conditions, mirrored by a more dynamic increase in individual purchasing power and the recovering financial and property markets, have been primarily responsible for the robust recovery of the residential construction market in the last few years. In Serbia, the region’s largest country, the total living floor area of new residential buildings for which building permits were granted rose by almost 18% year on year in 2016, following a 34% improvement in 2015. In Bosnia and Herzegovina, this indicator improved by around 11% in 2016, following a 25% rise a year before. The remarkable increases in the total floor area of new residential buildings for which building permits have been granted since 2014, 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 has also taken place in the last few years.

In Croatia, the total amount of residential space associated with building permits granted in 2016 was 32% more than the figure recorded a year before, rebounding after eight consecutive years with negative dynamics. Last year, a significant increase in residential construction activity was boosted mostly by renegotiated housing loans. In 2016, development in household lending activity was greatly affected by the process of conversion and a partial write off-of loans in Swiss francs initiated in substantial amounts in December 2015. In September 2015, Croatia’s parliament passed legislation allowing Swiss-franc loans to be converted into euro at the rate which was in force when the loans were granted, with the banks bearing the cost of exchange rate fluctuations. The cost has been estimated to be about €1bn.

At the end of November 2015, outstanding debt to households in Swiss francs and indexed to the Swiss franc stood at HRK 21.7bn (€2.8bn). Conversions, most of which related to housing loans, started at the end of 2015, with the bulk being carried out in the first quarter of 2016. According to the Croatian National Bank, partial write-offs of loan principals – HRK 5.0bn in 2016, and almost HRK 6.0bn in total in 2015-2016, were charged to provisions made earlier. At the end of 2016, HRK 1.6bn of loans to households in Swiss francs still remained in bank loan portfolios, and this accounted for 1.4% of total loans in this arena.

The total floor space of residences listed in official records in Serbia in 2016 rose by 19% year on year to 782,800 million m², almost 19% more than that of 2015, representing the third lowest annual housing completion figure recorded in Serbia in the past ten years. In Croatia, 1% more residential space was commissioned in 2016 than the amount observed a year earlier, whereas in Slovenia a 10% upsurge was recorded. It is worthy of note that the 2016 housing completion result in Macedonia reflected the third best performance in ten years. According to PMR, in Croatia, however, the amount of space activated in 2016 the second lowest annual housing completion result recorded in Croatia at least since 2002.

More information on this topic is presented in the PMR report:
Construction sector in the Balkan states 2018. Market analysis and development forecasts for 2018-2023