Ukraine in the midst of a construction crisis
The construction market has been growing at a double-digit rate in the last five years. However, starting from the beginning of 2008, the global financial crisis has begun to take its toll on Ukraine. Banks are now less willing to provide loans to finance developers’ projects; they are equally reluctant lend to individuals buying homes. These factors, combined with excessive financial burden on companies in connection with the preparation of land for construction purposes, rising costs of building materials and complicated procedures for obtaining building permits, have resulted in construction output declining, with the exception of the residential construction segment, which has expanded, but only slightly.
According to the “Construction sector in Ukraine 2008 – Development forecasts for 2009-2011” report recently published by PMR, a research and consulting company, in the period between January and October 2008, the value of construction and assembly works in Ukraine declined by 9.6% year on year, falling to UAH 52bn ($10.5bn, €7bn). The largest drop was reported for the segment of construction of buildings and structures, which decreased by 9.7%. Building works regarding the installation of services and works concerning the preparation of land for development account fell at a slower rate, down by 7.9% and 7.8%, respectively. The volume of construction output grew in five regions, with Sevastopol (Crimea) leading the way with a 17.3% gain in construction output.
At the opposite end of the scale were the Luhansk and Vinnytsia oblasts where the value of construction works tumbled by a fourth apiece. The Ukrainian construction market entered a downward path in May, and the following months have seen the industry sliding into a deepening crisis. “The value of construction output for 2008 as a whole will decline by over 12%, mainly due to the difficulties experienced by the housing market.”, says Robert Obetkon, a construction market analyst at PMR. The problems related to financing building projects will continue into 2009, but due to a low comparative base of 2008 and the steps taken by the government with a view to simplifying the activities of property developers, the decline in construction output will not be that spectacular.
Despite a crisis in the housing sector, in the first three quarters of the year, the total area of dwellings completed in Ukraine rose by almost 6% compared to the corresponding period of last year. This, however, was due to the completion of the projects started at the beginning of 2008 and earlier, which had secured financing; there are very few housing starts, and a great many of projects underway have been shelved. Residential construction is more likely to see declines in 2009, which will continue until banks decide to advance more loans for developers’ projects and for purchases of dwellings by individuals. After interest rates on mortgage loans increased to even over 20%, the number of people qualifying to obtain bank loans has greatly diminished. By no means should this mean that there is no interest in improving the housing situation in Ukraine – the demand will be greater as soon as loans are more easily accessible.
The remaining branches of the industry (non-residential and engineering construction) also have insufficient sources of funding. However, when the economic and political climate improves, non-residential and engineering projects should gather more steam; this will refer in particular to investments related to the preparation of the country for Euro 2012 (i.e. the construction and modernisation of roads, railway lines, airports, sports facilities and hotels).
“A recovery in the construction industry will be also stimulated by recent legislative changes, enacted by the government with a view to streamlining developers’ activities and effecting reductions in dwelling construction costs.”, says Robert Obetkon.
According to the “Construction sector in Ukraine 2008 – Development forecasts for 2009-2011” report recently published by PMR, a research and consulting company, in the period between January and October 2008, the value of construction and assembly works in Ukraine declined by 9.6% year on year, falling to UAH 52bn ($10.5bn, €7bn). The largest drop was reported for the segment of construction of buildings and structures, which decreased by 9.7%. Building works regarding the installation of services and works concerning the preparation of land for development account fell at a slower rate, down by 7.9% and 7.8%, respectively. The volume of construction output grew in five regions, with Sevastopol (Crimea) leading the way with a 17.3% gain in construction output.
At the opposite end of the scale were the Luhansk and Vinnytsia oblasts where the value of construction works tumbled by a fourth apiece. The Ukrainian construction market entered a downward path in May, and the following months have seen the industry sliding into a deepening crisis. “The value of construction output for 2008 as a whole will decline by over 12%, mainly due to the difficulties experienced by the housing market.”, says Robert Obetkon, a construction market analyst at PMR. The problems related to financing building projects will continue into 2009, but due to a low comparative base of 2008 and the steps taken by the government with a view to simplifying the activities of property developers, the decline in construction output will not be that spectacular.
Despite a crisis in the housing sector, in the first three quarters of the year, the total area of dwellings completed in Ukraine rose by almost 6% compared to the corresponding period of last year. This, however, was due to the completion of the projects started at the beginning of 2008 and earlier, which had secured financing; there are very few housing starts, and a great many of projects underway have been shelved. Residential construction is more likely to see declines in 2009, which will continue until banks decide to advance more loans for developers’ projects and for purchases of dwellings by individuals. After interest rates on mortgage loans increased to even over 20%, the number of people qualifying to obtain bank loans has greatly diminished. By no means should this mean that there is no interest in improving the housing situation in Ukraine – the demand will be greater as soon as loans are more easily accessible.
The remaining branches of the industry (non-residential and engineering construction) also have insufficient sources of funding. However, when the economic and political climate improves, non-residential and engineering projects should gather more steam; this will refer in particular to investments related to the preparation of the country for Euro 2012 (i.e. the construction and modernisation of roads, railway lines, airports, sports facilities and hotels).
“A recovery in the construction industry will be also stimulated by recent legislative changes, enacted by the government with a view to streamlining developers’ activities and effecting reductions in dwelling construction costs.”, says Robert Obetkon.