CIBR Blog

Non-residential construction, which accounts for half of the construction output, will be strongly hit, while residential will decrease only slightly in 2009 and civil engineering, which depends on public funding, will be the only one maintaining above the line.

According to the “Construction sector in Romania 2009 – Development forecasts for 2009-2011” report recently published by PMR, a research and consulting company, in 2008, the value of construction and assembly works in Romania increased by 34% nominally (26% in real terms), to RON 83bn (€22.5bn). The fastest growing segment was non-residential, which increased by 37%. The situation is due to the fact that Romania, a country with a very rapidly developing economy, needed mainly non-residential buildings, such as office space for services and industrial buildings. Structural works are by far the ones covering the largest share of costs of a construction project, followed by installation and equipment and site preparations. The smallest shares are held by finishings and rental of construction equipment.

Despite the €20bn financial aid from the IMF and EU meant to stabilise the volatile local currency and reduce the budget deficit, investor confidence in Romania is expected to continue to decline, resulting in lower levels of FDI. In addition, investments in fixed assets will also decrease. These are premises for a decrease of the construction output in 2009, after a period of very high growth rates. This situation will also have an important effect on GDP growth, which was relying greatly on construction.

“The most affected year will be 2009, but the following few years may not see a major recovery if the international economic circumstances do not improve. The construction sector will, however, be supported by the spending of EU funds allocated for Romania, which will be directed mainly into infrastructure.”, says Robert Obetkon, a senior construction market analyst at PMR.

Non-residential construction, which used to be the fastest growing segment of the Romanian construction market, is likely to be the most affected, mainly due to its overdependence on credit. There were many projects, particularly on the retail property market and the office market, which developers launched before even ensuring their financing. This, in addition to the decrease in demand for these buildings, are the reasons why many projects have been postponed or even cancelled. Only those of which construction works were already begun before Q4 2008 will be completed in 2009. Since there were many delays even before, which were caused either by frequent changes in the projects and by contractors, the number of retail facilities and office buildings to be delivered this year is limited. In the market for industrial buildings and warehouses, where the largest part of the market is concentrated by large multinational developers, the situation is slightly better, considering that financing problems are less frequent and the demand has not decreased as dramatically as in the abovementioned cases.

The present situation of residential construction in Romania has been determined by the property market. After two years of constantly growing demand which powered the rising prices of homes, the residential property market started to contract in Q4 2008. This was mainly the result of the fact that banks have been unwilling to grant mortgage loans to the population. Similarly, developers are facing crediting difficulties and therefore in 2009 only a few projects will be delivered, generally those which were either delayed from last year or are in an advanced construction state. Still, residential construction output is expected to witness only a mild decrease, due to several governmental programmes for housing construction and the activity on individual housing construction, stimulated by the drop in the price of construction materials.

The segment which will continue to grow in 2009 is civil engineering. “As Romania will face a falloff in GDP in 2009, the government will want to overcome its effects by increasing public spending, and infrastructure is a top destination for state-funded investments.”, says Robert Obetkon. For that, the funding coming mainly from the EU has to be unblocked, by improving and simplifying procedures which have been dragging investments in infrastructure – particularly in the case of road construction, which accounts for roughly half of the civil engineering construction output. Additionally, civil engineering construction can benefit from the lower prices of construction materials compared to the past few years.

This press release is based on information contained in the latest PMR report entitled: “Construction sector in Romania 2009 – Development forecasts for 2009–2011”.