Building industry: differentiated recovery

Recovering from the building crisis in Europe and the USA proceeds differently depending on the country.

Even though generally we witness economic recovery, the situation in the building industry looks differently depending on the country: In France, Germany and Great Britain the market looks more and more bright; in Italy, the USA, and most of all in Spain difficulties still take their toll. In Poland the building industry is in between – its condition can be described as stabilized but with lower sales than before the crisis, among other things.

Uneven recovery in building industry

In countries which were the first ones to be affected by the results of the economic crisis residential building still struggles with many problems. The situation is the case in Spain, where the building trade got into prolonged crisis, and to a lesser extend also in the United States and Italy. Things look differently in France where the condition of the building industry is improving; recovery is also visible in Germany, and in Great Britain although to a slightly lesser extend. The situation of the building industry reflects the general state of economy. That is why it is so interesting to follow all the changes in the trade on individual national markets at the time when world economy is recovering – explains Karine Berger, chief economist at Euler Hermes

Poland: general stabilization

According to Piotr Pławski, Risk Assessment in the Building Industry Team Leader at Euler Hermes, in Poland the condition of companies within the building industry can be best described as stabilized. The outcomes of the trade started to drop towards the end of 2008, which was illustrated by lower demand and following lower prices of both construction works and materials. Projects in many cases had been set aside. Last year they were revived by high demand – residential projects are slowly reviving, similarly commercial and logistical projects; the last to come – this year – are production investments. There is no such a boom as before the crisis (especially in terms of sales). The prices of construction works and materials as well as housing prices have not returned to the levels binding before the crush. What is disturbing is the deterioration of the morality of local authorities in terms of payments – so far they were reliable investors whose commissions helped many building companies survive that difficult time.

In comparison to other trades, building – i.e. the main contractors currently (in peak season) are not in much worse condition, they receive on time around 76% of their receivables. The situation looks slightly differently in the case of suppliers of building materials who receive little more than 60% of their receivables. In autumn, when the peak season is over, the rates will drop with decreasing inflow of cash.

France, Germany, Great Britain: recovery has already begun

In France, just like in Germany and Great Britain, the level of confidence in building industry dropped at the beginning of 2009. Since then the trend has changed. In those three countries the indicator is still negative but grows constantly - says Didier Moizo, building trade expert at Euler Hermes.

  • France: higher prices partly lowered by lower interest rates

Even though property prices are increasing much faster (by 134% in 2000-2010) than household incomes (by 35% in the same time span), thanks to lowered interest rates households remain solvent - in other words, their debts are stable. Following a decline in 2008-2009 the number of new building projects increased slightly in 2010 and the trend is maintained in 2011. The growth results from constant deficiencies on the residential market and the fact that the French like to "strike out on theirs own".

  • Germany: stable prices, the beginning of revival

In Germany the prices of houses and flats are remarkably stable, at the same time the incomes have increased since 2000 by 25% on average. Despite low prices of property, the debts of German households are still high, which results from earlier investments related to the unification of the country. Activities on the building market are still inconsiderable, and the number of started building projects increased insignificantly. Just beginning recovery on the construction market can be explained by absence of demographic pressure and limited interest of German households to own property.

  • Great Britain: slight increase after a sharp decline

In 2010 property prices in Great Britain started to grow after a sharp correction which took place in 2008. Household indebtedness is still high which makes it difficult to take out further loans despite of attractive and stable interest rates which remain at a similar level since 2009. In such circumstances the activities on the construction market increased by 8% in two years, but still are far from the peak in 2007. Predictions are optimistic.

Constant problems in Italy, the USA and Spain

The indicator of confidence in the building trade in Italy, Spain, and the USA is still negative. Even though in Italy and the USA its level is stable, the situation in Spain is still worsening - says Didier Moizo.

  • Italy: unceasing weakness of the industry

In Italy in the last ten years property prices have been increasing faster than incomes. At the same time the households in Italy still have low incomes, even though in the last ten years the value of credits taken has doubled. The number of new building projects still is much below the peak levels recorded in 2005. The level of activities on the market remains low and there are no signs which would suggest that the trend is going to change in short or even slightly longer time.  

  • The United States: the market suffers because of debts and unsold houses and flats

With the approach of the economic crisis, property prices dropped by 10% in the last three years. Households are severely indebted and cannot benefit from still low interest rates.  
New building investments are being hindered by three million unsold houses and flats on the market. The industry is in stagnation and there are no signs which would indicate that the number of new building projects is going to increase in the nearest future. 

  • Spain: prolonged crisis

In Spain one can look for signs suggesting improvement in vain. Prices, which doubled in 2000-2007, have lowered in the last three years by 13%. Indebtedness of households is now two times higher than ten years ago. The number of new building projects is at a level seven-fold lower than in 2007 - the peak year. It is estimated that there are 650 000 unsold properties on the market, at the same time 82% of households in Spain occupy their own house or flat. Building industry, which earlier drove the economic growth, has been in the state of chronic crisis for three years now.

To sum up: even though the crisis was clearly noticeable in France for three years, in 2011 we witness unprecedented recovery within the building market. Germany, which did not have to deal with such a great change, is recovering slower. In Great Britain in 2010 the level of activities increased and triggered moderate revival in 2011. The building industry in Italy is still is a state of stagnation. Also in the United States there are no signs of recovery, even less so in Spain.
 


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