In 2014, the Bulgarian construction industry is characterised by negligible developments and a negative trend that has been established for many years now on some indicators.
The Bulgarian construction sector has been losing positions in the past few years. The comparative ranking by economic indicator shows a deteriorated outlook for the sector. The macro-financial and economic situation does not suggest stability.
For more than 4 years investment activities in construction have been falling in real terms.
Total 2014 foreign direct investments are by 7,3% down on 2013. Small-scale projects remain in the focus of investors. The construction segment is expected to preserve the current levels of the volume of construction works till 2016.
Finding the mechanisms to better absorb European funds in 2015 remains a priority and a key factor of growth in the construction sector.
In 2014, calls for tenders in construction were 3335, worth 2327 MEUR. The sector registered growth in the number of calls for tenders at 15,4 % and negligible growth in value, at 3,6 % .
In 2014, 3113 contracts worth 1512 MEUR were awarded in the construction sector, with a continuing upward trend in the number of awarded contracts, at 21,6%, and continuing downward trend in value, at 4,1%. Some negative developments were observed:
Lack of secure environment factors enabling the companies and the related suppliers to register growth and positive developments.
Lack of activity and conditions to encourage investments.
Existing business-to-banks and business-to-business indebtedness.
A persisting construction sites freeze trend. Projects are launched and at some stage banks stop the funding on account of lack of payments under the loans.
Increasing intra-company liquidity deficit.
Government liabilities – of municipalities to the construction business – a factor leading to difficult planning and imbalances in the construction companies.
Discontinued payments under operational programmes, a zero year of the new programming period.
In 2014, Bulgaria witnessed the most severe banking crisis for decades. Most of the construction companies have fallen in the banking crisis trap. Major construction businesses manage, for now, to stay on the market, but having seriously reassessed their business programmes. About 100 construction companies make up 60-65% of the aggregate volume of construction works.
The construction companies registered in the BCC (Bulgarian Construction Chamber) / Central Register of Professional Builders (CRPB) at 9.03.2015 are 4426, including 4381 Bulgarian legal persons and 45 foreign companies. In 2014, deregistered companies numbered 520.
In 2014, the production of construction enterprises stands at 6427 MEUR, 1,0 % down on 2013. The downward trend is observed since 2011. Indicative is the significant decrease in expenditure on the acquisition of tangible fixed assets in construction, 41,1% down in 2014 compared to 2013.
The production generated by the building construction segment which includes dwelling and non-dwelling constriction stands at 3466 MEUR, making up 53.9% of the aggregated output. The data show a decrease by 7,3% compared to 2013.
The civil engineering segment
The production generated by the civil engineering segment stands at 2961 MEUR, making up 41,6% of the 2014 aggregated output. It registers an upward trend with a growth at 7,6% compared to 2013.
OVERALL CONSTRUCTION ACTIVITY
Dwelling construction. The statistical analysis is unequivocal – provisional figures for 2014 show that dwelling construction accounts for only 13,6% of total receipts of construction enterprises by type of construction, registering a significant decrease at 32,4 % compared to the pre-crisis period. Despite the lower prices, buyers are still transaction cautious. Housing loans remain affordable to households in the above average income bracket. Operating income data for 2014 will be published in August 2015 but, on the whole, the downward trend in dwelling construction exists and will persist in 2015. Provisional figures for 2014 show that the dwelling construction indicators do not give courage for or indicate any crisis recovery signs, although the segment registers some recovery. This trend is evident in the statistics of started construction works and the commissioned residential buildings. In 2014, started dwelling construction registers growth at от 5,0 % year on year and the number of comprising homes is up by 8,9%. Commissioned finished residential buildings are 12,0% up in 2014 and the number of comprising homes is 8,2% up. The analysis shows that the total floor area also registers an upward trend, going 8,2% up on 2013. Figures for builders are positive but nevertheless growth is negligible, given the year on year comparison basis. Growth in the second half of 2014 gives hope for a positive forecast and higher dwelling construction dynamics in 2015. Finished buildings are mainly of reinforced concrete and make up 74,8 % of total commissioned dwelling construction, whereas brick dwelling construction accounts for 22,3 % and registers an upward trend. Energy efficiency improvement is a major priority set for the segment in Europe 2020, with different co-financing schemes. In 2014, new projects were launched in the Bulgarian dwelling construction segment, focused mainly on renovation and rehabilitation, optimisation, modernisation and energy efficiency of existing buildings. The number of building permits issued in 2014 resisters a downward trend compared to 2013. Total permits register decrease at 2,2 % whereas total floor area is 4,8 % up. Dwelling construction permits issued register negligible increase at 3,0% whereas growth in total floor area is 27,7 % . The number of permits issued are on a downward trend whereas the figures for total floor area are positive. In 2014, started construction works register increase at 4,4% year on year for total buildings. Homes in the buildings also register growth at 8,9 % compared to 2013. There is an overall upward trend in started construction works, but with negligible positive result for homes. Commissioned dwelling construction register growth at 12,0% in 2014 and increased levels at 9,5% for the total floor area indicator. Commissioned homes also register increase in 2014, at 8,2%. The downward trend in the total floor area of new dwelling construction is confirmed. Most of the finished new buildings meet the modern energy efficiency requirements,
Non-dwelling construction makes up 27,1 % of revenues in the construction sector, according to provisional figures. /2014 data will be published in August 2015/.
A review of the 2014 data about non-dwelling construction (office buildings, hotels and holiday villages) shows a downward trend in levels at 8,0% compared to 2013. The analysis shows high levels of unoccupied areas in finished office and business buildings. A slowdown is registered in investors’ interest in the segment. The non-dwelling construction sector is expected to register positive growth in late 2015 and in 2016, with industrial construction taking the lead and increased construction in healthcare, education and agriculture. The pre-crisis period growth rates at 15-16% year on year, based on volume and free capital previously invested mainly in hotels and holiday villages are already a history. There is currently huge secondary supply of such sites. There were major projects in 2014, but in 2015 projects are already measured, with serious business plans. Risk investment projects register decrease. Рисковите инвестиционни проекти намаляват. Industrial construction and construction in agriculture hold important positions in non-dwelling construction in 2014 and this trend will persist in the future. The situation in the segment is evident from the 2014 data about building permits. Building permits for administrative buildings register growth at 19,9% whereas the total floor area increased by 27,2 %.
Data show decrease at 7,5% in building permits issued for other buildings, whereas total floor area went down by 13,3%. In 2014, started construction works on administrative buildings remains in stagnation with negative values at 16,1% compared to 2013 . A higher number of investors are waiting for a more favourable market situation in order to develop the segment. In the next year, growth in office construction is projected to vary at about 2,0 %.
Other buildings also register decrease at 4,7 year on year.
In 2014, there was some wake up at the property market but results were negative on the whole. These negative results are most pronounced in prices as well as in the volumes realised. Holiday properties register the highest decline in prices, down to 50%. Prices of luxury homes are also on a downward trend which, however, is more moderate at 20% of the price levels registered a year or two ago. According to data by the National Statistical Institute, prices of other homes maintain their levels, with a slight downward adjustment. The greater part of potential buyers are waiting to see, both the prices and the lending terms of banks.
It has now been several years since the construction industry changed direction and focused on infrastructure projects. This segment is of particular importance for the development of the construction sector and the economy in general. According to provisional data, civil engineering accounts for 59,3,7 % of total revenues from sales of construction products or 2463 MEUR, registering growth at 2,5% comnpared to 2013. Civil engineering is fully dependent on the government budget, on local structures and on resources from EU funds. The positive trend observed in the civil construction and civil engineering sector is expected to break at the end of 2015, due to the transitional period of the EU 2014-2020 programming and the decreased funds for civil engineering. Energy construction forecasts for the next years are hesitant due to the uncertain start of construction works on South Stream and on nuclear power energy projects. This negative platform prevents the sector from revealing its full potential.
Employment in construction makes up 5,2% of total employment in the national economy, with a continuing trend compared to last year. Employment in construction decreased by 0,8% against 2013. The analysis shows an ageing workforce trend in construction and outflow of young people from the profession. The specialised construction education establishments actually generate unemployed persons.
In 2014, unemployment in construction makes up 10.5% of total unemployment in the country. Over the same period, newly registered unemployed persons in construction show a decrease at 12,6% compared to 2013, which however is not a permanent trend because changes are attributable mainly to seasonal factors. According to analyses by BCC, unemployment in construction is at much higher levels.
BCC’s is careful in its assessments about the sector’s stabilisation. The annual macroeconomic forecasts and BCC’s interim forecasts for 2015 are not very optimistic. After the record low levels of the volume of construction works, the construction sector is tuned for slow recovery to positive values in 2015 -2016.
The development priorities of the construction sector should be:
Investment in “green economy”.
Increased resources for public investments – procurement should be entered in the government budget.
Development of the small and medium-sized business – the backbone of the construction sector.
The State should put in place conditions for attracting foreign investments.
Absorbing the resources from the EU-funded programmes.
Ex-ante control of EU-funded procurement.
Aligning the legislation with the European directives and regulations
Accessing third-country markets should be made a government policy and should be warranted by the government.