This year has been rough on the construction industry, and the prospects are not looking good. This October, the industry actually experienced a slight increase, so what could be wrong?
What happened?
At first glance, things might not seem so bleak, since October was only the second time this year when production did not decrease. However, that’s not as good of a news as you’d first believe. According to an article written by G7, October brought an increase in production compared to last year, even if it was minimal. It was still something quite unheard of in a while. In the past one and a half year, this was only the fourth month to bring an expansion to the table.
The first ten months of 2023 dropped production by a stunning 4,2 percent all together. To put into numbers, the all-encompassing production was roughly HUF 660 billion (EUR 1,7 billion). Out of this around HUF 400 billion (or a little more than EUR 1 billion) went into construction of buildings and the leftover amount of HUF 260 billion (around EUR 680 million) was used for constructions other than buildings. This amount has actually decreased in the past time period.
Concerning projections
In value, the sector’s order backlog makes up for HUF 2200 billion (EUR 5,7 billion). This means a drastic drop in quantity: drastic meaning more than 30 percent contrasted with the numbers of the same month of last year. The actual statistics are not that shocking, but the truly very concerning part of it are the projections based on them. Compared to the past two years, the current value is the lowest in memory. Especially once the drastic price hikes are taken into account, which drove up the market by a shocking 40 percent.
The consequences
The construction industry’s struggles have started to spread down to the suppliers and manufacturers. The prices are being felt by everybody, and are perfectly represented by the Icarus fall of buildings, which have dropped from their historical high of 27 percent to a spectacular low of 7 and a half percent.
Thanks to drops such as these, prices have started caving in too. According to the Hungarian Association of Building Materials and Building Products, there has typically been a significant price drop in fired ceramic brick and tile products and an even greater decline in EPS-based thermal insulation materials.
Demand has fallen too. Some products experienced more than a 30 percent fall, whereas brick and tile product prices neared a frightening 50 percent decline. Perhaps this fall was behind the closing of all of the brick factories in the country in the autumn? The decline is in part thanks to cost increases and the governmental additional burden also contributed to the doors closing of the factories.
Reactions
Even at the end of 2022, industry experts were talking about a slowing demand. However the current situation in some segments can only be called slowing down if one is a snail. For example, the construction of newly built apartments has essentially come to a standstill.
Residential renovations are still ongoing, but not for long if the decreasing trends are to continue. Rising interest rates, reduced support, and decreasing purchasing power are slowing things down in this sector as well. Add to this the restrained state budget due to the held-back EU funds. There have been some larger projects in the industrial investment sector, which have kept things going for the industry so far.
What can we expect?
The future looks bleak for the construction industry. The number of building permits for new homes has decreased significantly. Perhaps a change can be brought by reductions in interest rates and state support programs. The industry actors are counting on the Family Home Creation Discount (CSOK Plus) and the Residential Building Modernisation Program to bring about a turn for the better.
Read more about the October statistics HERE.
Read more about another suffering industry in Hungary HERE.