Сonstruction in Russia and worldwide: crisis optimism of 2011
Datum: 19.01.2011
Сonstruction in Russia and worldwide: crisis optimism of 2011
The analysis of 2010 publications in major foreign media shows very reserved attitudes of European and American journalists to discussing the state of building and construction market in Russia. It is clear from the total share of materials in specialised media dwelling on the theme, which were few during the last year. Foreign investors were reluctant to go ahead with Russian projects, and their investments were scarce. Large companies were not so eager to enter the local market either. It is rather difficult to say whether such informational background is a cause or a consequence of current trends, especially given that only 7% of top managers in Russian construction companies find the industry’s financial condition to be favourable (Rosstat data for the third quarter 2010). Yet, during the last year Russia was able to hold its 8th position among the top 10 largest construction markets of the world.
Top 10 largest construction markets (in decreasing order):
- China
- USA
- India
- Japan
- South Korea
- Germany
- Spain
- Russia
- United Kingdom
- Canada
- Nigeria
- India
- China
- Russia
- Vietnam
- Indonesia
- Romania
- Morocco
We see that Russia is present in both lists. Though it is a noteworthy result, the real state of things in the industry should not be overlooked. In 2010, it was in the forefront of sectors with the most severe impact from the economic crisis. The sharp drop of capital construction volumes in developed countries has successfully overcome a $650 billion mark. Now the market is close to building volumes in China, which is second only to the USA (so far). At the moment, the recovery process has begun only in countries with the smallest GDP drop and lower local economic dependency from capital inflows. Real estate prices show the downward trend in most European countries, but despite expectations it did not lead to increased demand. Moreover, residential activities dropped both with the well-off and with less well-to-do consumers.
| Current state | Less than 5% | 5–20% | More than 20% |
| Recovery trends | China (no drop at all), Israel (no drop), Germany, Canada, Mexico, Austria, Taiwan, Switzerland, Malaysia | Sweden, New Zealand, France, Norway, Malta, Japan, Indonesia, Iceland, Holland, Australia, Finland | Great Britain, USA, Thailand, Estonia, Singapore, Hong Kong |
| No recovery | Euro area in general | Czech Republic, Spain, Denmark, Italy, Greece, Slovakia | Bulgaria, Ireland, Lithuania, Latvia, Russia |
Real estate prices have resumed their upward trend in the countries that were not so strongly affected by the crisis (Australia, China, Singapore, Canada). For the rest of the world, the price slump has bottomed out but still without further increase.
Like in Russia, investors showed a clear liking to reconstruction and modernisation of the housing stock. At the same time, institutional and budget incentives failed both to liven up the residential sector and to retard the fall in commercial and industrial markets. Meanwhile, infrastructure construction projects enjoy recovery thanks to state anti-crisis investment programmes. The USA, China and certain European countries have chosen to stake on infrastructure construction.
In spite of the prolonged downturn, India and China look ahead with confidence. Success of the construction industry in these countries helped them in forming a solid foundation for impressive social and economic development during the last years.
Aftereffects of the crisis were not so striking for building and construction markets in developing countries. In their case, the downturn simply slowed average growth rates, from 11% in 2006 to 0.5 by the middle of 2010.
The lack of really objective information on macroeconomic indices makes it hard to assess the actual industry decline for Russia. Serious divergences in statistical calculations, estimates of officials and market players can easily baffle anyone interested. For example, the Russian Union of Builders states that 80% of projects were freezed during the crisis, while developers are sure in ten times drop of construction volumes. House prices in different regions went down 30% to 50% (not taking into consideration the seasonal peak in autumn), depending on a segment. By now, the share of Russian building and construction sector in GDP dropped nearly three times. Today, it does not exceed 1.5–2%, which is about 5.5 times lower than in Europe. In fact, the construction volume curve in Russia does not differ so much from the dynamics of the declining world GPD. In other words, the situation in domestic building complex is difficult and unstable but generally coincides with worldwide trends. When taking into consideration the effect of inflation, house prices continue to lower in the country.
It is too early to forecast an industry recovery on a global scale. If the statement is right predicting the return to precrisis levels by the end of 2012, it will be 2011 that becomes a trendsetter. During the next year, the situation will continue to stabilise gradually. Researches show that the growth of nominal house prices will be close to consumer inflation rates. Moreover, some experts are sure that price rates for large cities may exceed the inflation by 4–5% only.
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