Over a year after the global financial turmoil began, the Russian construction industry is still developing at a healthy rate. With construction output growing by 20% year on year, Russia is in pride of place among the three largest CIS countries. The country also obviously has the largest construction market in the CIS. This was worth €48.9bn in H1 2008 and boasts more than 13 times the total construction output of Ukraine and Kazakhstan (€3.6bn in both countries). All three markets, however, have been severely affected in terms of residential construction.
Consequences of the credit crunch
Liquidity has been considerably reduced on the construction markets of the largest CIS countries. In Ukraine, which witnessed construction output growth of about 15% in mid-2007, there has been a fall observed in the value of construction work, of 2.1% between January and July 2008. Kazakhstan, which, one year ago, boasted a 25% increase in the value of construction projects, experienced stagnation in construction at the beginning of 2008. However, Kazakh builders later succeeded in overcoming difficulties, and, as a result, the market developed at a rate of 10% in H1 2008. Of these three, only Russia has been able to maintain growth in the construction industry, partly because a substantial number of developers and investors active on the market were not using bank loans or were using such financing to a limited extent, and as a result were not strongly affected by problems with liquidity and the increased cost of money. However, even in Russia the rate of growth has been declining gradually since the beginning of the year.
In residential construction, however, a considerable slowdown has been seen in all three countries. At the beginning of 2007, construction of residential space increased by more than 60% year on year in Russia and Kazakhstan, and the rate of growth is now less than 10%; the latter country has even noted a decline in residential construction in the current year. It is worthy of note that the housing construction indicators began to fall, not with the start of the liquidity squeeze, but a few months earlier, which indicates that the problems on the Russian and Kazakh residential markets began earlier and that the financial turmoil merely contributed to the slowdown. Ukraine, in turn, was not able to boost residential construction to the levels seen in the other two countries in early 2007, and in H1 it saw its housing market almost stagnating (a 2.5% y-o-y increase).
We expect liquidity problems to continue in 2008 and 2009, and banks to remain reluctant to provide financing for development projects. As Russia has been the country least influenced by the global financial turmoil, we predict double-figure growth in construction output in 2008 for this country, and moderate growth in Ukraine and Kazakhstan. The stagnation in residential and non-residential construction in the region is likely to continue as no pertinent solutions have been found to foster growth. Infrastructure development plans might be revised in Kazakhstan and Ukraine, but in Russia no major planning changes are expected. |
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