At the end of the first quarter of 2021, the construction sector showed a recovery in entrepreneurial sentiment to pre-pandemic levels. As follows from the analytical material of the Center for Conjuncture Research (CKI) of the Higher School of Economics, the dynamics of January-March gives reason to believe that the industry will switch to compensatory growth in this quarter and “win back” the fall of 2020. Market participants, especially the housing market, are quite optimistic about the future, but note that it will depend on the economic situation, government support and reductions in excess requirements.
Business activity in the construction sector in the first quarter of 2021 recovered to pre-pandemic levels – as follows from the material published on Friday by the Central Research University Higher School of Economics, the index of entrepreneurial confidence increased by 3 percentage points, to minus 15%, which became one of the best values for the pre-crisis 2018– 2019 years. Improvements have been observed for the second quarter in a row – in October-December 2020, in terms of optimism, the construction industry was second only to agriculture and manufacturing. Prior to this, the construction site in terms of the share of pessimistic assessments was second only to the service sector, which was badly affected by the pandemic.
This dynamics is explained by a further improvement in estimates of expected employment, which, according to the Central Committee of the Russian Federation, “after a serious recession, was replaced by a post-shock increase in optimism”.
Let us explain that last year the industry recorded a labor shortage caused by the departure of migrants. However, as HSE experts note, this problem mostly concerned “small and financially weak construction companies” – large companies had the opportunity to hire Russians, albeit increasing their costs. It is too early to talk about a solution to the problem – 20% of companies indicated an aggravation of the shortage of workers (against 17% a quarter earlier), only 13% of organizations recruited new specialists.
Another factor in improving the business climate in the industry is a modest but steady improvement in the estimates of the actual state of the order book. According to Diana Kaplinskaya, vice president of the Center for Strategic Research, the order supply in April was 4.7 months, while a year earlier it was estimated at 3.2 months. However, about 40% of company executives call the existing order book “below normal level” – only 14% recorded an increase in orders.
According to HSE experts, taking into account the assessments of the business climate in recent years, “it can be almost confidently asserted that starting from the second quarter, the industry will enter a phase of recovery growth,“ fighting off ”the losses of the pandemic 2020” – housing construction will become a driver. It should be noted that it was the housing sector that recovered the fastest – at the end of the year it even showed a slight increase (up to 82.2 million square meters against 80.3 million a year earlier). Moreover, the industry was “fueled” by the 6.5% concessional mortgage program, which caused a boom in demand for housing.
However, such a prospect for the development of the industry does not mean that the industry will completely come out of the protracted crisis, which began even before the pandemic.
Moreover, in terms of resilience, construction remains one of the weakest sectors, along with retail and services. As noted by the Central Committee of the Russian Federation, “the stabilization dynamics of stress stress remains modest as well” – in the first quarter, the risk resistance index improved slightly, remaining far from the indicators of 2019 and early 2020.
According to Rifat Garipov, head of the commission for project financing of the Public Council under the Ministry of Construction, state support and a reduction in the investment and construction cycle allowed to increase the pace of construction – in 2020, about 3 thousand mandatory requirements were excluded. Inteko President Alexander Nikolaev assesses the industry’s prospects in 2021 as positive – although they will depend on macroeconomics, the ability of developers to offer a quality product at a balanced price in the face of shrinking demand and decreasing purchasing power of the population, as well as continued state support.
Dmitry Kotrovsky, chairman of the Opora Rossii committee on construction, believes that the situation in housing construction can be considered favorable, but commercial real estate accounts for only a third of the “total capacity of Russian construction”, and the rest is construction projects financed from budget funds. In this sector, he believes, “the situation and prospects are so far less rosy.”
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