Prepared by Buildecon, Eltinga (creation of indicators and development of algorithms for aggregation) and iBuild (project research and project database), EBI Construction Activity Report examines the domestic construction industry on a quarterly basis, including the volume of newly started construction works, and the value of projects completed in a given quarter by aggregate and by subsector as well. Owing to the pandemic, the analysts of EBI decided to follow the changes affecting the construction industry even more closely and run a monthly update of the EBI visualizations for start, completion and the resulting output for each segment.

In Hungary, the pandemic imposed major restrictions from mid-March on, which only slightly affected construction works starting or getting completed in Q1 2020. However, April and May were marked by severe measures. Figures for the second quarter of the year show that even though the pandemic has had an impact on the sector, there was no drastic fall. It is certain that construction projects did not start at such low value in Hungary since the last quarter of 2016, and there was a big slump against the beginning of 2020, but compared to the figures of the last and first quarters of 2019, the difference is not so much. It is therefore worth taking a closer look at exactly which segments saw a downturn, as some of the drop may have been caused by other market processes in addition to the pandemic.

While in Q2 2020 construction works started in the construction industry on a total value of HUF 418 billion, in Q1 2020 this figure was HUF 606 billion. Thus, a strong start to the year (an increase over the end of last year) was followed by a 30% decrease. Yet, the renovation works of M3 metro line and the next phase of the Samsung project in Göd started in Q1, contributing with a significant amount to the high Activity Start Indicator of EBI Construction Activity Report Q1 2020. Overall, the first half of the year has not yet seen a major decline in the value of construction works that started in the construction industry, although it is true that it has now hit its lowest level since 2016.

In H1 2020 a major share (45%) of started construction works were concentrated in the Central Hungary region. This was mainly thanks to the higher investment numbers in Q1, so in Q2 the region had a similar share to the previous years. The rest of the country also had a very similar share of started new construction works to previous years.

In case of project completions, Q2 2020 did not mark a drop compared to the previous period, but construction works reached completion in the value of nearly HUF 450 billion, considerably lower than expected in Q1. In the first three months of 2020, the analysts of EBI Construction Activity Report expected the completion of works to be worth nearly HUF 785 billion in the period between April and June, based on iBuild construction project database.

No real pandemic impact on starts of civil engineering projects in Q2

The decline in new construction works in Q2 2020 can clearly be attributed to the decrease in the Activity Start Indicator of building construction as slightly more civil engineering works (in value terms) started in Q2 than in Q1. Yet the Activity Start Indicator of civil engineering was already lower in Q1 than in previous years.

In H1 2020, civil engineering works started at a value of slightly more than HUF 300 billion, significantly less than in both halves of last year. At the same time, the previous three years saw a lot of projects in the subsector; and the beginning of this year does not seem so bad either. It is also true that there was no big difference between the figures for Q1 and Q2 in the Activity Start Indicators for civil engineering, that is, project starts did not feel the negative impact of the pandemic. For instance, Q2 2020 saw the construction start of 1) the section between Szentkirály and Lakitelek on M44 expressway, 2) the southern part of main road 8 bypassing Veszprém and 3) a hazardous waste storage facility, as well as the projects of a well, water supply, sewerage and closed drainage (Paks).

Building construction project starts suffering in Q2

Looking at building construction works, the value of started construction works did not decrease in H1 against the same period of the previous year, but this was due to better figures in Q1. Q2 already saw much more decline in the Activity Start Indicator of EBI Construction Activity Report: since the last quarter of 2016 no such low value of construction works has started in building construction. The total value of projects entering construction phase accounted for HUF 251 billion, 46% less than in the previous quarter. Within building construction, both residential and non-residential works were affected by the downturn in Q2 2020, with the former showing a 65% drop and the latter indicating a 42% decrease in Activity Start.

The biggest non-residential projects entering construction phase in Q2 2020 included 1) Jysk logistics and distribution centre in Ecser, 2) Caadex steel structure production hall in Komló, 3) EMC measurement laboratory and server centre project in Budapest and 4) Phase 1 of Corvin 7 office building.

Hardly any new multi-unit housing project starts in pandemic months

Q1 2020 already brought a strong reduction in multi-unit housing construction compared to previous years, but then the drop was less visible on the rolling yearly total. In Q2 2020 the value of started construction works fell even lower, which impacted the rolling yearly total as well. And when it comes to the number of started projects, the period of April-June was an unprecedentedly low number not seen since the upswing.

The share of Budapest and its surroundings greatly increased in Q1 2020 compared to previous years in the value of multi-unit dwellings entering the construction phase. More than 70% of projects that started between January and March were concentrated in this region. By Q2 2020, however, the share of construction works started in Central Hungary massively decreased and remained slightly below the average value of previous years, according to EBI Construction Activity Report.  

Several factors might have caused the decline in the Activity Start Indicator of multi-unit housing construction:

• Among all subsectors of construction, the housing market may have been most affected by the lockdown. It is important for buyers to meet agents in person, visit the site, see the housing project in person, all of which they failed to do due to the restrictive measures. Thus, several developers might have chosen to postpone the start of their project.
• The preferential 5% VAT rate was reset to 27% from January 2020 on, which was a big blow to the housing market. Lower demand at the beginning of the year might have made investors put off their projects, as evidenced by the declining figures of Q1 2020.
• Mainly those planning projects in Budapest may wait on to find out more details of the development conditions in brownfield sites. It may partly explain the much bigger decline in Q2 in the value of multi-unit housing projects entering construction phase in the capital city than in Q1.