Construction: Risk
With the exception of some local markets, global residential construction activity generally increased in 2011. The continued recovery was facilitated by the gridlocked conditions in old-housing markets and a range of other factors including a moderate revival of demand, government support measures, and easing interest rates and prices. The recovery will pick up speed in 2012. Improved unemployment figures, low mortgage interest rates and inexpensive homes may be what help the market sustain this growth.
Private non-residential construction, whether offices, industrial or commercial premises, or hotels, will be on the rise in 2012 as the economy continues to grow and companies expand due to the demand increase. Low long-term interest rates will also help the market and be a positive for investment in plant, property and equipment.
The Public Works sector may see small growth due to the fact that they are less sensitive to economic conditions but the recent trend towards fiscal austerity could hinder large gains in 2012.
According to the construction outlook, countries fall into one of three broad categories. In countries such as Ireland, Iceland, Spain, Portugal, Denmark, the Netherlands, Greece, Central European nations, and the United States, the market experienced excess supply and high pricing. Most likely, this group will need a couple more years for the market to stabilize and resume growth. In France, United Kingdom, Belgium, and Italy though, the crisis has only moderately affected their markets due to the fact that supply shortages have moderated the crisis effects even in the face of rocketing prices. The third group is made up of countries where markets have had little impact and have been holding steady to better economic conditions. This third group includes Australia, Canada, and a few European countries (Germany, Austria, Switzerland, Norway, Sweden, Finland, and Poland).
In Central Europe, the construction sector is still feeling the effects of the crisis. The public works sector has also suffered from stagnation of subsidiaries due to excesses in commercial territory. However, considering the capital spending backlog, a recover for central Europe could develop by 2012.
In Spain, one third of companies that fail are in the construction industry. With home prices that have fell 25% and an exceedingly high unemployment rate of 20%, the downward trend in the housing market will continue into 2012. This also applies to non-residential construction and public works, which both experienced an even more daunting downturn than the residential markets.
In the United Kingdom, construction rebounded in 2010. But business conditions worsened in 2011, likely hindering the growth of the construction markets in 2012. In the public sector, which generated 40% of sector business, has seen declines due to increases of austerity measures and orders associated with the Olympic Games coming to an end. In residential construction, the credit crunch and wage stagnation have discouraged first time home buyers but recent measures taken by the Liberal Democratic coalition government will hopefully help first time home buyers and increase the availability of public land for the construction of public housing.
In France, residential construction leveled off from its growth in 2009 due to rising prices and a reduction of tax breaks for rental property investments. With the increase of unemployment, income stagnation and a credit crunch, demand could taper off and slump even more in 2012. In the non-residential sector, possible austerity measures could hinder growth and could suffer from a new economic downturn in 2012.
In Germany, construction recorded no losses in 2010 and prices have remained stable. Since 2010, a slight increase in the market has occurred especially in the large cities. This is due to stronger demand in rental properties for both businesses and residential property. Commercial property has also seen growth with the development of shopping centers and conversion of property in to department stores. The public sector could tailor off in 2012 though due to fiscal austerity measures.
In the United States, the overall investment in construction declined again in 2011. The decline was greater in the non-residential building segment in comparison to public works and residential construction segments. The new home sales market has finally hit bottom. Loans granted after 2009 have been of much higher quality and will likely help reduce the number of foreclosures and the stock of vacant housing. Due to the low level of business activity though, a return to normal will likely take several more years.
Non-residential construction will continue to face severe difficulties in 2012 due to the financial difficulties facing states, counties, and towns.
Works associated with infrastructure will benefit even more from the injection of public funds not only at the state level but also at the city and county levels, although the investments in infrastructure have not yet been approved by congress.
In Japan, construction should see growth in 2012 due to the massive destruction of the earthquake and tsunami and also from the contamination and evacuation of large plots of land due to the troubled nuclear reactors. Most of the growth will be in infrastructure thanks to a large push by government to reconstruct damaged areas. The private housing market will see growth as well but not as strong as the public sector.
In Emerging Markets (Brazil, Saudi Arabia, Israel, Egypt, the Philippines, South Africa) there is a huge shortage of affordable housing in major urban centers. Demand is high due to demographic pressure and growing urbanization. Prices are rising due to the shortage of available land and because of this, large groups of middle class workers are excluded from the housing markets. In the non-residential sector, growth has been booming with the building of new shopping centers and supermarkets due to the investments by the tourism and financial sectors. Infrastructure construction has also increased in emerging markets.
Updated April 2012
