Ups and downs in Latvia’s construction sector in 2014

DELFI / Tomas Vinickas

The third quarter had demonstrated only 0.6% growth in comparison with the same period of 2013. The developments surrounding the Insolvency Law and the tense geopolitical situation are also worth mentioning, notes DNB Bank’s Trade and Services manager Bernhards Malinovskis.

Some areas of Latvia’s construction sector had demonstrated opposite trends at the very beginning of the year. For example, a significant increase had been noted in building construction in the first half of the year. In the third quarter, however, there had been a notable decline in the majority of building construction projects in the country. Nevertheless, the country’s building construction sector had demonstrated 35% growth in first nine months of 2014. Engineer building construction sector had demonstrated a significant decline starting in the end of 2013.

Although construction volumes had begun to slow down in Q3 2014, there had been a slight increase in new construction projects. In addition to that and considering comments provided by some builders, no increase is expected for industrial construction sector in 2015, said the expert.

The outlook for residential buildings is unclear. Considering the recent amendments to the Insolvency Law, experts expect caution from banks in relation to the financing of new apartment buildings. But because that some construction projects are being funded without banks’ participation, there may be some slow-down in the construction of new apartment buildings, but not a large one. This means the realization of some of the larger projects will have a major impact on the country’s construction sector, explains the bank’s representative.

Significant changes that have been introduced along with the new Construction Law have extended the realization of some the existing construction projects. However, it is too soon to assess their actual effect on the next year’s construction volume. Additional risks are created by this year’s increase of wages in the industry. Although wages do not form a large proportion of construction costs, the latter have remained nearly unchanged thanks to relatively stable prices this year.

The numerical increase in the issue of new construction permits in the most important construction sectors (private homes, multi-apartment homes, production, storage and trade buildings) allow experts to predict positive developments for next year. However, it is important to keep in mind that even though the total number of issued construction permits has been on a rise, the planned construction volume has been in decline. Increased activity of clients may be related to the will to acquire construction permits at the current regulation. Also, recent changes to regulations and reduction of banking funding could reduce the ability to realize the planned projects, said Malinovskis.

According to him, the most significant factors that have affected the country’s construction activity is the geopolitical tension and practically simultaneous changes to the Insolvency Law, Construction Law and residence permit issue rules. These factors created a degree of uncertainty for the society and businesses.

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