Business Environment
General market conditions
A4 Dębica RzeszówIn 2013, Poland experienced another economic downturn. In accordance with the initial data provided by the Central Statistical Office (GUS), the GDP increased by 1.6 per cent annually in comparison with 1.9 per cent in the previous year. In the case of the construction industry, particularly significant slowdown was visible. Gross added value in the construction sector in 2013 in comparison with the previous year decreased by 9.0 per cent in comparison to increase by 0.3 per cent in 2012.
Relatively low number of public investments (in particular in the infrastructure area) and long winter made the first half of the year particularly difficult. The general trends ratio indicated negative values meaning that a significant number of the surveyed enterprises declared negative change of trends and not their improvement. Starting from the second half of 2013, first signals indicating improvement of the market atmosphere occurred, the trend ratio started to increase successively and the dynamic of GDP accelerated significantly.
In 2012, the construction and assembly production slightly decreased (-1.1 per cent in comparison to 2011), but in 2013 the decrease was a two-digit figure. The industry has decreased by 13.6 per cent over the course of the year, mainly due to ending contracts and investments in the infrastructure segment (road construction) and residential segment.
Expenditures by the key investor in the roads segment, the General Directorate for National Roads and Highways (Generalna Dyrekcja Dróg Krajowych i Autostrad – GDDKiA), decreased significantly from PLN 22.6 billion in 2012 to about PLN 13 billion in the previous year, namely by about PLN 5 billion less than initially planned. Lower expenditure was caused among others by financial problems of certain contractors and the related delays and the need to reissue construction tenders (e.g. in the case of sections of S5 expressway, A1 and A4 highways).
The share of civil and water engineering facilities in the structure of construction and assembly production decreased from 55.3 per cent in 2012 to 52.1 per cent in 2013, mainly due to an increased share of non-residential construction (from 30.8 per cent to 34.7 per cent).
After relatively positive 2012, when the number of flats completed and put to use increased reaching the level of 152.9 thousand, in 2013 that number decreased to 146.1 thousand flats put to use (-4.4 per cent annually). The number of flats whose construction was started decreased significantly (-10.2 per cent annually from the level of 141.8 thousand to 127.4 thousand), similarly as the number of issued construction permits (-16.0 annually from the level of 165.1 thousand to 138.7 thousand). Changes in the loan requirements, record-low interest rates resulting in relatively cheap financing and at the same time low interest rates on bank deposits and decreasing base of flats in construction (in particular in large cities) caused a significant increase of pre-booking sale by the largest developers and effectively decreased the pressure on lowering the prices of real properties on the primary market.
Market development perspectives
Pixel PoznańThe year 2013 meant significant decrease of investments. It is expected that 2014 will be a period of stabilisation and restraining the strong downturn trend. This year will be characterised by a significant number of resolutions concerning new contracts financed from the budget of the European Union within the framework of the new financial perspective for the years 2014-2020. The business operations of the Budimex Group companies focus on the construction sector, which to a large degree uses aid funds obtained from the European Union. Within the framework of the new financial perspective for the years 2014-2020, Poland will receive EUR 82.5 billion and the largest operating programme will be the Infrastructure and Environment Programme with allocation at the level of EUR 27.5 billion. Large part of those funds will drive development of widely understood road and railway infrastructure in the following years.
In accordance with the provisions of the act on state budgets, the increase in GDP in 2014 should be 2.5 per cent, and the yearly average inflation rate should amount to 2.4 per cent. The unemployment rate at the year-end is projected to be 13.8 per cent. Medium term construction market development perspectives are stable. Forecasts for the following years are a little more optimistic.
Undoubtedly, more challenges and also hopes are related to the roads segment. General Directorate for National Roads and Highways estimates that in the years 2014-2015 it is going to spend about PLN 31 billion of performance of its statutory goals. Until the end of 2013, the General Directorate for National Roads and Highways announced about 50 tenders for construction of national roads and ring-roads with the total value exceeding PLN 35 billion. Their performance should be reflected in increase of the value of the roads market in the years 2015-2018. High competition on the infrastructure construction market still remains the risk factor. The tenders recently announced by the General Directorate for National Roads and Highways are very popular and the number of applications for access to the two-stages proceeding remains at the level of 17-21.
Railway infrastructure projects are expected to experience growth in coming years. In accordance with the assumptions contained in the Multi-Year Railway Investment Plan until 2015, prepared by the Ministry of Transport, Construction and Maritime Economy, the expenditures of PKP PLK (the main investor in that segment) necessary for performance of 140 projects in the years 2013-2015 will amount to PLN 24.9 billion, including PLN 4.0 billion in 2013, whilst in 2014, they are to reach PLN 8.3 billion and in 2015 exceeding the level of PLN 12.5 billion is expected. Resolutions of new large scale tenders are expected from 2015.
Continuous financial problems of some construction companies, uncertainty of support for co-generation and unpredictable regulatory solutions caused a downturn of the investment pace in the segment of energy-related construction. The largest energy groups revise their investment plans and suspend projects with uncertain profitability. It seems that the most stable and predictable sub-segment of that market comprises energy transmission networks, where PSE, as the major investor, is going to spend even PLN 8 billion on investments in the years 2014-2018. Demanding tender conditions may constitute a significant risk factor for the potential contractors.
In the difficult 2013, the non-residential construction segment was least affected with decrease only by 2.5 per cent in comparison to the previous year. Moreover, a significant growth occurred on the market in the categories of transport, communication, industrial and warehousing buildings. The expected improvement of the general trends and economic boost in the industry, stabilisation of the orders from the public sector an better perspectives on the side of the private investors constitute a good forecast for the incoming years.
The year 2014 may bring an increase in the number of investments in development companies. Decreasing offer of the primary market combined with the expected economic boost should cause maintenance of positive trends from the second half of 2013. Simultaneously, limitation of access to bank financing caused by changes in the regulatory background should be taken into account.
The opportunity of further development of the infrastructure market may be also based on the public-private partnership (PPP) formula. PPP is still applied in Poland to a very limited degree, usually with respect to small projects. The Polish Development Investments (PIR) company, established within the framework of the Polish Investments programme, may become a catalyst of development. Out of PLN 10 billion designated for the company's operation, PIR intends to allocate 20 per cent for PPP. Besides, the European Commission indicated that the new budgeting perspective comprises more revolving and guarantee instruments and PPP will be the preferred financing model (for example by the Marguerite fund).
