Portuguese construction companies consumed 1,246 thousand tons of cement in the first four months of this year, a volume that represents a decrease of 4.1% compared to the same period last year. This indicator points to a slowdown in the sector’s activity, which has been slowing since 2022. It is a contraction that comes at a particularly difficult time for the country’s economy and after “robust and sustained growth since 2016”, but already showed signs of slowing last year, with “an increase of only 1.5%” compared to the previous year, emphasizes Manuel Reis Campos, President of AICCOPN (Association of Construction and Public Works Companies).
The decrease in cement consumption is due to the fall in investment in construction and in the gross value added (GVA) of the sector, which experienced year-on-year declines of 6.5% and 3% in the first quarter of this year. .7% registered, respectively.
There are several reasons for the trend reversal. “The rise in inflation and the consequent increase in interest rates, which has caused a significant increase in the financing costs of the banks, as well as the reduction verified in terms of the issuing of permits by municipalities for construction and rehabilitation works”, to which the ” delays” are added when carrying out the investments foreseen in the PRR [Plano de Recuperação e Resiliência]”, justify this negative evolution, says Reis Campos. Few public works, a breakdown in private works and the difficulties of increasing the cost of borrowing and access to credit are shaking the sector.
The evolution of the business in these first months is not in line with the growth forecasts for 2023 released by the European Commission. Construction investment is projected to increase by 2.1% this year and 2.8% in 2024. Reis Campos warns that this scenario is based on public works being carried out. And in this chapter, the country continues to add delays. As the associative leader emphasizes, “the realization of these forecasts is based on an acceleration of public investment”, focusing on projects that have “guaranteed European funds, such as those provided for in the PRR”, and also “the existence of a regulatory and fiscal environment that promotes and encourages private investment”.
In terms of public works, the value of tenders up to the end of April was EUR 1.715 million, an increase of 44% compared to the same period of the previous year, and contracts signed amounted to EUR 625 million, 50% more. Contracts signed via direct agreements and prior consultations also amounted to €190 million in the first four months of the year, an increase of 52%. These are significant growth figures, but they come from a year 2022 characterized by little activity in this construction segment.
In private works, with a focus on housing, INE announced this week that the number of licensed buildings fell 10.9% year-on-year in the first quarter, with new construction registering an 11.1% decline and permits for rehabilitation down 10.2%. Nevertheless, the number of approved homes grew by 7.6%, despite a decline in the number of buildings by 12.2%. For Reis Campos, this fact reveals “a greater investor commitment to the construction of multi-family homes” to the detriment of houses.
Falling search
However, the current economic context may put a brake on these projects. Demand for homes is falling and the situation is forecast to remain the same for the next three months, according to the latest survey by RICS and Confidencial Imobiliário of real estate agents and developers. The study concludes that the decline in sales and expectations is related to the rise in interest rates and the uncertainty associated with the More Housing program. For Manuel Reis Campos, the government’s package to tackle the housing shortage in Portugal is currently under great pressure.
He adds: “the current economic situation, strongly determined by the evolution of inflation in the Eurozone and the consequent evolution of interest rates set by the European Central Bank, which increase the financing costs of construction projects, as well as the effort required for individuals resorting to mortgage lending, put more pressure on the More Housing legislative package to achieve the desired effects”.
According to him, the program requires “broad consensus”, less bureaucracy and more speed in the permitting process. Private investors, from home and abroad, lack “confidence and real incentives,” pleads the chairman of AICCOPN. Now Reis Campos reminds once again that the sector must see tax measures approved, such as “the application of reduced VAT on new construction and renovation and the abolition of AIMI, the municipal tax that returns to the state”.
Live Money journalist
Source: DN
