Construction Sector Analysis Report Published

Turkey's Association of Contractors (TMB) has released the January 2023 edition of its Construction Sector Analysis Report, which is closely followed by economic circles and the industry. The analysis, titled "Global Economy Contracting, Recession Added to Inflation Debate," assessed data relating to the global and national economy and the construction sector. In the Construction Sector Analysis Report by Turkey's Association of Contractors (TMB) covering the final quarter of 2022, it was emphasized that the domestic construction sector, which is contracting, has been going through an extremely difficult period, and it was stated that a return to sustainable growth is not foreseen in the near term. The report noted that development targets cannot be sustained without strengthening the construction sector, and that additional measures are expected in 2023 to address the problems of public contractors and the housing sector. In international contracting services, attention was drawn to recent developments in a world experiencing war and economic crisis, as well as difficulties created by security problems in traditional markets in the region. The construction sector, which plays a driving role in the broader economy through the demand and employment it creates for over 200 sub-sectors, enters the new year facing the issue of high increases in input costs that began before the pandemic and continued in 2022 under the influence of internal and external dynamics. In addition to high inflation, insufficient appropriations and delays in milestone payments continue to have negative effects on the sector.

Public contractors also seeking support

The report noted that the continuous contraction experienced at increasing rates over the past five quarters in the construction sector continued in the third quarter of 2022, and that there appears to be no likelihood of a return to sustainable growth in construction activities in the near term. It was also noted that the upturn in sentiment in sectoral investments in the second quarter of 2021 gave way to renewed decline in subsequent quarters, and emphasis was placed on the need for a revival in investments and a solution to the chronic problem of rising input costs for a return to growth. The report stated that development targets cannot be sustained without strengthening the construction sector, particularly the urban transformation process made inevitable by earthquake risk, and stressed that additional measures are expected in 2023 to address the problems of both public contractors and the housing sector. On the other hand, the analysis assessed that the government's recent campaigns supporting housing sector production have been positive. Green transition could be an opportunity The report also recalled that domestic problems in previous years were attempted to be compensated by large construction firms through international projects, and assessed that the security problems in both a world experiencing war and economic crisis and traditional markets in the region made this difficult. According to Ministry of Trade data, Turkish contractors reached a new project volume of USD 17.8 billion with 454 projects in 2022. The international project portfolio achieved by the construction sector since first opening to foreign markets with Libya in 1972 amounts to a total of USD 472 billion with 11,605 projects undertaken in 133 countries. While attention was drawn to the expectation that momentum loss in the global economy this year will limit the cash shortfall in countries and restrict global infrastructure investments, it was stated that "on the other hand, financing opportunities from international organizations for renewable energy investments have increased." In its report evaluating the final quarter of 2022, Turkey's Association of Contractors made the following assessments regarding the construction sector:

Projects completed with high indebtedness

Increases in construction costs create significant problems in new project development and the execution of public projects. It was observed that basic input costs experienced price increases reaching 150 percent in 2021 with the effects of the pandemic and developments in exchange rates. Subsequently, with the global impact of the Russia-Ukraine war on raw material prices, this rate exceeded 170 percent in the period January 2021 – November 2022. While the cost increase in the sector's major inputs stood at 113 percent year-on-year as of November 2022, this rate was 48 percent for the January – November 2022 period. On the other hand, the sector continues to face problems including insufficient appropriations for public works, notably prolonged delays in milestone payments, and the burden of increased taxes in recent times. It is noted that throughout Anatolia the sector is attempting to complete its projects with high indebtedness. Additional measures are expected in 2023 to address the problems of both public contractors and the housing sector.

Sector momentum can be achieved

Housing sales, which recorded rapid growth for a period due in part to investors' shift to real estate purchases in the final quarter of 2021 for inflation protection, began to slow in summer 2022 and subsequently declined. The ongoing decline in new construction starts also points to problems in the sector, and it is assessed that the support measures implemented (such as the social housing initiative and housing credit campaign on terms suitable for middle-income earners) could provide partial relief in this area of the sector. The "My New Home" campaign, which will bring housing credit interest rates below the psychological threshold of 1 percent, is expected to have positive effects on the sector. Particularly through new housing production on the periphery of major cities in Anatolia, sector momentum can be achieved.