The expansion period for construction investments continued in 2020-2021, albeit at a slower pace
ITALY: INVESTMENTS IN BUILDINGS
| BUILDING INDUSTRY | 2018 values € mln |
2018 | 2019 | 2020 | 2021 |
| RESIDENTIAL of which: - new * - renovations * |
73,853
14,813 48,225 |
4.1
3.7 2.9 |
3.8
4.2 3.2 |
1.8
3.0 1.4 |
1.4
2.7 1.1 |
| NON-RESIDENTIAL | 41,740 | 4.2 | 3.0 | 1.5 | 1.3 |
| PUBLIC WORKS | 23,691 | -2.0 | 2.5 | 2.5 | 3.0 |
| TOTAL BUILDINGS | 139,284 | 2.9 | 3.3 | 1.8 | 1.7 |
* net of property ownership transfer costs
Uneven construction trend in the first three quarters of 2019
After the setback in the second quarter, which in part cancelled out the strong growth seen the first three months of the year, investments in construction and building in the third quarter investment achieved a modest recovery (0.2% over the previous year), exclusively attributable to the residential segment, while other sectors stalled. Compared to the corresponding period in 2018, investment growth was 4% on average for the first three quarters.
Market indicators seem to highlight on-going weak dynamics in the closing months of the year. The construction sector production index highlighted a contraction in September for the second consecutive month. Additionally, uncertainty continues as regards the climate of confidence among companies operating in the sector, which worsened in October and November.
Going into more detail for individual sectors, residential building still presents positive indications for investments in restructuring, supported by the need to redevelop the housing stock, as well as the advantages associated with on-going tax incentives, as well as signs of a more intense recovery for new residential buildings. On the other hand, signs of weakness in the future for new housing are emerging, considering data for building permits in the first quarter of 2019, which highlight a slight downturn in trend terms (-0.9%). The downward trend for non-residential building permits was more evident (-8.5%), even if it can be explained to a large extent by the comparison with the particularly high level recorded in the corresponding period in 2018.
Table 1 - Construction investments by sector (% variation over previous quarter)
[total = dark blue; residential = blue; other = light blue]
Source: Prometeia analysis of Istat data
Table 2 - Index of production and confidence among construction companies (2010 = 100)
[index of confidence = blue; index of production = light blue]
Source: Prometeia analysis of Istat data
Recovery on the residential market continues
The expansion trend in the third quarter for sales in the residential market has continued almost without interruption since 2014, at a rate (5%) higher than the previous period. In the non-residential real estate market, several different trends were confirmed in the main sectors: sales maintained a positive trend and even accelerated compared to previous quarters in the tertiary-commercial segment (7.4%), while the productive sector saw the negative trend already recorded in the previous quarter (-0.9%) continue.
Table 3 - Permits for residential buildings (thousands, cumulative over 4 quarters)
Source: Prometeia analysis of Istat data
Table 4 - Non-residential building permits (thousands of m2, cumulative over 4 quarters)
Source: Prometeia analysis of Istat data
Despite the context of a recovery in sales, house prices have not yet completely stabilised and posted a further slight downward trend in the second quarter (-0.2%), attributable solely to prices for existing homes, against an increase in the new housing segment.
At the same time, signs of weakness on the credit side were noted; mortgages to purchase homes once again posted a downturn in the first half of the year, for both new and subrogation contacts.
Table 5 - House sales and prices (2010 index = 100)
[house prices = blue; transactions = light blue]
Source: Prometeia analysis of Istat and Inland Revenue data
Signs of recovery for capital expenditure by Public Administrations
The trend for fixed gross investments by Public Administrations during 2019 showed a recovery in spending, with a nominal growth of 6.9% in the first half, supported by numerous interventions implemented in recent years to boost public sector investments. Investments by local authorities have resumed, in the wake of new public finance regulations, starting with the release of budget surpluses to implement public works.
The public works market confirmed the positive trend underway since 2017. The first nine months of 2019 were characterised by a growth trend (4.7%) in the number of calls for tenders published and a more substantial increase (25.1%) in tender sums, despite the second quarter setback attributable to the effects of the “Sblocca cantieri” decree in the construction sector.
Table 6 - Tenders for public works (in mln €)
Source: Prometeia analysis of Ance data
Estimated growth for 2019 confirmed
Estimated average growth for 2019 as regards construction investments is substantially confirmed (3.3%), despite the poor performance in the second and third quarters, thanks to the robust expansion posted in the first three months of the year. Expansionary dynamics seem to involve just about all construction sectors, thanks not the least to the reversal of trends for civil engineering which, driven by signs of recovery in public investments, are expected to resume growth.
Slower expansion forecast for the next two years
The outlook for the period 2020-2021 remains positive; investments in construction will continue to grow, albeit at lower rates than in 2019. The slowdown will affect all business sectors, except for civil engineering which, on the contrary, will see a profile of accelerated growth over the period in question. This will be driven by the huge public resources made available in the period 2016-2019, as well as the funds allocated by the 2020 Budget Law to various central and regional administrations to implement various public works or maintenance tasks focusing on safety and sustainability.
The latter include the new edition of the maxi-fund for central administration investments, totalling 22.3 billion euros spread variously over the period 2020-2034, and loans to local councils for public works (2.5 billions in the period 2020-2024) for urban redevelopment projects (8.6 billion euros over the period 2021-2034) and the design of works (2.7 billion over the period 2020-2034). Additionally, other measures are envisaged to encourage maintenance of public assets, focusing in particular on schools and energy saving measures, such as the allocation of resources (3.5 billion euros) to provinces and metropolitan cities and the so-called urban redevelopment plan intended to reduce housing problems in urban areas, especially in the suburbs.
In the two-year period 2020-2021, residential construction is expected to maintain an expansion profile, at more moderate rates than for 2018-2019, thanks to improvements in disposable income among families and lower interest rates. The progressive reduction of unsold housing stock will continue to sustain the recovery of investments in new homes. It is envisaged, for example, that the restructuring sector will be positive following the extension until 2020 of tax benefits for building renovation and energy requalification and their upgrading through the introduction of the so-called “facade bonus”.