Although there are some indications that during the third and fourth quarters of 2023, there was an improvement in construction activities, it remains a question whether there will be growth in this significant sector of the construction industry in the past year, warned economist Ivan Nikolić in an analysis of the state of domestic construction.
In the first edition of “Macroeconomic Analysis and Trends” (MAT) in 2024, Nikolić pointed out that the acute problem in the domestic construction of apartments lies on the demand side. He concluded that there is no doubt that the contraction in demand will very quickly interrupt the trend of “rising apartment prices.”
In his analysis for MAT, Nikolić highlights key indicators indicating that the housing construction sector is facing a serious decline in demand.
On the one hand, data from the Republic Geodetic Authority shows that in the first six months of 2023, the total number of real estate transactions decreased by 14.1 percent, the number of purchased apartments dropped by 18.6 percent, and the real estate market value in the third quarter of 2023 amounted to 1.5 billion euros, a year-on-year decline of 10 percent.
Additionally, the decrease in demand is reflected in the data on the decline in demand for construction products. For instance, the import of bricks and blocks decreased by 70.8 percent for nine months last year, and roofing tiles decreased by 35.8 percent. Moreover, the value of imported ceramics for finishing works decreased by 14.3 percent.
“If this trend continues in the last quarter of 2023, the entire last year’s import level would be reduced to the volume achieved before 2017,” warned Nikolić, who is also the editor of MAT.
On the other hand, he emphasizes that there are indications of an improvement in construction activities during the third and fourth quarters of 2023, but at this point, it is still early to conclude whether there will be overall growth in construction throughout the year.
“The increase in the value of residential construction in the second half of 2023 was influenced by the construction of larger residential complexes in Belgrade: Belgrade Waterfront, Depot, Voždove kapije, Wellport, Viva Residences, Zelena avenija, and a large residential-business complex is being built in Niš with over 400 apartments,” Nikolić stated.
However, he believes that the “acute problem” in residential construction should primarily be sought on the demand side.
“Over the past three years, there has been a ‘boom’ in apartment prices, especially in new construction. Prices continued to rise during 2023, albeit at a slightly more moderate pace than before. Several factors contributed to this, but there is no doubt that the contraction in demand will very quickly halt this trend,” Nikolić emphasized.
According to his analysis, the real estate market is influenced by overall inflationary pressures, partially exacerbated by tightened monetary conditions and rising interest rates. However, he emphasizes that the effect coming from the domain of monetary policy is very limited.
“Namely, in Serbia, only a small portion of real estate is still purchased using credit funds,” Nikolić points out, referring to data from the Republic Geodetic Authority (RGZ), which states that 16.6 percent of all traded apartments in the third quarter of 2023 were paid for using loans, which is nine percentage points lower than in 2022.
Sign up for business updates & specials
