While Activity in the Sector Continues, Financing Problems Pose Risk

 

Türkiye İMSAD Releases November 2017 Sector Report

Türkiye İMSAD released its monthly sector report, which is closely monitored by construction industry and economic circles. The November 2017 Sector Report from Türkiye İMSAD emphasised that vitality continued on the demand side in the construction sector. However, it also highlighted that financing problems had become a significant obstacle restricting activities. In the 'November 2017 Sector Report' prepared by the Turkish Construction Materials Manufacturers Association (Türkiye İMSAD), which serves as the sector's most important umbrella organisation, it was stated that demand levels in construction work continued to materialise at the year's highest levels, which represented a positive development for the construction materials industry.   The report noted that Turkish Statistical Institute data on construction sector confidence indices reflected these important developments, and that despite positive demand conditions, financing problems had become the most important obstacle restricting activities, reaching levels seen during the difficult periods experienced at the beginning of 2017.

Financing problems become a risk for the construction materials industry

The report noted that financing problems, which had eased relatively during the summer months, had increased over the last three months, and included the following findings: Financing problems restricting activities in the construction sector stem from several causes. Firstly, bank credit facilities, which expanded rapidly in the first half of the year, tightened significantly in recent months. The construction sector was negatively affected by this development. The second reason was the cost pressure created by increases in interest rates and exchange rates, while the third reason was the cash squeeze created by campaigns implemented by producer firms. On the residential production side, sales with 5 percent down payment campaigns, campaigns without down payment, and campaigns with payment deferred until 2019 created intense competition while disrupting cash flows. Furthermore, due to intense campaigns, residential price increases remained very limited. Financing problems in the construction sector, which can affect all business partners, have become a risk that requires close monitoring for the construction materials industry.

Construction materials industry production jumped in September: 13.8 percent

In September 2017, average construction materials industrial production increased 13.8 percent compared to September 2016. Thus, September saw the second highest monthly production increase of the year. September's production increase showed that domestic and foreign demand increased steadily. Internal sector dynamics, rather than seasonality and base effects, were the determining factor in production growth. Together with the September production increase, January-September period production also exceeded the previous year's level by 4.8 percent. In September 2017, an upward trend dominated industrial production increases in construction materials subsectors. Of 26 subsectors, production increased in 22 compared to the previous year, while production declined in 4 subsectors. During the January-September period, production in 21 subsectors exceeded the previous year's level. Among the sectors holding significant weight in the construction materials industry, flat glass, cooling and heating equipment, central heating radiators, locks and hinges, ceramic sanitary ware, construction concrete products and cable production increased significantly in the first nine months of the year. By contrast, production increases in marble, ready-mixed concrete and ceramic tiles remained very weak. Among the 5 subsectors showing production decline in the first nine months, important subsectors such as other glass and metal doors and windows continue to be included.

Residential building permits also surged

Following the decline in the first quarter of 2017, a surge occurred in the number of residential building permits issued in the second and third quarter periods. The number of building permits issued in the first 9 months exceeded 1.1 million units. The number of units completed and issued building permission was close to half of this figure. The demand shown for obtaining permits containing previous conditions, due to the changes in the Building Law effective 1 October, was the main reason for the surge. Within this framework, the gap between the building permits and building permissions issued and the number of units carries the risk of stock accumulation.

Sixty-year history of residential building permits

In the report, which used the statements "While the residential sector today constitutes the most important element of the construction sector in Turkey, it continues to be the most important market for the construction materials industry", the 60-year history of residential building permits was included under the heading 'How Did the Residential Sector Grow?' Information about Residential Building Permits kept by the Turkish Statistical Institute since 1954 was presented in the report as follows: During the 1955-1964 period, when urbanisation and migration to cities began, the number of residential building permits issued was 555,837 units. In the 1965-1974 period, when modern housing first began to be produced, the number of building permits issued was recorded as 1,340,447 units. The 1975-1984 period witnessed a difficult economic period in the first half and a transition to a new model in the second half. During this period, 1,978,324 units received building permits. From 1985 onwards, a significant increase began in the number of residential building permits issued. Urbanisation accelerated, high population growth and high migration triggered housing demand. The annual level of 500,000 units in residential building permits issued was first exceeded in 1993. In 1994, despite a severe economic crisis, over 500,000 building permits were issued. 1999 was the year when severe earthquakes occurred and urban transformation was first mentioned. Despite this, the number of residential building permits issued between 1999-2003 remained very low. From 2005 onwards, a period of strong growth was entered.