BOFIT Viikkokatsaus / BOFIT Weekly 2019/38

According to Rosstat, annual real growth in construction activity in 2018 was still 5.3 %. This year, growth has been non-existent. The volume of construction rose by just 0.2 % y-o-y in January-August.

However, the total floor area of residential buildings that were completed during January-August was more than 7 % greater than in the same period last year. That said, last year’s base level is rather low as construction declined from 2017 to 2018 by 4.5 %. The long-running rise in housing prices levelled off slightly in the first half of this year, and in some regions prices of older apartments even declined a bit. Housing prices vary tremendously across regions.

Housing construction activity may continue to slow due to a legal amendment that entered into force in July. It forbids construction companies from using up-front payments received from a customer to fund their other construction sites not connected to the customer. With the ban, a larger share of building costs will have to be financed through bank loans taken by the builder. The change is expected to drive small and low-profit builders out of the market.