Construction 2023 – Construction industry collapses – Housing construction in free fall – Image: yuttana Contributor Studio|Shutterstock.com
Challenges in the construction industry: Measures to strengthen the construction sector
The construction industry is currently facing major challenges caused by rising interest rates for construction loans, persistent inflation, and reduced government subsidies. These factors have led to a noticeable decline in orders, amounting to 5.7% compared to the previous year. However, we are also seeing a slight increase in orders compared to the previous month, which is attributable to two additional working days. Nevertheless, the construction industry anticipates that the low point will be reached in the autumn and that insolvencies in the sector will increase. Companies in the new construction and shell construction sectors are particularly affected, experiencing a significant drop in residential construction orders. Given this situation, it is crucial that the government acts urgently and implements appropriate measures to support the housing market and prevent further crises.
Effects of rising interest rates and inflation
The continued rise in interest rates for construction loans is making it difficult for many potential home builders and property developers to realize their projects. The increasing interest rates lead to higher overall costs for construction projects and negatively impact profitability. This makes investments in residential construction less attractive, resulting in a decline in demand for construction services.
In addition, persistent inflation is impacting the construction industry in numerous ways. Increased material and labor costs are putting a strain on companies and leading to heightened financial pressure. As a result, many construction projects are becoming more expensive than planned, which also negatively affects profitability. It is crucial that the industry takes measures to address these challenges and maintain its competitiveness.
Decline in government subsidies
Another crucial factor in the current situation of the construction industry is the reduced government support. Previously granted subsidies and grants enabled many companies to implement their projects and offer economically viable solutions. However, due to the reduction or elimination of these subsidies, many firms are facing financial difficulties.
Measures to strengthen the construction industry
In light of these challenges, it is imperative that the government acts proactively and takes appropriate measures to support the construction industry and protect it from an even deeper crisis. Some proposals are listed below:
1. Increase in lending opportunities
To provide companies in the construction industry with financial flexibility, the government should increase access to credit. This could be achieved through dedicated loan programs or grants specifically tailored to the industry's needs. This would allow companies easier access to capital and enable them to realize their projects despite rising interest rates.
2. Reduction of interest rates for construction loans
Lowering interest rates on construction loans would be an important step in restoring the attractiveness of residential construction investments. Lower interest rates would reduce the overall costs of construction projects and thus improve profitability. This could help to stimulate demand for construction services and revitalize the construction industry.
3. Exemption from real estate transfer tax
Another way to reduce the burden on builders and property developers would be a temporary exemption from real estate transfer tax. This would lower the costs of acquiring land and thus expand the financial leeway for construction projects. It could also help to revive housing construction and promote the development of new residential projects.
Outlook
The construction industry is currently facing major challenges caused by rising interest rates, inflation, and reduced government subsidies. It is crucial that the government acts swiftly and implements targeted measures to support the sector and bolster the housing market. The proposed measures, such as increasing lending opportunities, lowering interest rates on construction loans, and exempting property transfer tax, could help revitalize the construction industry and prevent further crises.
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