Financial Problems for 1/3 of the Construction Companies in Bulgaria
One third (31%) of Bulgarian construction companies are experiencing financial difficulties and this remains a risk factor for the construction sector in Bulgaria, according to data from the consulting company for risk management Coface presented on Wednesday and quoted by Investor.bg.
In 2017, 31,848 companies in Bulgaria were involved in construction activity. The companies in the top 10 have achieved a turnover of 1.43 billion leva, which is a big drop of 43% compared to 2016, according to company data, presented by Milena Videnova, company manager for Bulgaria.
In 2016, the total turnover of construction companies in Bulgaria reached 19.8% of GDP, with the largest share of building construction, according to Coface's data.
According to Videnova, there is a recovery of the real estate sector in Bulgaria, supported by the global trend observed for urbanization and low interest rates, which facilitate the taking of mortgage loans and increase the demand for housing. Still, the industry is still waiting for its stellar moment.
Videnova quotes OECD data, according to which the real estate market in some countries of the organization is overvalued and, according to her, Bulgaria is no exception to this trend. Property prices in Bulgaria have risen by 7% in 2017 compared to 2016.
At the same time, however, there is no evidence of strong household indebtedness, so we can not talk about a bubble. According to BNB data, mortgage loans grew by 7.85% in 2017, or by BGN 688 million compared to 2016. In January this year housing and mortgage loans increased by more than BGN 305 million compared to December 2017, and the growth compared to January 2017 reached 11%.
However, property rises faster than wage growth, and this poses the question if Bulgaria becomes part of the eurozone, how will the liabilities be paid in the long run, taking into account the inflationary element, Videnova said.
Bulgaria's construction sector remains dependent on infrastructure projects funded by European funds, says Coface. Suspended projects in 2016 have had a negative impact on the activity of construction companies. This year, the construction sector is expected to be supported by major infrastructure projects such as the Hemus and Struma motorways, the railway projects and the metro extension in Sofia.
After 2017 was determined by large retail deals, 2018 is expected to be linked to office space, and this year also expects strong activity from South African funds, the company predicts.
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