SaMoTer Outlook - Construction industry report
(September 2019)

ITALY: INVESTMENTS IN BUILDINGS

BUILDING INDUSTRY	2018 values € mln	2018	2019	2020	2021
RESIDENTIAL of which: - new * - renovations *	73,853   14,813 48,225	4.1   3.7 2.9	3.5   4.2 3.2	1.5   3.0 1.0	1.4   2.7 1.0
NON-RESIDENTIAL	41,740	4.2	3.6	2.8	2.1
PUBLIC WORKS	23,691	-2.0	3.0	4.5	2.5
TOTAL BUILDINGS	139,284	2.9	3.5	2.4	1.8

 

* net of property ownership transfer costs

 

Volatile trend in the first half-year

Investments in construction were characterised in the first half of 2019 by considerable variability and were also affected by climatic conditions: strong growth in the first quarter was followed by a slight downturn in the following three months, a trend shared by residential and other sectors alike. In terms of trends, the variation in investments was broadly positive (3.2% in the second quarter). Market information is conflicting but, in overall terms, tends to suggest more moderate evolution in the second half-year. The construction production index, after the improvement in the first quarter and correction in Spring, effectively stagnated between May and July. On the other hand, the climate of confidence among companies operating in the sector recovered in September, after the setback in August, and was confirmed at higher levels than in other sectors of the economy.

In particular, positive indications continue for building renovation and energy redevelopment projects, making a significant contribution to business activity in this sector thanks to the impetus ensured by tax incentives. Nevertheless, there are signs of a setback in building permits for new homes, characterised by a downturn in the fourth quarter of 2018. Permits were also down for non-residential buildings, for the third consecutive quarter.

 

Table 1 - Construction investments by sector (% variation over previous quarter)

[total = dark blue; residential = blue; other = light blue]

Source: Prometeia analysis of Istat data

 

Table 2 - Index of production and confidence among construction companies (2010 = 100)

[index of confidence = blue; index of production = light blue]

Source: Prometeia analysis of Istat data

 

Sales transactions continued to recover

The expansionary trend in sales seen on the residential market was confirmed in the second quarter, albeit at a rate (3.9% in trend-based terms) lower than the figure recorded in the previous period. In line with nationwide results, the slowdown in growth affected all areas. The non-residential property market was characterised by diversified trends in the main segments: the growth in sales continues in the tertiary-business segment, while the production segment saw a slight decrease compared to sales volumes in the corresponding period 2018.

 

Table 3 - Permits for residential buildings (thousands, cumulative over 4 quarters)

Source: Prometeia analysis of Istat data

 

Despite the context of a recovery in sales, house prices have not yet completely stabilised and actually posted a further slight downward trend in the second quarter (-0.2%), attributable solely to prices for existing homes, against an increase in the new housing segment. The dynamism of residential sales continued to be boosted by the credit channel, although in the first quarter of 2019 the growth in mortgages issued to households to purchase homes slowed down, reflecting the down turn in new contracts and above all a new contraction in subrogations.

 

Table 4 - Non-residential building permits (thousands of m2, cumulative over 4 quarters)

Source: Prometeia analysis of Istat data

 

Table 5 - House sales and prices (2010 index = 100)

[house prices = blue; transactions = light blue]

Source: Prometeia analysis of Istat and Inland Revenue data

 

Reversal in trends for public works

The trend for gross fixed capital investments by Public Administration has highlighted signs of recovery, with nominal growth of 6.9% in the first half, sustained by measures adopted in recent years to revival public investments starting with the release of local government budget surpluses in order to implement public works. The re-launch of the public works sector is also confirmed by information relating to calls for tenders, which saw significant growth (42.8%) in the first eight months of the year, thanks to the impetus provided by tenders issued by the Railways and Local Councils.

 

The estimated growth for 2019 is confirmed

Despite the fall in the second quarter, the estimated growth (3.5%) in construction investment in 2019 is confirmed. This expansionary trend is likely to involve all sectors of activity, including civil engineering which - thanks to the resumption of public investments - will see an end to the long period of poor performance.

 

Consolidation is expected in 2020-2021

The positive construction trend is expected to consolidate in the period 2020-2021, with average annual increases in the order of 2%. The main impulse behind growth is expected to come from civil engineering, on the assumption that recent legislation supporting the construction sector is fully implemented (“Sblocca Cantieri” and “Crescita” decrees).

In the first case, approval is still required for implementing the Procurement Code and Commissioners for setting construction sites in motion again have not been appointed; in the second case, decrees implementing the “Salva Opere” Fund and the “Assurance Fund for Construction SMEs” have not yet been approved. Nevertheless, the new executive has confirmed its commitment to relaunching infrastructure and urban redevelopment and has announced the allocation of additional resources in the 2020 Budget. In particular, the special maintenance plan envisaged in the update of the ANAS 2016-2020 programme agreement and investments in the railway network included in the update of the RFI Programme Contract for 2017-2021 are considered priorities.

 

Table 6 - Gross fixed investments by Public Administrations (% variation compared to previous quarter)

Source: Prometeia analysis of Istat data [*first half-year]

 

In the same period, residential construction is also expected to continue expansion, albeit at a more moderate rate than in the two-year period 2018-2019; the latter segment will continue to benefit from the positive contribution of investments in redevelopment, in turn supported by the extension we expected as regards tax incentives; the recovery in new homes will also consolidate, in a context still favourable to housing demand.