The provision of contracting companies with construction contracts in June 2023 decreased to 2.7 months

Despite the fact that summer is traditionally the high season in construction, this year contractors have less and less work to do. In June, the capacities of market participants were loaded on average 2.7 months in advance, while in February – 5.1 months. The reason is the continuing decline in the business activity of housing developers, who have reduced the output of new facilities by almost a quarter. The increase in orders in February was provided by operators of state-owned construction projects, who tried to quickly conclude contracts with contractors, fearing the expected rise in prices for building materials.

The provision of contracting companies with construction contracts in June 2023 decreased to 2.7 months, follows from Rosstat data. The maximum result this year was recorded in February, when contractors were loaded an average of 5.1 months in advance – this is the maximum figure for the last year and a half.

At the same time, the total amount of contracts is also decreasing. According to Rosstat, the volume of construction contracts concluded in June amounted to 1.11 trillion rubles, the same was in May: this is almost 16% less than in February, and 7.5% less than in March and April .

One of the reasons for the decrease in the supply of contractors with contracts and their total amount is the reduction in the volume of construction by housing developers, who, along with state construction operators, are major customers in the contract market. The intensity in housing construction is falling due to a decrease in purchasing power, Oleg Malakhov, a member of the General Council of Business Russia, states. Thus, in the capital in the first half of 2023, the number of residential complexes under construction decreased by 23% year-on-year, notes Vladislav Preobrazhensky, executive director of the Moscow Investors Club (which unites the city’s major developers). “This trend is also typical for other regions of the country,” he adds. Some housing developers are postponing the withdrawal of new projects due to market oversaturation, confirms Elena Mironova, Director of the Estimated Pricing Department at Granel Group of Companies.

At the same time, experts explain the increase in orders for contract work in February by an increase in government contracts. At that time, the volume of state contracts in infrastructure construction increased one and a half times year on year, says Alexandra Galaktionova, general director of Sherpa Group. According to her, this was influenced by deferred demand for the launch of projects after the first wave of the crisis in 2022 due to the outbreak of hostilities in Ukraine.

At the beginning of this year, an anomalous situation with contracting was observed in the state construction segment, builders received large advances allocated, among other things, by Russian Railways and government customers, says Mikhail Burmistrov, general director of Infoline-Analytics. Government customers, in anticipation of a noticeable rise in the cost of building materials, sought to conclude contracts with contractors at lower prices as soon as possible, the expert explains. But now, says Hussein Pliyev, CEO of Smart Engineers Group of Companies, some of the large government contracts concluded two or three years ago are ending.

The rise in prices for materials also worries the contractors themselves – 43% of companies surveyed by Rosstat answered this way. At the same time, 23% reported a problem with a shortage of qualified personnel.

Any construction company is trying to get as many contracts as possible, since the regularity and predictability of receiving funds from customers ensure the payment of salaries to workers, states Oleg Malakhov. In addition, he continues, banks, whose dependence on the construction industry is very significant, have high requirements for the portfolio of companies’ contracts when providing loans.

Nevertheless, the situation in the construction industry this year, unlike last year, when the first wave of the crisis seriously affected the industry’s performance, looks more positive, says Mikhail Burmistrov. However, Hussein Pliyev warns that if last year’s decline in construction volumes is not corrected now, this may intensify the process of absorption by large holdings of medium-sized contracting companies. Such consolidation can lead to a serious monopolization of the market.

Daria Andrianova