Unprecedented stagnation of construction and sale of housing – Tejaratnews
According to Tejarat News, large construction companies in the periodical-monthly survey of the Iran Cooperative Chamber reported a severe recession in the two areas of construction and sales. The indicators in the “Shamakh” report of the department Housing, has measured the state of construction activities in Mehrmah as well as the sales situation of this group of companies, it shows that the severity of productive investment stagnation in this sector has become similar to 2018. The amount of construction sales this fall reached the lowest level in the last four years. Construction managers’ assessment of the future is disappointing.
According to the world economy, the results of a new survey of 93 super construction companies in the country indicate the unprecedented stagnation of housing construction and sales since the beginning of the recent price jump in the real estate market until now.
Although the process of reducing construction activities in the country started eight years ago and is not a new phenomenon, the latest survey of construction activists by the Chamber of Cooperation, the results of which are published in the form of a report known as “Shamkh-e-Tasqab” every month, indicates that market activists In the first month of autumn, construction investors have faced an unprecedented recession in their business from different aspects.
Shamakh’s survey contains 12 questions that representatives of large and reliable construction companies answer based on reliable data of their work situation in the past month and their estimate of activity in the coming month.
They have to choose between the three options “improved”, “worsened” or “no change” in their documented answers. Finally, the Shamakh number corresponding to each question is obtained from the product of the values attributed to each of these answers. In this way, Shamakh related to each of the questions in this survey will be a number between 1 and 100, and the border between stagnation and prosperity, or so-called positive or negative perception of the state of the construction market in the subject in question, is 50.
Shamakh of the building lowered 37 steps
In the survey conducted for the month of Mehr, which was conducted in the first days of November according to the usual routine of the Cooperative Chamber, and the results of which were published recently, the total building score, which represents the general state of the construction activities of super construction companies, has decreased to 37.
In August, this index was slightly higher than the stagnation-prosperity border and had a value equal to 51.11; In other words, although the average activity status of construction companies was not at a high level of prosperity, it was not considered a complete recession either, and construction workers described their business conditions as slightly higher than absolute stagnation (index below 50). But in Shahrivar of Shamakh, the whole building decreased to 42.69, and in Mehr, it reached a minimum value of 37.09, continuing the downward path.
This number for Shamakh as a whole, excluding April this year and April 1999, when the routine of the construction investment market, like most markets, is affected by the semi-holiday of this month and exceptional and special conditions govern this market, is at the bottom, which indicates that construction activities have stopped. It coincides with the beginning of the second semester of 1401.
The return of Shamakh building to March 1998
In fact, construction companies have reported the most severe recession in their activities since March 2018 and announced that the depth of recession in construction activities was unprecedented in October.
Before this, regardless of the semi-holiday and exceptional Aprils, Shamkh Kol had experienced a minimum value of 35 in March 2018, and now it has returned to almost the same level in October this year with a value of 37.
In other words, now that the peak of recession has prevailed on the construction activities market, the situation has practically returned to the situation we experienced in March 2018.
In 1998, the housing market was in a state of inflationary stagnation, meaning that although the volume of transactions was very small and the housing market was empty of real estate buyers, the price jump had not yet been completely stopped due to the continuation of speculative transactions and capital purchases. In 1998, this external variable had an effect on the markets, which earned the title of “the main stage manager of the housing market”.
If, at the same time, the negotiations for the revival of the agreement on the lifting of sanctions were concluded and the non-economic variable risk affecting the markets did not increase, there was no reason for the stagnation of transactions to continue along with the price jump. But following the increase in non-economic variable risk and the sharp fluctuation of the dollar rate, expectations of increase in various markets including the housing market in that year directed the traders’ behavior and under the influence of these unusual behaviors, instead of ending the recession of the housing market, it expanded.
Now, based on the status of Shamakh as one of the tools for measuring the state of the housing market, the conditions have returned to March 1998 and the construction market activists are facing the same risks that they saw in their activities at the end of 1998. The common feature of these days with the compared period of March 2018 is more than anything in the formation of inflationary expectations under the influence of two factors, one is the distance of reaching an agreement according to the trends so far and the other is the fluctuation in the currency market in the last few weeks.
In fact, the same factors that caused the total building volume to reach a floor of 35 units 32 months ago have also been effective in the construction investment market.
Minimum sales record details
Another one of the twelve questions of Shamakh Building is related to the amount of sales of construction companies every month. In the recent report of the Chamber of Commerce, the sale of building materials in the month of Mehr is another indicator whose value has been at a minimum level since the beginning of the production of building materials in Mehr 98, and the record floor sales of completed and ready-to-sell apartments by builders during the last three years based on Shamakh’s report was made in Mehr 1401.
Shamakh, the amount of sales in October this year was 32.7, which is not only unprecedented in the last 36 months, but also indicates a continuous downward trend in the amount of housing sales by construction companies in recent months. The peak sales were in August 2008 and September 01 2008, which reflects the downward trend in this sector, and in addition, it shows that although the stagnation of sales was evident in the past months, its intensity was not so high as to cause Shamakh will decline to nearly 30.
Shamakh, the amount of sales of super construction companies participating in the periodical survey of the Chamber of Cooperation has reached an unprecedented level, and to be more precise, it has reached the lowest possible level, while earlier alarms of builders’ problems in sales were sounded in Shamakh’s reports. For example, the price of construction materials increased by 9 points compared to the previous month to 79 in April this year, which showed that the inflation level of construction materials has increased significantly, and under the influence of this issue, a group of builders from the beginning of this year until now They left the construction market.
In the field research, this group raised the continuous and consecutive inflation of construction materials as a main reason for abandoning their regular profession. In fact, the main message of the first Shamakh of 1401 was the alarm of inflation of materials and its effect on construction investment, the result of which is now reflected in the Shamakh of the sales amount after about 6 months have passed since the April survey.
Although the sharp increase in the price of construction materials started in 1999, its continuation in the past months of this year has caused the severity of the recession to increase to such an extent that large construction companies also face serious problems in the field of selling their completed units. If the inflation in the construction materials market does not continue, there is a possibility of continuing the decline in the real price of buildings and the gradual emptying of the housing bubble this year, but practically materials are among the most volatile upstream markets of the housing sector this year and this issue has an effect on construction investment. it was bad
In fact, the inflation of materials caused construction companies to face serious problems in the last link of their investment, i.e. the issue of “sales”. Because the level of the finished price of construction has increased to such an extent that the manufacturers are faced with another variable based on “affordability” to announce the proposed sale price with the minimum expected profit margin and in their opinion, and cannot determine the optimal price.
The housing price level is already higher than the affordability level of the property buyers, and for this reason, most of the transactions in the housing market are of the “capital” type. However, the inflationary expectations of the builders due to the inflation of land and materials are still in place and therefore the equation of determining the selling price for them is not easily solved. This issue explains the reason for the unprecedented stagnation of transactions of completed units, which is taken from the minimum sales volume in the Mehr 1401 survey.
Dominance of pessimism among construction companies
In addition to the two recession records of the Shamakh report, one related to the overall activities of large construction investment super companies and the other related to the amount of sales by these companies, another question of the Shamakh survey, whose answer is thought-provoking, is related to the state of construction companies’ expectations about the amount of work. And the activity in the month ahead.
In Shamakh’s Mehrmah report, negative and pessimistic responses to the future of construction activity in November this month have prevailed over positive or neutral responses.
In this way, the level of expectations related to the activities of companies in November decreased by 10 points from 46 in September to 36.55 in October. In fact, the set of factors affecting the stagnation of construction and sales has also had a negative effect on the expectations of manufacturers for the future.
Although usually the expectations of super construction companies in the survey in the months of March are downward and minimal due to the April holidays, and the Shamakh related to this question is always at the lowest levels below 50 in the months of March, but this time in the middle of the year, the Shamakh of the expectations is about the same as in the last months. It has decreased every year and reached 55.36. Shamkh expectations have now reached their lowest value since July 2019. In July, two years ago, Shamakh’s expected value of 35.5 was calculated and announced.
The sharp drop in expectations is a clear sign of the significant growth of pessimism among the big construction investors in the country, which is reflected in the Shamkh Building report of Mehr 1401. In fact, the construction companies in this report, while confirming the continuation of the recession, have acknowledged that their activities are below the normal level.
The Chamber of Cooperation also clearly pointed out in the text of Shamakh’s report that “the significant decrease in the production expectations component in the next month (November) indicates the continuation of the downward trend and stagnant state of this industry in the coming months”.
In fact, the analysis attached to Shamakh’s report somehow contains a prediction of the continuation of the construction recession for at least a few months and shows that if there is no fundamental change in the variables affecting the housing market, there is no prospect of exiting the construction recession until the end of this year.
This sub-normal situation in terms of the amount of construction and sales originates from the domino of housing price jumps, the domino of transaction stagnation and the high level of the finished housing price, which has closed the builders’ hands to announce the proposed sale price with the minimum expected profit margin, and it can be seen before. It was a prediction.
Expressing concern about the suspension of superstructures
For about three years, the Cooperative Chamber has published a survey of construction companies in the form of an index known as Shamakh Building, but usually the content of the analysis attached to these reports did not contain prominent warnings about the inappropriateness of the construction and housing market. But the report related to Mehr 1401 contains a special analysis that should be taken into consideration by policymakers. The situation of construction investment is so unfavorable that it is stated in the analysis of Shamakh Building Mehr Mah as follows: “Getting out of the current situation of the construction industry requires accelerating the implementation of the government’s goals and plans in the field of housing construction and amending the laws and regulations that hinder production as well as support It is serious about this industry as an economic driving industry.
Normally, the building committee did not contain such explicit recommendations, but in Mehrmah, the situation was perceived to be so unfavorable that the cooperative chamber considered it necessary to point out that the government should amend the laws and regulations that hinder production in the field of housing construction, and effectively support the industry.
The producers of this report have found that construction companies are stuck in a severe recession and do not see a way to continue their professional activity.
The fact is that if, for any reason, these negative expectations continue in the construction investment market, its consequences will be felt in the form of an increase in the proposed price level of sales and pre-sales of newly built or under construction units in the remaining months of this year, and because the current level of prices It is beyond the ability of the housing consumers to pay, practically, the significant growth of the proposed sale price will have no result other than the deepening of the construction recession, both in the construction market and in the housing sales market.
In addition to the solution proposed by the Chamber of Cooperation in the field of deregulation in the field of construction activities, it seems that what can direct the direction of the housing market towards the relative prosperity of transactions with stability is the reduction of the exogenous variable risk affecting the housing market, which can stabilize the rate currency, reduce the general inflation rate and then reduce the housing inflation in an effective way. In this process, with the gradual reduction of real housing prices, an opportunity is provided for housing applicants to restore their purchasing power and prepare to enter the housing market.