Where’s the World headed? The global reale state market in decline, Serbia an exception

News agencies around the world reported that the director of China’s Evergrande Group, Hui Ka Yan, was placed under police surveillance. This happened after this leading Chinese company in the sector of real estate development and sales faced liquidation.

Residential construction in China is experiencing a historic decline. After the collapse of Evergrande, the uncertainty of bankruptcy has also loomed over the real estate giant Country Garden.

Housing construction has long been an important driver of China’s economic growth, accounting for a third of its GDP. Now everyone – from the Government and investors to citizens, bankers and economists fears a domino effect that could threaten the entire Chinese economy and seriously question its further growth. Faced with a serious problem, the Chinese Government promised (albeit post festum) to adjust and optimize policies to ensure a healthy and stable development of the construction market.

A historic decline in housing construction in China threatens to jeopardize the entire Chinese economy.

At the same time, on the other side of the world – in Germany, the largest business group for real estate, Vonovia, abandoned the construction of 60,000 apartments. This news comes at a time when the crisis in the construction and real estate sector in Germany is becoming more and more serious and the uncertainty in the market is huge. In the first half of this year, 17.3 percent fewer building permits for the construction of apartments were issued. In search of solutions to the crisis, construction expert Lamia Mesari Becker from the University of
Siegen and government advisor for the housing sector suggests Olaf Scholz’s government to tackle reforms because there are too many state regulations, some of which are contradictory, and that in with those reforms, be pragmatic and pass simple regulations. For Europe’s largest economy, the real estate sector is extremely important because it makes up a fifth of its total production.

Germany is no exception. Eurostat data show that the number of issued building permits in the European Union decreased by four percent, which is a rather high drop considering that the number of issued building permits in 2021 was 16 percent higher than in 2020. Even the data in the region are not much different from the world

In June this year, 791 construction permits were issued in Croatia, which is 12.7 percent less than in June 2022. The overall construction industry (which accounts for ten percent of GDP) is still growing, boosted by investments in the tourist economy before the season and investments in the reconstruction of earthquake-affected areas (Zagreb and Banija).

In the European Union, the number of building permits issued decreased by 4%.

According to Monstat data, 68 building permits were issued in Montenegro in the second quarter of this year, or 21 percent less than the number of permits issued in the second quarter of 2022.

The State Bureau of Statistics of North Macedonia announced that 280 building permits were issued in July 2023, which is 33.6 percent less compared to the same month of the previous year.

The exceptions to this gloomy picture in the real estate sector in the region are Bosnia and Herzegovina and Serbia.

The number of construction permits issued in BiH in July this year was 28.7 percent higher than in July 2022.

Montenegro (21%) and North Macedonia (33.6%) also recorded a decrease in the number of building permits

And the Serbian construction industry shows an enviable level of resilience and strong signs of recovery. According to the data of the Republic Institute of Statistics, in the second quarter of 2023, the value of works performed on the territory of the Republic of Serbia increased by 21.1 percent in current prices compared to the second quarter of 2022, and the number of building permits issued in June (2,579) was higher is 17.9 percent compared to the same period of the previous year. In July, the number of issued permits continued to grow (2,709) 14.2 percent compared to the same period of the previous year. When looking at the number of issued permits per month this year, July is the record holder. For example, 1,568 were issued in January, 1,786 in February, 2,576 in March, 1,972 in April and 2,404 in May. In the forecast for the third quarter, the Bureau of Statistics announced that construction will achieve growth of 20.8 percent, which will make the biggest contribution (1.2 percent) to GDP growth compared to industry (0.5 percent) and agriculture (0. 8 percent).

These data are proof that the recovery of the Serbian construction industry is progressing well and that its share in the gross domestic product is growing, which was 6.4 percent last year. Given the importance of construction for Serbia’s GDP, it was extremely important and necessary to prevent and reduce the impact of the global crisis on the downward trend in the growth rate of this industry in Serbia and at the same time find a permanent systemic key (not one- time support measures) for its growth.

Considering the global trends in the real estate sector and the construction industry in general, the Government of Serbia decided, despite the opposition of part of the public, to renovate one of the key systemic laws – the Law on Planning and Construction.

The very announcement in May that the modernized Law was sent to the Parliament for adoption had a great impact on the market. It was clear from the text that the Law brings modern solutions in the field of sustainable and energy-efficient construction, digitalization of the construction sector (use of electronic construction log) and BIM technology, which otherwise represents the driver of digital transformation. The Law accelerates the procedures for issuing construction permits, removes obstacles (such as, for example, conversion for a fee) and enables the process of issuing permits to be more transparent and with the aim of greater protection of citizens and those who build. In addition to the necessary green building certificate for all public buildings and all buildings larger than 10,000 square meters, the obligation of the investor to submit evidence of the movement of construction waste before obtaining a use permit is introduced (as an important novelty), which solves the problem of illegal landfills. The amendments to the Law oblige the investor to provide insurance in case of damage to the surrounding buildings and to repair at his own expense the streets damaged by passing trucks during the construction of the building, and if he does not do so, there will be a guarantee from which the local self-government will be able to carry out the repair.

The Serbian construction industry showed an enviable level of resilience and signs of recovery!

All the players on the market – investors, construction companies and financiers (banks) – very quickly understood the signal that the state sent to the market and the expansion began, which was felt immediately in June and July by the growth of issued building permits, and the forecasts are that will continue until the end of this year and the following years as well. The abolition of the fee for the conversion of land from the right of use to the right of ownership has been hailed in business circles as a far-reaching and significant systemic solution.

The construction industry is an important lever for ensuring the economic growth of Serbia. It is an equally, if not more important, motivating factor than industry and agriculture. Construction has a positive impact on 22 economic branches.

The Law on Planning and Construction was the response of the Serbian Government to the crisis that is shaking the construction sector throughout Europe and the world.

The reaction of the Government at the right (crucial) moment, when the fate of the construction industry is being decided at the global level, so that the engine of economic growth in Serbia does not falter, is an example of the real proactive role of the executive power in creating a favorable business environment and the rules of the game on the market. The government correctly decided on a systemic approach and thus avoided short-term and one-off interventions to save individual construction companies. Instead of subsidies from the budget, tax breaks or price freezes, the Government changed and modernized the legal solution, and the positive effects of its decision became apparent very quickly.

After the announcement and adoption of the Law on Planning and Construction, June and July were marked by an increase in issued building permits

What did the Government of Serbia achieve by modernizing the Law on Planning and Construction that led to a boom in the market?

First of all, it created what is by far the most important for business – certainty and predictability of business. For every investor, an important item of the Law is that 70% of the territory of each local unit has to be covered by a document on the basis of which location conditions can be issued (that is, a plan that can be directly applied). The Law, then, created security for investors because it removed conflicting provisions with other regulations, leading to the standardization of practice in handling. It ensured greater transparency because those in charge of issuing construction permits now have greater responsibility if these are not issued in time and holders of public authority will not be able to change their decisions once made. For construction companies, this means protection from corruption, for which this area was known in the past, and brings a significant reduction in costs. The Law (not the relevant Ministry or the Government) also envisions incentives for investors who decide to build green buildings, as they now have the right to a 10% reduction in the contribution for landscaping construction land.

The Government of Serbia chose a systemic approach and provided investors with certainty and predictability of business.

The proactive action of the competent Ministry of Construction, Transport and Infrastructure, the Government and the Parliament can serve as a model for all other future actions of the government in the field of economy. The growth of the construction industry, as a quick response to the modern systemic law, is an indicator of what the state (government) should do in the future – to create a good framework, a favorable environment and let the market players flourish.

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