Suomen Yrittäjie's chief economist, Juhana Brotherus, estimates that the number of bankruptcies of construction companies will remain high until the beginning of the year.
Construction industry The predicament claimed its biggest victim on Tuesday, when Lehto Group, listed on the Helsinki Stock Exchange, announced that its subsidiaries managing the construction of apartments and offices had filed for bankruptcy.
The three subsidiaries that filed for bankruptcy are responsible for the majority of Lehto Group's turnover, which was around 345 million euros just last year. The company was Rakennuslehten statement according to Finland's 11th largest construction company measured by turnover in 2022.
The last year has been difficult for the construction industry, when the rise in interest rates has collapsed the construction of apartments. According to Statistics Finland, bankruptcies in the construction industry last year were the highest in at least twenty years.
Fast relief for the sector is not expected for winter or even spring, estimates the chief economist of Suomen Yrittäjie Juhana Brotherus. He predicts that the number of bankruptcies of construction companies will remain high for at least the beginning of the year.
“The near-term outlook for the construction industry is still very challenging. The outlook is very difficult, whether we measure the outlook by the number of building permits, confidence in the construction industry or almost any other metric,” says Brotherus.
The cubic volume of building permits issued, which predicts the future turnover of construction companies, was almost a fifth lower in September-November than a year earlier.
In January, the trust barometer collected by the Finnish Confederation of Business and Industry showed the confidence of construction companies at -39 points, while its long-term average is -7.
“For companies, the situation can become even more challenging in winter and spring, because some of the ongoing projects are completed, and companies do not have new work sites to replace them. The order backlog has melted so thin,” says Brotherus.
Construction project deliveries are long, up to two years. Some of the construction companies are still building projects that they started before the Russian attack on Ukraine or the rapid rise in interest rates.
Construction companies have started new construction projects in the Netherlands for a long time. The construction industry RT estimated in the autumn in its economic review that the construction of only 16,000 apartments was started last year. That's less than half of last year's amount.
Although at least winter and spring are still difficult in construction, the industry shows a weak light in the end of the year.
The situation in construction is improved by the drop in interest rates: the interest rate has dropped by half a percentage point from last fall's peak, and the twelve-month Euribor is generally expected to fall below three percent this year from the current 3.6 percent.
“The drop in interest rates will quickly ease the situation in the construction industry, because the structure of the loan portfolio is such that the drop goes through quickly and because the construction industry is very sensitive to interest rates,” says Brotherus.
The situation of construction companies is also quickly eased by the fact that, according to Brotherus, there has been no “unnecessary” construction in Finland. Apartments and offices that are now empty will eventually be used.
“Construction needs still exist, because the population growth in the growth centers was, for example, exceptionally or even historically strong last year,” says Brotherus.
In addition, there is a looming shortage of apartments and office space in the housing market, as construction starts have been at a very low level for a year.
“The market is gradually starting to see that there are not many new projects being completed at the end of the pipeline. Then the balance of supply and demand will look different than it does now, but this will be more of a 2025 phenomenon,” says Brotherus.
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