Construction sector set for a rebound thanks to EU funds, private activity

Greece’s construction sector, one of the economy’s locomotives, is set for recovery this year after a post-Olympics slump, boosted by EU funds and strong private building activity, analysts say. Construction makes up around 9 percent of the country’s gross domestic product (GDP), with three groups, Hellenic Technodomiki TEV, J&P Avax and Terna, controlling 41 percent of the market, based on turnover. «An increased flow of new Build, Operate, Own and Transfer (BOOT) projects, coupled with large infrastructure works and the flow of Fourth Community Support Framework funds is seen as bringing into the system around 25 billion euros up to 2016,» said Egnatia Finance analyst Costas Tzoutzourakis. Construction enjoyed double-digit growth rates during 2000-04 as Greece rushed to build sports venues and other infrastructure for the Athens Olympic Games. According to the Construction Economy Institute (IOK), about 29 billion euros were spent during that period on Olympic venues and public works, including a subway and a ring road in Athens and the Rio-Antirio bridge connecting southern Greece to the mainland. These projects were the main driver behind the 20 percent annual growth rates enjoyed by contractors during the period. But the end of the Games and serious delays in awarding new projects hurt the sector after the second half of 2004. Total turnover fell 21.5 percent in the first nine months of last year, according to IOK, hurting construction shares. Top contractors Hellenic Technodomiki and Avax, which built the 65-kilometer Athens ring road, suffered falls in profit of 14 and 42 percent, respectively, in 2005. Anticipating the slump, investors shunned construction shares, with Technodomiki and Avax losing 20.4 and 17.8 percent in 2004 respectively, underperforming the broader Greek market, which gained 23 percent. Analysts now say bad times are over for the sector, expecting the remaining EU funding and strong housing construction to set the path for recovery. Recovery reflected The improved outlook is already reflected in Technodomiki and Avax stocks, which have climbed 32.23 and 39.70 percent year-to-date, outperforming the broader Greek market by an average 20 percent. Analysts say Greece has until 2008 to award projects of up to 17 billion euros, making use of national and EU funds. These include highways, a new metro line in Thessaloniki in northern Greece and the expansion of the Athens metro system. «The construction market expects 9 billion euros in public projects from the Third Community Support Framework to be tendered by the end of 2006 and awarded by the end of 2008,» Tzoutzourakis said. «Moreover, the BOOT toll road projects are expected to reach another 6-8 billion euros. These funds are seen as reviving the sector by the second half of 2006,» he added. The government has awarded the 800-million-euro Thessaloniki metro project to AEGEK consortium and has said more projects will be tendered this year as it struggles to quicken the absorption of EU funds. Prospects for contractors look bright after 2007 as well, with more EU money pouring into the country. Last year, Greece secured 20.1 billion euros from the EU for the 2007-2013 period. Traditionally, about half is spent on construction projects. «From 2007, we should expect the allocation of Fourth Community Support Framework funds that we estimate will reach 10 billion euros for the construction sector,» Tzoutzourakis said. Another boost is expected to come from residential construction, as Greeks, taking advantage of low borrowing costs, rushed to buy property before a new VAT tax was applied from 2006. «In 2006, private residential construction will be high, after a surge of building permits issued last year. These permits have to materialize in 2006 and 2007,» Alpha Bank economist Dimitris Maroulis said.