ECONOMY

Construction sector is set to continue building up growth

The local construction sector has positive prospects, but they will mostly depend on the effective absorption of European Union subsidies, private construction activity and the gradual realization of public-private partnerships (PPPs), a survey by the Foundation for Economic and Industrial Research (IOBE) has suggested. The sector’s course will be a rising one, at least until 2013, provided that its companies and the state manage to meet the above challenges, IOBE believes. The degree of community fund absorption is the key to its success, as this is the main driving force for the construction sector. A great portion of the 20.1 billion euros promised to Greece through the Fourth Community Support Framework (CSF IV) concern infrastructure projects. From 2000 to 2008, at the latest, the total amount of subsidies from CSF III, the Cohesion Fund and Community Initiatives, managed by the construction sector, will reach 28.42 billion euros. IOBE expects that this capital will be absorbed more rapidly by 2008, although the risk of losing funds due to delays has not been averted yet. The second-biggest factor is private construction activity. The liberalization of mortgage credit and the competition among banks have contributed to a strong rise in housing loans and therefore of demands for new homes. Despite this credit expansion, though, Greece remains below the eurozone average. The value-added tax on new constructions and the adjustment of officially determined property prices should contain housing demand for some time. Respondents to the survey said VAT imposition will reduce demand and the supply of houses, but that prices will remain stable. The new law on PPPs is expected to bolster construction activity and entrepreneurship, offering an alternative route for the realization of projects and the supply of services. Respondents were willing to participate in PPPs but were split on the institution’s success. Since the completion of the Olympics projects and throughout 2005, demand for construction projects declined to its lowest point since 1998. Yet since the first months of 2006, a rebound has been recorded, if marginal. The total gross value of the construction sector in the 1995-2004 decade showed constant growth, averaging 5.6 percent annually in real prices, taking the share of the sector in the gross domestic product to an average 6.4 percent in that period. It also accounts for 7.2 percent of the country’s overall employment, being one of the country’s largest employment sectors. The IOBE survey focuses on two main problem categories in the sector. The first includes problems related to the legislation for the production of public and private projects, such as the sheer number and complexity of laws, the lack of a national zoning plan and huge delays in the Land Register. The second category concerns competition-related problems, such as the fierce rivalry among companies and the huge discounts in public project auctions.