Sector analysis: Construction sector

In the period 2024-2025, the Belgian construction sector must also deal with complex conditions. Bankruptcies continue to increase and the sector is struggling with low profit margins and high costs. Nevertheless, there are also bright spots. The prices of energy and building materials are stabilizing at lower levels (still relatively high) and there is also real hope for further interest rate reductions.

Looking at the construction sector throughout the euro zone, we see several trends that also hold true for the Belgian situation:

• The downward trend in interest rates, including more relaxed credit conditions set by banks, is creating a more favorable financing environment. This is reflected in the rising demand for home loans, with a strong rebound in the third quarter of 2024 (+39%) for the eurozone. This recovery in loan demand is expected to gain further momentum in the fourth quarter of 2024, supported by rising consumer confidence and (expected) further interest rate declines.
• The renovation market, from a European perspective, remained quite steady, mainly due to the constant demand for energy and sustainability measures. Although we do see a slowdown. Not only because of subsidies and government schemes that will be phased out in 2025. Lower energy prices are also taking the pressure off. The need to improve the energy efficiency of buildings is decreasing.
• In Europe, civil engineering and infrastructure production still proved reasonably resilient in the recent period, thanks largely to Next Generation EU funds. However, recent figures show a decline in production. And the upcoming fiscal austerity in many countries will only reinforce this trend.

For almost 50% of all Belgian construction companies, 2024 will be worse than 2023. Especially in the new construction market there is great uncertainty. It is expected that the Belgian new construction market in 2024-2025 will again have to count on moderate conditions. Although falling interest rates will provide something of a growth impulse. Embuild, the Belgian sector federation, forecasts another 5% decline in residential construction in 2024 (on top of the 7.1% decline in 2023).

Construction is facing many delays. The granting of permits is extremely difficult, more and more regulations are causing delays, and objection procedures are also putting a brake on the implementation of projects. Calls for VAT reductions for new construction and relaxation of regulations for renovation projects are becoming louder and louder. Meanwhile, the housing crisis persists and much outdated infrastructure needs upgrading.

Bankruptcies

At the same time, construction bankruptcies continue to rise. Our own research shows that the peak has not yet been reached. Across the eurozone, the wave of bankruptcies is expected to peak in 2025. If we compare the January-August period in 2024 with the same period in 2023, we see a 21% increase in construction bankruptcies in Belgium. And this increase will continue in 2025.

In total, nearly 2,000 Belgian construction companies went bankrupt in the first nine months of 2024. This puts the sector in the top three sectors hardest hit by bankruptcies.

The surge in construction bankruptcies is due in part to the faltering economy, but also to structural problems within the industry itself. Companies often operate with minimal margins, high debt and face rising labor costs. Many construction companies are struggling. They are barely breaking even or even running at a loss. This does not only apply to the smaller players. Our research department explicitly warns of possible major bankruptcies. In the first six months of 2024, 30 companies with a turnover higher than €50 million went bankrupt, particularly in Europe and Asia. Often heavily financed companies that suffer delays as payments are delayed or projects are postponed due to permitting problems or objection procedures. Across the board, the high debt ratio of Belgian construction companies is striking. This makes them especially sensitive to economic shocks.

Infrastructure: temporary improvement

Not all parts of the Belgian construction sector show a negative trend. Infrastructure works are expected to increase by 4.4% in 2024, following already strong growth of 4.9% in 2023. This spike in infrastructure projects is partly due to local and regional elections, with governments often investing extra in public works in the run-up to elections. However, this phenomenon will be temporary. A decline of -2.2% is expected for 2025, partly due to the expiration of European recovery plans and cuts in government budgets.

Hope for stabilization

Despite the structural problems, the construction industry is hoping for a stabilization or even slight recovery leading up to 2025. Building material prices stabilizing at lower levels, falling interest rates and lower energy prices may cause building owners to pick up their projects again. The Belgian construction federation is urging consumers not to wait to build or remodel, especially now that order books are less full and contractors can get to work faster.

Our research department's own research shows that companies worldwide are paying their invoices increasingly late. This is also the case in Europe and Belgium. This has everything to do with the general economic downturn that we are also seeing in the construction industry. This later payment is extremely difficult for many companies. It puts working capital under pressure. Construction companies are causing problems for each other. With the logical consequence that the chance of non-payment and bankruptcy increases. Even healthy companies can be affected. A large unpaid invoice is a nightmare for many entrepreneurs. Our researchers explicitly warn about the increase of bankruptcies in the construction industry.

The ever-increasing bankruptcies in the Belgian construction sector should be an alarm signal for (construction) entrepreneurs. The chances are increasing that they will be left with unpaid invoices. That blow can hit hard. The consequences can be absorbed with a trade credit insurance. We have a solution for every type of business. Whether an invoice is paid or not is no longer a concern, companies are secure in their money with our trade credit insurance. This provides security and removes anxiety. We take over the debtor risk from the company. Don't customers pay? Then we compensate the affected company. In addition, we offer companies that take out a trade credit insurance with us information about the creditworthiness of their (potential) customers. Daily, we analyze the financial situation of customers and prospects.