BERLIN (Dow Jones)–Residential construction has seen an increase in order cancellations due to high construction costs and rising interest rates. A survey by the Munich Ifo Institute showed that 11.6 percent of the companies surveyed were affected in August, after 11.5 percent in the previous month. Business expectations have also fallen to their lowest level in over 30 years.
“Since April we have seen that a striking number of projects have been canceled. The framework conditions for housing construction have deteriorated massively in recent months,” explained Ifo researcher Felix Leiss. These included skyrocketing construction costs, rising financing interest rates and limited funding opportunities. This weighed heavily on the calculations of potential builders.
“Some projects become unprofitable as a result,” says Leiss. “Until a few months ago, the course in residential construction was still set for growth. Companies still have bulging order books, but with a view to future developments, fear is spreading.”
According to the Ifo, many companies fear a downturn in business. The expectation indicator fell to minus 48.3 points, marking the lowest level since the survey began in 1991. The previous low was only reached in April, at minus 47.4 points.
The supply bottlenecks for building materials have improved somewhat. Nevertheless, the material is still scarce in many places and therefore expensive. In August, 36.4 percent of companies complained about delivery problems. In July it was 45.6 percent. The high energy prices made the building material – often energy-intensive in production – even more expensive. Against this background, many construction companies are planning further price increases, as Ifo explained.
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(END) Dow Jones Newswires
September 19, 2022 02:21 ET (06:21 GMT)