Romania C-19 situation in construction (status on 30 April 2020)

Written by Dr. Sebastian Sipos-Gug – Ebuild, EECFA Romania

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Timeline

• 26 February: the first confirmed case reported in Romania
• 11 March: schools closed
• 16 March: the Romanian president issued a state of emergency, granting the government enhanced emergency powers to cope with the pandemic. At the time Romania had 168 confirmed cases and no deaths.
• 17 March: restaurants closed, and all public gatherings and events suspended
• 21 March: shopping malls closed
• 22 March: first death attributed to Covid-19 reported
• On 24 March a state of lockdown was announced via military order and the population was restricted from moving freely outside of home, with several exceptions (work that cannot be done remotely, essential shopping, assisting the elderly, medical emergencies, walking pets, personal exercise in the proximity of the home, volunteering, agriculture). A proof for the valid reason for leaving home is required, with citizens asked to produce a personal statement prepared before leaving the home and/or to have a proof of employment. Elderly citizens (65+) were further restricted, being allowed to leave the home only for 2 hours per day (11:00-13:00). However, retailers were instructed to provide preferential service to them during this interval.
• On 15th May, the State of Emergency is up for revision. However, even in the event of it being lifted, some restrictions are to remain in place, like the interdiction on festivals and large gatherings and the mandatory use of face masks in public spaces and on means of public transport.

Construction Works

• While the lockdown significantly reduced the mobility of persons, it provided little restrictions in the range of work activities that could be done (dental work, non- emergency medical interventions, hospitality and in-house food service).
• As of the writing of this article, there have only been a few major construction works delayed and, anecdotally, some projects are in fact moving faster than scheduled, such as bridge and road construction, taking advantage of reduced traffic. DIY works are also reported to be ongoing, with furloughed workers from other industries taking advantage of the time at home to engage in renovation works, with a noted increase in online sales of DIY retailers.

Factors limiting the construction sector’s performance

• Initial concerns over construction material availability have been raised. However, as of yet, no major shortages have been reported. Some manufacturers noticed a reduction in direct sales to individuals, however, B2B material sales have continued at comparable levels and online sales have increased.
• Occasional worker shortages have been reported, as some workers have taken medical leave or used vacation days, especially in the early stages of the lockdown. Fortunately, no major shortages have been reported due to the infection.
• At the same time, other companies have had to let employees go, with 37.750 work contracts in construction having been terminated from the start of the emergency period as of 29th April.
• Lack of interest in investment is expected, especially in the hotel and restaurant segments, which will likely reduce demand in the current year. With slim changes of reopening for the summer season, tourism related construction is expected to be postponed.
• Trends in office construction are also expected to change, with working from home on the rise and open office plans under scrutiny.
• Lack of public funding could have a major negative impact on construction activity once the initial blow of the pandemic passes. Many county governments and city halls have used a large portion of their investment funds for measures aimed at reducing the spread of the virus, and thus there remains little for projects like infrastructure development or renovation. On national level, according to several governmental agencies, public deficit is set to reach 6.7- 7.3% of GDP in 2020 and economic growth is to be stunted, with a decline of at least 1.9-4.7% of GDP.
• Lack of private funding is also a major concern, with many companies losing significant resources and burning through their savings and credit lines.
• At the same time, more than 1 million Romanians have had their work contracts suspended and 270 thousand lost their jobs since the state of emergency was instated (as of 29th April) and thus their spending power would have been significantly diminished.
• Real estate transactions are showing signs of slowing down, with March 2020 seeing 4.6% fewer houses and 11.7% fewer apartments traded compared to the previous month. The market remained 8.5% more active than March 2019, however.

Anticovid measures in construction

• The government is providing the resources to pay 75% of the initial wage for those with suspended contracts, helping public consumption remain afloat, with a positive impact on companies trying to retain qualified workers and maintain their cash-flow.
• A RON 15bln program to support small and medium enterprises ("IMM Invest") was launched on 28th April, providing state-backed loans for investment and working capital.
• EUR 750mln have been allotted from EU funding for Romania for supporting small and medium enterprises, with a further EUR 300mln for assisting workers with suspended contracts.
• The government's economic recovery plan takes into account using infrastructure construction to boost the economy (which would increase the deficit even further). However, as of the writing of this article, no plan has been approved, and so the impact it would have cannot be assessed.
• The government backing of mortgage loans for first time home owners is expected to continue into 2021, rebranded as "One family, one home" (Romanian: "O familie, o casa"), which should help counter some of the negative effects on the residential market. Its impact on the market diminished in 2019, with regular loans becoming almost as affordable, but it comprises a large portion of the segment nonetheless, since the program covered 45% of all ongoing mortgage loans in March 2019.