Construction market booms in Eastern Europe - Industry Overview

Business America, Sept 6, 1993 by Monica Michejda Goodrich

Progress in the housing and construction sector is fundamental to economic growth and stability in Central and Eastern Europe. As these countries emerge from decades of centralized control, they must cope with a wide range of problems in this area, including severe housing shortages, poorly constructed and maintained housing stock, and lack of adequate financing. However, throughout Eastern Europe, changes in this key sector are already taking place.

Updates follow on the current situation in several of the countries in the region. For more information and individual country reports, contact the Commerce Department's Eastern Europe Business Information Center (EEBIC) at (202) 482-2645.

Czech Republic--To overcome the lack of affordable housing and office space, a building and renovation boom is currently taking place in the Czech Republic. This nation needs help from the United States in the planning, building, and renovation of commercial developments such as shopping malls and business centers, which are in growing demand and offer foreign investors extensive opportunities.

Across the board, the Czech market for building materials is comprised of nonstandard products in a narrow array of selection. Many products are custom-made and imported, providing many possibilities for U.S. goods and services in the building materials and furniture sectors. Some products that cannot be found in the Czech Republic in suitable quality or quantity include: carpeting, vinyl wall coverings, vinyl floor coverings, vinyl wood baseboards and trims, kitchen cabinets, standardized doors in frames, hollow metal door frames, thresholds, doorstops, standardized windows in frames, builders hardware, acoustic and grid system ceilings, lighting fixtures, paints, joint compound, caulking, tile, drywall and materials and tools to install them, bathroom toilet stalls, chrome pipes and fittings, security systems, and office furniture. The demand for these materials continues to increase as a growing number of foreign companies set up offices in the Czech Republic and want offices that are constructed and finished to a Western standard.

American firms already operating in the Czech Republic are selling office furniture, paints, coatings, and carpeting. All report brisk sales and are at an early stage of their marketing plans. Each recommends starting with a narrow range of products, developing the market, and expanding gradually into wider product lines.

Hungary--The outlook for the Hungarian housing and construction market is a combination of excitement and uncertainty. While the residential, hotel, and office sectors are all undersupplied, the state-owned housing and construction companies are still falling into insolvency. However, the enterprising private sector is emerging to play an increasing role. Forecasts indicate that the country's construction market should grow by 5 percent this year after experiencing a decline in 1992.

One of the major areas for growth in the construction market is the hotel industry. At present, there are only 10,000 luxury hotel beds in all of Hungary. This lack of accommodations is a reflection of the low number of tourists and business persons who visited Hungary prior to the sweeping change in Eastern Europe. There has been an inevitable increase in visitors as the reform and privatization processes proceed.

World Expo '96 is going to be held in Hungary in three years. To accommodate the estimated 10-12 million visitors, more than 100 acres of land adjacent to the site have been set aside for new hotels and other development.

Another boom area is office construction. It is estimated that by next year almost a million square feet of high quality, prime location office space will be required to maintain the city's status as a viable business location for foreign companies. Current office development plans show that only about three-quarters of this demand will be met by 1995.

Finally, there is the residential market, which is unfortunately still rather sluggish. Even though housing is in short supply, growth in the industry is slow. However, the introduction of Western productivity could reduce supplier cost and enable a construction company to lower costs and still be profitable.

This outlook, while not ideal, still paints a picture of an industry poised for growth. Wise Western investment in housing and construction should prove profitable.

Poland--Although construction output in Poland is still down, the building materials industry is up by over 100 percent, and the future of housing in Poland is beginning to brighten. Several factors provide hope for the Polish building and construction industry.

The introduction of a modern banking system that helps finance this sector provides short-term credits to Polish developers for financing single-family housing projects and long-term mortgage financing to the buyers of those homes. In addition, the emergence of a private sector and the movement toward a free market contribute to the industry's growth. The private sector now accounts for more than three-fourths of all construction.