(Finance) – I European real estate developers will face a difficult period, as a number of external factors threaten to hit their margins in the next 12-18 months. Rising interest rates and inflation could depress sales volumes as the market relies heavily on mortgages and, to a lesser extent, household savings. Furthermore, the Russia-Ukraine conflict and supply chain problems global costs and material shortages are increasing, which will delay projects. This is what emerges from a new report by S&P Global Ratings, which analyzes the impact of the current macro environment and a rise in interest rates on European real estate developers.
Rising construction costs, labor shortages, land shortages and supply chain challenges continue to hamper the delivery of housing units. In addition, increasing environmental and safety requirements fuel the demand for new construction, but also account for additional costs and technical challenges for builders.
All of this makes it likely that European real estate developers and developers will see increasing pressure on revenues and margins, as they could struggle to pass on increased costs to customers.
Companies in the sector are particularly exposed to the prices of steel, plaster and concrete, which have increased significantly since the beginning of the Russia-Ukraine crisis. L’power it represents a smaller share of costs (5% -10%), but its current price expansion is exacerbating the inflationary pressure.
Fewer people will be able to afford new homes as prices continue to rise faster than wages and interest rates are rising. “The builders of houses they will struggle to cut prices as sales volumes are already under pressure – says S&P – Therefore, we expect that margins could contract, but especially in 2023 because most of the costs with contractors are already insured for 2022 and the impact should be delayed towards next year “.