Construction has been hit by “profit declines” due to rising material and compliance costs, amid a negative sentiment about future business conditions.
An analysis of profit trends by the Central Bank found that construction firms were more likely to report profit declines in 2023 and 2024 because of cost hikes.
These costs have “increased considerably” and hence firms that were unable to raise prices for their services experienced lower profits.
By contrast, real estate firms broadly reported stable profits in both years as costs did not change significantly, the Central Bank said.
Despite reporting resilient demand in property sales and letting, the construction sector continued to report relatively low demand for new projects.
Moreover, stronger regulations have made the conduct of business more challenging, the Central Bank report said.
The construction and real estate sector also reported the least favourable outlook in terms of future business activity.
These firms, however, still expect stable economic conditions over the next three months, despite what the Central Bank reported as challenges related to costs, bureaucracy and increased scrutiny by regulators.
A tightening of regulatory standards in the construction sector in the wake of the Jean Paul Sofia building collapse fatality has introduced new rules, like licensing for contractors and builders.
The Malta Development Association, a construction lobby, said last month that demand for property was “constantly increasing” and it was therefore important to address bureaucracy issues.
Worker availability was another challenge highlighted in the report.
In the construction and real estate sector, 43% of respondents highlighted the availability of skilled labour as a significant challenge, while another 43% pointed to finding customers as a major difficulty.
The report says construction firms are planning investments to diversify their revenue streams amid the market challenges. Challenges faced by the construction industry come amid a general decline in business sentiment across the board.
Business sentiment towards commercial activity in the last quarter of 2024 reached its lowest levels since 2021, the report found.
Some 9% of companies reported an improvement in business conditions over the preceding quarter, six percentage points less than the quarter before and 25 points less than the same period in 2023.
Expectations for improving conditions over the next three months, meanwhile, dropped to their second lowest levels since 2021, falling to 20% of companies – a drop of 17 percentage points from the previous quarter.