Insolvencies in the construction industry in France: interest rates are key

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Insolvencies in the construction industry in France: interest rates are key


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Coface focus on insolvencies

Since the lower of 2014, glimmers of data recovery being noticed in the construction industry. Business insolvencies are decreasing. French households are increasingly attracted by bricks and mortar because their purchasing energy is at its strongest since 2003, particularly considering interest levels also staying at historic lows. But interest levels, that have been increasing considering that the start of year, could finally put a damper on household spending should this trend continue. So, if corporate insolvencies inside building industry continue to drop from now into end of the year (-7.7% typically in 2017 based on Coface), the power of households to get new property will begin to fall by 9 m2 in 2017. Coface needs to see a 18m2 decline in buying power between 2016 and 2018. This means that I will be back into 2012 levels in mere two years. The existing recovery may undoubtedly be temporary.

The industry finally recovers regarding straight back of low interest rate rates

With the average upsurge in business insolvencies of 4.2per cent each year, 137,520 companies moved broke between 2008 and 2014, successfully 1 / 3 of most French bankruptcies (415,000).

This trend ended up being significantly reversed in 2016 with a decline in insolvencies of 6.8per cent, particularly in crafts (cf. chart 1). The maximum improvements came within the aspects of plumbing work (-15.1percent) and tiling (-16.3percent) which respectively account fully for 7% and 3.6percent of insolvencies in what is a fragmented industry. Real-estate companies (4percent of insolvencies on the market) also benefited out of this data recovery (-14.8%). Specifically, the sales market for used housing is less powerful (+5.6per cent in 2016) than that for new-build housing (+20.6%) in line with the Ministry of Environment, Energy and Sea. Craft positions employees (flooring

coverings, joinery, roofing) straight associated with creating brand new housing are, in most cases, exceptional worst downturns. On top of that, the gross margin of1 organizations within business increased by 5.3per cent over 12 months at the end of the next quarter of 2016. The margin price had been 23% at the end of 2015 in line with the Fédération française du bâtiment (French Building Federation)2. This recovery in addition has generated an increase in ability utilisation rates inside sector: 86.1% typically in 2016 weighed against 84.3percent in 2015 (but definately not the common of 92.5per cent recorded between 2001 and 2008). This case has therefore improved notably, giving players within the construction business an average of 6.8 months’ work. At the conclusion of February 2017, housing starts and permits authorised increased correspondingly by 13% and 14.4per cent over one year. This good performance led Coface, in March 2017, to change its credit threat assessment of the construction sector3 to typical risk4.

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