House building set to increase but builders still on tight profit margins

Large construction companies are not seeing their profit margins improve despite the continuing improvement in the housing market, Rabobank analysts said on Thursday.

According to the bank, construction will increase nearly 4% over this year and next, but over-capacity in the market means margins will remain flat.

‘Building firms had to lower their prices considerably during the economic crisis in order to stay in favour with large companies and to keep enough work,’ Leontien de Waal, construction sector specialist at Rabobank, told the Financieele Dagblad. ‘They are now quickly raising their prices.’

The bank says it expects the construction of new housing to increasing 8% this year, and builders who have invested in land in good locations will be the first to see profit margins improve.

However, other sections of the construction sector will lag behind. In particular, infrastructure projects will be thin on the ground with both central and local government cutting budgets throughout 2015.