THE BANKRUPTCY of Jukkatalo, the second largest manufacturer of semi-detached and detached houses in Finland, has made many recognise the troubles of the construction industry.
The over 50-year-old company submitted its bankruptcy petition with the District Court of Oulu on Monday, 28 August. Having reported a loss of 4.6 million euros on revenue of 95 million euros in 2022, it is the largest of the hundreds of construction companies that have entered bankruptcy proceedings this year.
“We had a solid order backlog that we had to supply to consumers at a price that the projects were loss-making for us,” Ilkka Sydänmetsä, the managing director of Jukkatalo, commented to STT.'
Helsingin Sanomat has reported that bankruptcy proceedings were initiated against roughly 270 construction companies in the first roughly six-and-a-half months of the year. The struggles appear to have intensified during the summer holidays, with more recent data obtained by the newspaper showing that almost 390 construction companies had been declared bankrupt by 29 August.
Jouni Vihmo, the chief economist at the Confederation of Finnish Construction Industries (RT), told YLE on Monday that the industry is set to go from bad to worse in the last few months of the year judging by the declining number of construction permits.
“I’m sure that there’ll be more bankruptcies. We’re in a downward slide that resembles the financial crisis, possibly in an even harder situation. In the middle of the financial crisis, it was possible to stimulate the industry with state-subsidised production by [the Housing Finance and Development Centre of Finland] ARA,” he said.
“But now that doesn’t seem so simple.”
Another indication of the state of the industry was received on Monday. Nasdaq Helsinki granted Lehto Group’s shares observation status on grounds of uncertainty with respect to the financial position of the long-troubled construction company.
Vihmo stated to the public broadcasting company that he expects housing production to halve this year – with construction to kick off on about 20,000 units – and remain in the doldrums next year. VTT Technical Research Centre of Finland has estimated that annually about 35,000 units will have to be built due to increases in single-person households and urban populations.
The drop in construction projects applies across building types, from blocks of flats to terraced and single-family houses.
“The situation is historically bad. We haven’t seen this few single-family houses built for more than 50 years,” Kimmo Rautiainen, the head of the Finnish Association for Manufacturers of Prefabricated Houses (PTT), stated to YLE on Monday.
Between April and June, the number of permits granted to residential construction projects declined by 58 per cent year-on-year when measured in floor space and by 62 per cent when measured in the number of units, according to Helsingin Sanomat.
Vihmo said to the newspaper he is not surprised by the wave of bankruptcies in light of the headwinds faced by the construction industry: the prices of construction materials have soared, consumer confidence has deteriorated and both consumers and investors have pulled back on investment due to rising interest rates.
RT in March estimated in its market review that the situation would start improving imminently, predicting that construction output would decline by 3.5 per cent for the year. The latest data are indicative of a much more dramatic decline, Vihmo said on Thursday.
“The thinking was that the cost and interest rate development would cool down and the situation would turn around at the end of the year driven especially by residential construction. That won’t be happening,” he retorted.
Although it is theoretically possible that consumers return to the real estate market toward the end of the year year, a broad-based recovery will hinge largely on investors, indicated Vihmo.
“If you look at residential construction in recent years, as much as 70 per cent of demand has come from the investor side. There are no signs that the situation is set to start improving on that side,” he remarked.
Next year is already a lost year for the construction industry, Timo Vikström, the board chairperson at RT, stated in an interview with Helsingin Sanomat on Saturday.
“Measures that would’ve helped the industry should’ve already been adopted,” he said, reminding that the residential construction projects take at least a year to complete. “That’s why in construction we’re already talking about 2025.”
Consisting of about 10,000 companies, the construction industry provides employment directly to 200,000 and indirectly to over 500,000 people in Finland. About 20,000–30,000 employees in the industry will lose their jobs in 2023–2024, predicted Vikström.
He also called attention to the concentration of construction activity in Uusimaaa, Pirkanmaa, Southwest Finland and North Ostrobothnia.
“Next spring, there won’t be construction in this country. In 2025, some growth centres will then have a housing shortage,” he predicted.
Lawyer urges house buyers to do their due diligence
Kristel Pyynnönen Andersson, a legal advisor at the Consumers’ Union of Finland, told YLE on Monday that consumers can continue to order prefabricated houses as long as they do their due diligence about the financial situation of the supplier.
“Jukkatalo, for example, had quite a lot in tax debt. There’s something wrong with a company if it hasn’t paid its taxes,” she said.
Consumers, she advised, should request a tax debt certificate either directly from the company or the Tax Administration. It is also worthwhile to request credit information from the supplier or Asiakastieto.
“If everything is in order, one would think that the other contract party has no problem demonstrating that,” she said to the public broadcasting company.
Aleksi Teivainen – HT
