• Dec 21, 2023
  • 10 min read

Outlook for the Construction Industry

We get the insider opinions of Sergiu Coman and Eugeniu Dedko, CEO and technical maintenance engineer respectively, of the international real estate developer and construction company Kirsan Group. 

If we are to believe articles on the internet, the construction industry is having a tough time, with different experts quoting a number of reasons ranging from the conflict in Ukraine and the global energy crisis. Do you feel the same way on this? 

Sergiu: The experts’ opinions obviously have a basis in truth, but the construction sector has always been subject to its inherent cycles, with crisis periods, and boomerang-like returns to growth.  

To explain, we regularly get housing shortages. Seeing that level of housing demand leads to an increase in construction again. This often leads to a balance between supply and demand over 3-4 years. In the fifth to seventh years, demand begins to be satisfied, and by the eighth year we are getting into an oversupply situation, nibbling at the heels of the construction companies.
 
Thus, every 8 years, a cyclical downturn - crisis, even - occurs in the construction industry.


We saw this in 1992, again in 2000, then in 2008, in a smaller way in 2016. This makes it likely that the next downturn will come around 2024, and the years preceding it, 2022 and 2023, will be periods of recession.

The current military situation in a neighboring country or the energy crisis that everyone is talking about today may affect the overall situation in this area, but only slightly, no more than 5-10%. And the fact that they occur at this stage of the recession is more a coincidence than real reasons.

After 2024, the rise will slowly begin again. The country's economy is also always focused on construction. When construction begins, prices for real estate and services rise, the economy begins to take off.

At the same time, let me draw your attention to the fact that ever since the pyramids were built, real estate has always been needed. And it will continue to be needed. The development of the construction industry will never stop. The number of people on the planet is growing, therefore, new houses are needed. The average lifespan of a building is 100 years, which means the real estate stock must be renewed. Demolitions are taking place, new buildings are being created, a new page in the development of this industry is opening, and so on and on.

During a crisis, many construction companies cannot cope - they either curtail their activities or struggle to avoid bankruptcy. Are you able to maintain the sustainability of the company during this time? Do you have your own strategy?

Sergiu: I think today we can confidently say yes. Throughout the entire period of the company's existence, we worked quite a lot and purposefully on this, carefully analyzed all stages of construction, studied the main problems that arise at each stage, and selected solutions that help optimize the process as much as possible. And today we are ready to share our successful experience.

If we take a closer look at this topic, what achievements do you have? For example, starting from the first stage - design?

Sergiu: Design is a complex and important stage. It depends on how correctly it is carried out whether the planned project will be implemented or will remain an unfinished object in which significant capital investments were made in vain.

For such calculations, each builder has his own control program - someone writes them down in notebooks or, for example, enters them into Excel on a computer, as is done most often. We successfully solve the problems of the design stage by organizing construction management processes.
Eugeniu will tell you about this in more detail.

Eugeniu: Our architectural designs are created using building information modeling processes – Building Information Modeling, or “BIM”. This is a new technology widely used in many countries.

BIM helps create a 3D model of a construction project (in some projects both 4D and 5D), using data from its geometric, physical and functional characteristics. Based on its calculations, appropriate decisions are made both at the stage of project creation and at subsequent stages of the life cycle of a construction project.

If we talk about this process more clearly, then any construction begins with the acquisition of a land plot, and the main task of the developer is to develop it as efficiently and cost-effectively as possible, to understand which object is best to build on this site and how much certain types of work will cost.

It could be, for example, that frame construction might be more appropriate than deep foundations. These are hidden factors that the average consumer or novice builder may not be aware of. And as a result of such unaccounted data, construction may come to a standstill or cost much more than planned.

SA computer-aided design system allows the designer to create a project and connect to it all the subcontractors who are involved in networks, monolith or other construction processes, work together in one file and extract a lot of data from there.

Sergiu: In addition to this system, we have developed our own software product, a construction calculator. This program quickly calculates the costs of construction services and building materials as well as other components in the project, and leads us to a project cost, giving us a budget that we can use.

Eugeniu: This calculator is a really brilliant additional tool. Before the start of design, it can be used to calculate the economics of the project, and if we are satisfied with the profitability, then the project is sent for development. After developing the project, we use this calculator to obtain an even more detailed estimate.

That is, the planning stage begins.

Sergiu: Yes, indeed. At the moment, this stage is considered quite protracted. Construction companies waste a lot of time on calculations and attract many qualified specialists from other fields to do this. As a result, it turns out that the planning process can drag on for months.

Thanks to the construction management system we have developed, we can get the answer we need literally in a day or so, which is so many times faster and better.

Eugeniu: We have three payment categories. The first is at the stage when the project does not yet exist, there is only a plot of land. We need to calculate some initial economics, understand how we can most successfully develop this area. Then we make an enlarged calculation, but more detailed, consisting of stages, here we already lay down initial budgets. And there is already a detailed estimate that we receive based on the finished project and which we can use as a guide during the implementation process.

What improvements do you use during the implementation phase of a project?

Sergiu: Here we also take the time factor as a basis. Over our years of experience, having achieved good results in the quality of construction, we now place emphasis on speed, which directly affects the turnover of funds.

Eugeniu: We build in a shorter period of time, which means we spend less money during a project’s construction. The shorter construction time also affects the end price for the consumer, and it’s a great advantage that this turns out to be significantly lower.

Sergiu: For example, we now have ready-made solutions such as building Swiss-style houses in 90 days in our Swiss Village eco-residence project. 

Fast and high-quality construction of houses is ensured by modern technology, which has no competitors in Moldova.

First, reinforced concrete elements for the foundation and the entire structure of the house are produced at our factory, then they are delivered to the site where the assembly, installation and creation of a monolithic structure is carried out. The last stage is roof and facade work, installation of windows and doors - and the house is ready.

Eugeniu: I would like to add that at the project implementation stage we continue to use a computer-aided design system, which simplifies the control of construction processes. With its help, we monitor the object and record the results achieved, our progress.

Sergiu: In the future, we plan to develop similar models of ready-made calculations for any hotel, residential complex or private house. Such developments are our innovation, which we are ready to offer as a franchise to interested construction companies.

Now, for example, partners from Bulgaria have approached us; this is our first experience in this direction. They are preparing a local developer to obtain a franchise to build residential buildings similar to the Swiss Village houses.

By purchasing a franchise, the company will receive ready-made solutions in the design of similar low-rise residential buildings. They will be able to use our developments, architectural plans and other additional options, receive full technical support in construction management, from design to the formation of requests for materials and services, calculation of construction schedules, monitoring, reporting and write-off of materials.

Very interesting approach! Let's take a closer look at the issue of pricing in real estate. At the moment this process seems unmanageable.

Sergiu: Absolutely right. Observing these processes, not only in Moldova, but also in European countries - Germany, Switzerland, Spain - the same approach can be traced. The builder issues an invoice for the amount that the customer’s status allows. That is, the cost of construction services is determined based on the brand of car the buyer drives. This creates more uncertainty in the actual cost of construction services.

For example, you know the cost of a loaf of bread because its main ingredients are water and flour. Therefore, on the counter the prices for bread are almost the same. But real estate prices fluctuate; one builder builds and sells a property at a higher price, another at a lower price.

Our team and I have set ourselves a big goal and a huge task - to standardize pricing services for construction so that they are a ready-made and understandable solution for any market.

Due to the maximum optimization of processes, we were able to achieve the real cost of construction, not inflated for any reason, on the basis of which we form reasonable, understandable and affordable prices.

In addition, the volume of construction also plays a big role. For example, the cost of a burger prepared at home is 3-5 times higher than what is sold by companies like McDonalds.  Because they worked long and hard on the processes and calculated to decimals of a cent. As a result, their product is always cheaper, and this is how they captured their audience.

We hope that we will soon have the same results in construction, and we are confident that many companies will pay great attention to this.

That brings us to the issue of construction financing. Perhaps attracting investment is one of the most pressing problems today?

Sergiu: Indeed, we are faced with this in the current great wave of crisis. The pandemic, then the situation in Ukraine, created a funding gap. Banks have closed offers on loans for construction. Now we are working around this financial barrier to create the right support for the project, with a good turnover of funds, so that this process works like clockwork, advancing the project.

These are tools such as a franchise, as well as the opportunity to attract and actively participate in investors’ projects. Working to improve processes, in particular in construction management, we are creating the most transparent mechanism that eliminates unprofitability of projects, makes them attractive to the general population and, through the correct pricing policy, creates a good financial cushion.

In the near future, we want to provide the opportunity for any user to participate in the housing construction process, like on some kind of stock exchange, using available analytical programs. Now they are at the development stage, but in the future any buyer or investor will be able to really see all the indicators, starting with construction plans and ending with reporting and the final amount of profit.

It seems that the concept you have developed has a great future. Do you think your competitors will allow you to gain a foothold in the market with your offering?

This may sound unexpected, but we have no competitors in the market. We create projects ourselves, build them ourselves, sell and manage them ourselves. We have a closed cycle of creating real estate, and it is open only to investors who today want to invest in good ready-made projects. We do not sell our service to third parties; we offer a price from the manufacturer, quality proven by years of experience and optimal timing, allowing you to become the owner of a home in a very short time.
This is our innovation, which is already working successfully at the moment, and I am sure that it will make itself known widely and for a long time in the very near future.

www.kirsangroup.com