Lack of finance ‘hitting construction’

Overwhelming positivity over the future of the construction industry is being tempered by a severe lack of finance with almost two-thirds of industry leaders citing it as the biggest impediment to growth.

More than 60% of construction sector business leaders identified securing finance for projects as the biggest challenge they face in attempting to develop their business against the improving economic back-drop.

The funding shortage has forced many construction companies to look to other sources of finance to fund projects, with private equity by far the most popular.

According to research carried out by PricewaterhouseCoopers (PwC), more than 80% of construction firms have turned to private equity in the last two years, with a joint venture and accessing Mezzanine finance other popular options.

A number of other aspects, including burdensome building regulations, competitive project pricing and issues with the planning regime are also acting as impediments to growth in the sector, according to PwC tax partner, Ronan MacNioclais.

“The survey highlights that access to finance, onerous planning and building regulations and uneconomic development prospects may be contributing to the low levels of planning applications compared to demand. There needs to be an equilibrium between the cost of building, price and sensible regulation,” he said.

The manifestation of these issues can be seen in a drop-off in planning permissions granted in 2015 thus far this year, Mr MacNioclais added.

“There are concerns that the permissions granted thus far in 2015 are below those in the third quarter 2014 and that this will have a knock-on effect on an already supply constrained market.

“From a foreign direct investment perspective, it is also important that high-end office space is readily available,” he said.

Nearly half (45%) of respondents to the survey are having difficulties recruiting certain types of individuals with specialist skills including contractors (78%) and site managers (44%). Despite the challenges the industry continues to face, optimism is high among business leaders with 95% favourable about the outlook for their sector for the next three years.

Almost nine in 10 expect turnover will increase in the year ahead of which nearly two-thirds expect their turnover to rise more than 10%.

Over two-thirds (68%) expect to increase employee numbers of which nearly half (44%) are planning to increase the workforce by more than 10%.

However, 12% still plan to reduce their workforce.

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