Sharp decline in confidence...
Sharp decline in confidence amongst privately held businesses in the construction and real estate sector
Research from the Grant Thornton International Business Report (IBR) reveals that privately held businesses (PHBs) in the construction and real estate sector are markedly less confident regarding economic prospects for the year ahead than they were in 2008. A net balance of -20% said they were optimistic about the prospects for their country's economy in 2009 compared with +47% in 2008. Across all sectors, optimism declined to a net -16% from +40% in 2008.
Of the eight sectors featured in the IBR 2009 sector focus series, only businesses in the transport sector (-39%) were less optimistic than construction and real estate while retail was level on -20%.
The greatest concerns driving the decline in confidence for businesses in the construction and real estate sector are the shortage of business credit (cited by 32% of businesses) followed by fall in consumer demand (24%).
Globally, the construction and real estate sector has encountered tough conditions over the past year. Having worked through any backlog following the sustained period of robust expansion over the past few years contractors are now experiencing falling orders. In many countries the sector is facing a marked contraction with businesses shedding jobs for the first time in many years.
In Japan the industry is suffering from the decline in overseas investment. Says Eiten Inamura, partner, Grant Thornton Japan, "Resources for investment in Japan have diminished as North American firms repatriate funds exacerbating the credit crunch affecting the sector. Banks are holding off refinancing matured loans for property developers and real estate investment trusts and funds. As a result, a number of listed Japanese companies in property development went out of business in the last six months even though many reported huge income."
The story is similar in the UK but there is hope that once the upturn comes the sector may be stronger. "Uncertainty is undermining confidence with the lack of credit and stringent lending criteria inhibiting activity. Overall tougher conditions in the property market means that people who dabbled in property during the boom times, when the going was easy, will exit the market leaving it to the seasoned professionals once more." said Clare Hartnell, partner, Grant Thornton UK.
Some tips for survival:
• reduce operational costs, but try to avoid cuts that will hurt later
• tight cash flow management
• investigate possibilities in new markets
• try to get extended terms from suppliers
• keep the work force together even if it means pay cuts and reduced hours
• consider asset management where recurring fee income can be obtained
• capitalise on the steep fall in prices by storing up cash to get a good deal at low cost when the time is right.
The Grant Thornton International Business Report is an annual survey of the views of senior executives in privately held businesses all over the world. Launched in 1992 in nine European countries the report now surveys over 7,200 PHBs in 36 economies providing territory, regional and global trend data on the economic and commercial issues affecting a sector often described as the 'engine' of the world's economy. Data for eight key industry sectors will be available for the first time in 2009. The research is conducted by Experian Business Strategies Ltd. Grant Thornton International donates US$5 to UNICEF for every completed IBR questionnaire, a donation of over US$39,000 in 2008.
To find out more about the Grant Thornton International Business Report, please visit www.internationalbusinessreport.com
(To read the IBR 2009 sector report on the construction and real estate industry, please click on the link below.)