Pandemic housing boom leads to lower homebuilder liquidations

Despite a reduction in the number of homebuilders in liquidation during the pandemic, the market share of new homes built by SMEs has fallen.

Market analysis by property debt advisory specialists Sirius Property Finance examined the level of liquidations in the construction industry, specifically the residential and non-residential building construction sub-sector.

Data shows that across Britain there has been a steady increase in this figure since 2016 in relation to compulsory and voluntary liquidations.

Between 2016 and 2017, the total number of liquidations increased by 8%. Between 2017 and 2018, there was a further increase of 19%. This was followed by a 22% annual increase from 2018 to 2019.

However, in 2020, when the first Covid epidemic hit the country, the number of homebuilders in liquidation saw a -38% drop.

Nicholas Christofi, Managing Director of Sirius Property Finance, said: “There are a number of influences that could have led to this drop in clearance levels. a boom in the real estate market which will have helped to increase profit margins considerably and it will have helped many to better negotiate an otherwise difficult period.

“At the same time, we have seen a series of government initiatives implemented, such as the furlough scheme, to help businesses overcome the financial difficulties of the past two years. This will certainly have helped many companies who otherwise might have failed to survive.”

However, despite this positive development, it is believed that the number of SMEs operating in the sector has decreased. Earlier research from Sirius Property Finance found that since the late 1980s the estimated share of homes built by SMEs across England has fallen from around 77,500 a year to just 19,500 – a reduction of 28% , they represent only 12% of all the houses built.

The latest look at the market share of SME home builders estimates that this has further declined in 2020 to just 14,789 new homes per year, or just 10% of the total market. A trend that Sirius Property Finance believes may continue as we move forward.

Nicolas Christofi, continued: “Many SME homebuilders will not have had the cash reserves that their larger industry counterparts would have, which means they simply have not been able to weather the challenges posed by the coronavirus pandemic. the same way. When you also consider the widespread supply issues caused by the pandemic and the extended duration of the planning process itself, it has been much more difficult for small and medium-sized businesses to dust themselves off and start building again.

“However, there are new and emerging financing methods that are more suitable for SME founders and these options help them overcome the financial pressure of the past two years.

“Traditionally property development has relied on simple bank debt. Yet we are now seeing much more innovative ways of financing a building project and specialist lenders competing head-on with high street banks. These resources are now more competitive , with better terms and , often much faster to deploy and so it’s likely to see SMB developers fighting back fiercely over the coming year.

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